----

----

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

----

| Part I. Financial Information: | PAGE                                                                                                           |
|--------------------------------|----------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                           |   |   |
|                           | ITEM 1.  Financial Statements:                                                                       |   |
|                           | a.                                                                                                             | Consolidated Balance Sheets, June 30, 2010 (unaudited) and December 31, 2009 | 3 |
|                           |                                                                                                           |   |   |
|                           | b.                                                                                                             | Consolidated Statements of Operations for the three months ended June 30, 2010 and 2009 (unaudited) | 4 |
|                           |                                                                                                           |   |   |
|                           | c.                                                                                                             | Consolidated Statements of Operations for the six months ended June 30, 2010 and 2009 (unaudited) | 5 |
|                           |                                                                                                           |   |   |
|                           | d.                                                                                                             | Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2010 (unaudited) | 6 |
|                           |                                                                                                           |   |   |
|                           | e.                                                                                                             | Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited) | 7 |
|                           |                                                                                                           |   |   |
|                           | f.                                                                                                             | Notes to Consolidated Financial Statements (unaudited) | 8 |
|                           |                                                                                                           |   |   |
|                           | ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
|                           |                                                                                                           |   |   |
|                           | ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk                                   | 49 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4.  Controls and Procedures                                                                     | 50 |
|                           |                                                                                                           |   |   |
| Part II. Other Information:    |                                                                                                           |
|                           |                                                                                                           |   |   |
|                           | ITEM 1.  Legal Proceedings                                                                           | 50 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4.   Removed and Reserved                                                                  | 52 |
|                           |                                                                                                           |   |   |
|                           | ITEM 5.   Other Information                                                                     | 52 |
|                           |                                                                                                           |   |   |
|                           | ITEM 6.  Exhibits                                                                                    | 52 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Signatures | 52 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Certifications | E-31.1 |

----

CONSOLIDATED 

|                                                                                                                                                                   | June 30, 2010                                |   | December 31, 2009                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|----------------------------------------------------|
|                                                                                                                                                                   | (Unaudited)                                  |   |                                               |
| ASSETS                                                                                                                                                                 |                                         |   |                                               |
|                                                                                                                                                                   |                                         |   |                                               |
| Current assets:                                                                                                                                                        |                                         |   |                                               |
| Cash and cash equivalents                                                                                                                                              | $  3,666,640                       |   | $2,116,788                                         |
| Restricted cash                                                                                                                                                        | 39,000                                       |   | 78,000                                             |
| Accounts receivable, net of allowance for doubtful accounts of $538,000 and $400,000, respectively                                                                     |  3,150,207                              |   | 3,998,785                                          |
| Inventories, net                                                                                                                                                       | 6,638,953                                    |   | 7,002,850                                          |
| Prepaid expenses and other current assets                                                                                                                              | 733,512                                      |   | 345,673                                            |
| Total current assets                                                                                                                                                   | 14,228,312                                   |   | 13,542,096                                         |
|                                                                                                                                                                   |                                         |   |                                               |
| Property and equipment, net                                                                                                                                            | 8,722,081                                    |   | 9,293,482                                          |
| Patents and licensed technologies, net                                                                                                                                 | 7,280,151                                    |   | 7,751,662                                          |
| Goodwill                                                                                                                                                               | 19,569,200                                   |   | 19,472,686                                         |
| Other intangible assets, net                                                                                                                                           | 1,818,354                                    |   | 2,020,625                                          |
| Other assets                                                                                                                                                           | 1,019,393                                    |   | 1,087,595                                          |
| Total assets                                                                                                                                                           | $ 52,637,491                                 |   | $53,168,146                                        |
|                                                                                                                                                                   |                                         |   |                                               |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                   |                                         |   |                                               |
|                                                                                                                                                                   |                                         |   |                                               |
| Current liabilities:                                                                                                                                                   |                                         |   |                                               |
| Current portion of notes payable                                                                                                                                       | $      344,694 |   | $       129,696 |
| Current portion of long-term debt                                                                                                                                      | 2,002,556                                    |   | 3,179,469                                          |
| Accounts payable                                                                                                                                                       | 3,809,746                                    |   | 4,171,707                                          |
| Accrued compensation and related expenses                                                                                                                              | 875,577                                      |   | 1,133,346                                          |
| Accrued interest payable                                                                                                                                               | 583,628                                      |   | 499,200                                            |
| Other accrued liabilities                                                                                                                                              | 1,607,807                                    |   | 1,601,414                                          |
| Deferred revenues                                                                                                                                                      | 640,040                                      |   | 612,757                                            |
| Total current liabilities                                                                                                                                              | 9,864,048                                    |   | 11,327,589                                         |
| Long-term liabilities:                                                                                                                                                 |                                         |   |                                               |
| Notes payable                                                                                                                                                          | 30,391                                       |   | 46,477                                             |
| Long-term debt                                                                                                                                                         | 2,062,461                                    |   | 760,783                                            |
| Convertible debt                                                                                                                                                       | 18,332,881                                   |   | 17,369,943                                         |
| Warrants related to convertible debt                                                                                                                                   | 839,481                                      |   | 741,525                                            |
| Total liabilities                                                                                                                                                      | 31,129,262                                   |   | 30,246,317                                         |
|                                                                                                                                                                   |                                         |   |                                               |
| Stockholders’ equity:                                                                                                                                            |                                         |   |                                               |
| Common stock, $.01 par value, 35,000,000 shares authorized; 2,772,637 and 2,238,153 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively |  27,726                                 |   | 22,382                                             |
| Additional paid-in capital                                                                                                                                             | 142,231,194                                  |   | 138,639,143                                        |
| Accumulated deficit                                                                                                                                                    | (120,917,146)                                |   | (115,840,931)                                      |
| Accumulated other comprehensive income                                                                                                                                 | 166,455                                      |   | 101,235                                            |
| Total stockholders’ equity                                                                                                                                       | 21,508,229                                   |   | 22,921,829                                         |
| Total liabilities and stockholders’ equity                                                                                                                       | $  52,637,491                      |   | $53,168,146                                        |

----

CONSOLIDATED 

|                                                          |               | For the Three Months Ended June 30, |
|---------------------------------------------------------------|--------------------|-------------------------------------|
|                                                          |               | 2010                                |   | 2009 |
|                                                          |     |                                |   |   |
| Revenues:                                                     |               |                                |   |   |
| Product sales                                                 |               | $  5,465,897              |   | $  5,665,810 |
| Services                                                      |               | 2,545,140                           |   | 2,647,499 |
|                                                          |               | 8,011,037                           |   | 8,313,309 |
|                                                          |               |                                |   |   |
| Cost of revenues:                                             |               |                                |   |   |
| Product cost of revenues                                      |               | 2,597,821                           |   | 2,656,350 |
| Services cost of revenues                                     |               | 1,487,448                           |   | 1,249,767 |
|                                                          |               | 4,085,269                           |   | 3,906,117 |
|                                                          |               |                                |   |   |
| Gross profit                                                  |               | 3,925,768                           |   | 4,407,192 |
|                                                          |               |                                |   |   |
| Operating expenses:                                           |               |                                |   |   |
| Selling and marketing                                         |               | 2,888,362                           |   | 3,641,187 |
| General and administrative                                    |               | 1,866,451                           |   | 3,289,898 |
| Engineering and product development                           |               | 279,811                             |   | 336,710 |
|                                                          |               | 5,034,624                           |   | 7,267,795 |
|                                                          |               |                                |   |   |
| Loss from operations                                          |               | (1,108,856)                         |   | (2,860,603) |
|                                                          |               |                                |   |   |
| Other income (loss):                                          |               |                                |   |   |
| Interest expense, net                                         |               | (885,001)                           |   | (681,323) |
| Change in fair value of warrants                              |               | 833,425                             |   | 832,494 |
|                                                          |               |                                |   |   |
| Net loss                                                      |               | ($ 1,160,432)                       |   | ($ 2,709,432) |
|                                                          |               |                                |   |   |
|                                                          |               |                                |   |   |
| Basic and diluted net loss per share                          |               | ($0.45)                             |   | ($1.80) |
|                                                          |               |                                |   |   |
| Shares used in computing basic and diluted net loss per share |               | 2,555,516                           |   | 1,501,632 |

----

CONSOLIDATED 

|                                                          |               | For the Six Months Ended June 30, |
|---------------------------------------------------------------|--------------------|-----------------------------------|
|                                                          |               | 2010                              |   | 2009 |
|                                                          |     |                              |   |   |
| Revenues:                                                     |               |                              |   |   |
| Product sales                                                 |               | $  9,919,587            |   | $  10,863,660 |
| Services                                                      |               | 4,778,378                         |   | 4,947,992 |
|                                                          |               | 14,697,965                        |   | 15,811,652 |
|                                                          |               |                              |   |   |
| Cost of revenues:                                             |               |                              |   |   |
| Product cost of revenues                                      |               | 4,797,431                         |   | 5,115,698 |
| Services cost of revenues                                     |               | 2,882,175                         |   | 2,588,019 |
|                                                          |               | 7,679,606                         |   | 7,703,717 |
|                                                          |               |                              |   |   |
| Gross profit                                                  |               | 7,018,359                         |   | 8,107,935 |
|                                                          |               |                              |   |   |
| Operating expenses:                                           |               |                              |   |   |
| Selling and marketing                                         |               | 6,020,296                         |   | 7,541,938 |
| General and administrative                                    |               | 3,818,390                         |   | 6,089,079 |
| Engineering and product development                           |               | 619,088                           |   | 538,407 |
|                                                          |               | 10,457,774                        |   | 14,169,424 |
|                                                          |               |                              |   |   |
| Loss from operations                                          |               | (3,439,415)                       |   | (6,061,489) |
|                                                          |               |                              |   |   |
| Other income (loss):                                          |               |                              |   |   |
| Interest expense, net                                         |               | (1,538,844)                       |   | (1,083,846) |
| Change in fair value of warrants                              |               | (97,956)                          |   | 923,716 |
|                                                          |               |                              |   |   |
| Net loss                                                      |               | ($ 5,076,215)                     |   | ($ 6,221,619) |
|                                                          |               |                              |   |   |
|                                                          |               |                              |   |   |
| Basic and diluted net loss per share                          |               | ($2.12)                           |   | ($4.14) |
|                                                          |               |                              |   |   |
| Shares used in computing basic and diluted net loss per share |               | 2,397,620                         |   | 1,501,236 |

----

CONSOLIDATED 

|                                                          |         |       |         |              |     |
|---------------------------------------------------------------|--------------|------------|--------------|-------------------|----------|
|                                                          |         | Additional |         | Accumulated Other |     |
|                                                          | Common Stock | Paid-In    | Accumulated  | Comprehensive     |     |
|                                                          | Shares       | Amount     | Capital      | Deficit           | Income   | Total |
| BALANCE, JANUARY 1, 2010                                      | 2,238,157    | $22,382    | $138,639,143 | ($115,840,931)    | $101,235 | $22,921,829 |
| Round up for fractional shares due to the reverse stock split |  480    | 4          | (4)          | -                 | -        | - |
| Issuance of warrants related to debt financing                | -            | -          | 769,754      | -                 | -        | 769,754 |
| Stock options issued to consultants for services              | -            | -          | 83,284       | -                 | -        | 83,284 |
| Stock-based compensation related to restricted stock          | -            | -          | 108,163      | -                 | -        | 108,163 |
| Change in cumulative translation adjustments                  | -            | -          | -            | -                 | 65,220   | 65,220 |
| Stock-based compensation expense related to employee options  | -            | -          | 185,069      | -                 | -        | 185,069 |
| Issuance of common stock in connection with a public offering | 534,000      | 5,340      | 3,198,660    | -                 | -        | 3,204,000 |
| Registration costs in connection with a public offering       | -            | -          | (752,875)    | -                 | -        | (752,875) |
| Net loss for the six months ended June 30, 2010               | -            | -          | -            | (5,076,215)       | -        | (5,076,215) |
| BALANCE, JUNE 30, 2010                                        | 2,772,637    | $27,726    | $142,231,194 | ($120,917,146)    | $166,455 | $21,508,229 |

----

CONSOLIDATED 

|                                                                              |               | For the Six Months Ended June 30, |
|-----------------------------------------------------------------------------------|--------------------|-----------------------------------|
|                                                                              |               | 2010                              |   | 2009 |
| Cash Flows From Operating Activities:                                             |     |                              |   |   |
| Net loss                                                                          |               | ($ 5,076,215)                     |   | ($ 6,221,619) |
| Adjustments to reconcile net loss to net cash used in operating activities:       |               |                              |   |   |
| Depreciation and amortization                                                     |               | 2,258,494                         |   | 2,187,467 |
| Stock options issued to consultants for services                                  |               | 83,284                            |   | 30,905 |
| Stock-based compensation expense related to employee options and restricted stock |               |  293,232                     |   |  1,069,487 |
| Provision for bad debts                                                           |               | 53,205                            |   | 26,843 |
| Change in estimated fair value of warrant liability                               |               | 97,956                            |   | (923,716) |
| Changes in operating assets and liabilities:                                      |               |                              |   |   |
| Accounts receivable                                                               |               | 795,373                           |   | 1,152,276 |
| Inventories                                                                       |               | 425,575                           |   | 16,119 |
| Prepaid expenses and other assets                                                 |               | 344,172                           |   | (143,554) |
| Accounts payable                                                                  |               | (361,963)                         |   | (566,522) |
| Accrued compensation and related expenses                                         |               | (257,769)                         |   | 637,058 |
| Other accrued liabilities                                                         |               | 6,395                             |   | 1,674 |
| Interest accrued on convertible debt                                              |               | 911,104                           |   | 480,000 |
| Deferred revenues                                                                 |               | 27,283                            |   | (234,575) |
| Net cash used in operating activities                                             |               | (399,874)                         |   | (2,488,157) |
|                                                                              |               |                              |   |   |
| Cash Flows From Investing Activities:                                             |               |                              |   |   |
| Purchases of property and equipment                                               |               | (79,848)                          |   | (61,511) |
| Lasers placed into service                                                        |               | (926,749)                         |   | (1,839,400) |
| Acquisition costs, net of cash received                                           |               | (96,514)                          |   | (12,578,022) |
| Net cash used in investing activities                                             |               | (1,103,111)                       |   | (14,478,933) |
|                                                                              |               |                              |   |   |
| Cash Flows From Financing Activities:                                             |               |                              |   |   |
| Registration costs                                                                |               | (752,875)                         |   | (83,313) |
| Payments on notes payable                                                         |               | (205,707)                         |   | (109,695) |
| Issuance of restricted stock                                                      |               | -                                 |   | 280 |
| Proceeds from issuance of common stock                                            |               | 3,204,000                         |   | - |
| Proceeds from term debt                                                           |               | 2,500,000                         |   | - |
| Repayments on line of credit                                                      |               | (1,797,114)                       |   | (2,553,674) |
| Proceeds from convertible debt                                                    |               | -                                 |   | 18,000,000 |
| Cash released from restriction                                                    |               | 39,000                            |   | - |
| Net cash provided by financing activities                                         |               | 2,987,304                         |   | 15,253,598 |
| Effect of exchange rate changes on cash                                           |               | 65,533                            |   | 111,452 |
| Net increase (decrease) in cash and cash equivalents                              |               | 1,549,852                         |   | (1,602,040) |
|                                                                              |               |                              |   |   |
| Cash and cash equivalents, beginning of period                                    |               | 2,116,788                         |   | 3,658,607 |
|                                                                              |               |                              |   |   |
| Cash and cash equivalents, end of period                                          |               | $ 3,666,640                       |   | $ 2,056,567 |

----

Note 

----

|   | • | The Company 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. This note remains subject to the same down-round anti-dilution adjustment to the conversion price which was in the unmodified notes. 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 $11.26 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 Notes 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 and to Clutterbuck Funds. When assets are released from the lien of CIT, such assets will become subject to the first-priority lien of Clutterbuck Funds and a second-priority lien of the Investor. Finally, when assets are released from the lien of Clutterbuck Funds, such assets will become subject to the first-priority lien of the Investor; and |

----

|   | • | Three of the Company’s subsidiaries (ProCyte Corporation, Photo Therapeutics, Inc. and SLT Technology, Inc.) have guaranteed the Company’s obligations under the modified 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 June 30, 2010     |   | 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) | $839,481                           |   | $                - |   | $                - |   | $839,481                                 |
|                                       |                               |   |                                                                                               |   |                                                                                               |   |                                     |
|                                       | 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                                 |

----

----

----

|                                  | Six Months Ended June 30, 2010(unaudited) |
|---------------------------------------|-------------------------------------------|
| Accrual at beginning of period        | $  773,628                      |
| Additions charged to warranty expense | 135,446                                   |
| Expiring warranties                   | (91,154)                                  |
| Claims satisfied                      | (117,978)                                 |
| Accrual at end of period              | $  699,942                      |

----

|                                        | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30, (unaudited) |
|---------------------------------------------|----------------------------------------|--------|---------------------------------------|
|                                        | 2010                                   |   | 2009                                  |   | 2010 |   | 2009 |
| Net loss                                    | ($1,160,432)                           |   | ($2,709,432)                          |   | ($5,076,215) |   | ($6,221,619) |
| Change in cumulative translation adjustment | 90,579                                 |   | 82,655                                |   | 65,220 |   | 108,365 |
| Comprehensive loss                          | ($1,069,853)                           |   | ($2,626,777)                          |   | ($5,010,995) |   | ($6,113,254) |

----

| Cash and cash equivalents                 | $   421,978 |
|-------------------------------------------|----------------------------|
| Accounts receivable                       | 843,007                    |
| Inventories                               | 1,883,469                  |
| 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       | 12,316,148                 |
|                                      |                       |
| 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                       | $10,348,608                |

|                                                        | Three Months Ended June 30, 2009 |   | Six Months Ended June 30, 2009 |
|-------------------------------------------------------------|----------------------------------|--------|--------------------------------|
|                                                        |                             |   |                           |
| Net revenues                                                | $8,313,309                       |   | $16,639,060                    |
| Net loss                                                    | ($2,709,432)                     |   | ($6,934,782)                   |
| Basic and diluted loss per share                            | ($1.80)                          |   | ($4.62)                        |
| Shares used in calculating basic and diluted loss per share | 1,501,632                        |   | 1,501,236                      |

----

|                               | June 30, 2010 |   | December 31, 2009 |
|------------------------------------|--------------------|--------|------------------------|
|                               | (unaudited)        |   |                   |
| Raw materials and work in progress | $ 4,296,593        |   | $4,082,593             |
| Finished goods                     | 2,342,360          |   | 2,920,257              |
| Total inventories                  | $ 6,638,953        |   | $7,002,850             |

|                                      | June 30, 2010                |   | December 31, 2009 |
|-------------------------------------------|------------------------------|--------|-------------------|
|                                      | (unaudited)                  |   |              |
| Lasers in service                         | $ 16,112,846                 |   | $16,436,529       |
| Computer hardware and software            | 368,503                      |   | 368,668           |
| Furniture and fixtures                    | 726,964                      |   | 683,573           |
| Machinery and equipment                   | 830,415                      |   | 845,856           |
| Leasehold improvements                    | 339,423                      |   | 262,395           |
|                                      | 18,378,151                   |   | 18,597,021        |
| Accumulated depreciation and amortization | (9,656,070)                  |   | (9,303,539)       |
| Property and equipment, net               | $   8,722,081 |   | $ 9,293,482       |

|                                                                                                                                                               | June 30, 2010 |   | December 31, 2009      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|------------------------|
|                                                                                                                                                               | (unaudited)   |   |                   |
| Patents, owned and licensed, at gross costs of $8,021,668 and $8,019,351, net of accumulated amortization of $1,421,542 and $1,025,400, respectively.              | $6,600,126    |   | $  6,993,951 |
| Other licensed or developed technologies, at gross costs of $2,337,326 and $2,332,364, net of accumulated amortization of $1,657,301 and $1,574,653, respectively. | 680,025       |   | 757,711                |
|                                                                                                                                                               | $ 7,250,151   |   | $7,751,662             |

----

|                                                                                                                             | June 30, 2010                          |   | December 31, 2009                      |
|----------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|--------|----------------------------------------|
|                                                                                                                             | (unaudited)                            |   |                                   |
| Customer Relationships, at gross cost of $2,200,000, net of accumulated amortization of $1,766,667 and $1,669,398, respectively. | $     433,333 |   | $     530,602 |
| Tradename, at gross cost of $2,100,000, net of accumulated amortization of $714,979 and $609,977, respectively.                  | 1,385,021                              |   | 1,490,023                              |
|                                                                                                                             | $  1,818,354                 |   | $  2,020,625                 |

|                                           | June 30, 2010              |   | December 31, 2009          |
|------------------------------------------------|----------------------------|--------|----------------------------|
|                                           | (unaudited)                |   |                       |
| Accrued payroll and related taxes              | $   233,439 |   | $   260,280 |
| Accrued vacation                               | 256,090                    |   | 129,026                    |
| Accrued commissions and bonus                  | 347,494                    |   | 341,685                    |
| Accrued severance                              | 38,554                     |   | 402,355                    |
| Total accrued compensation and related expense | $ 875,577                  |   | $ 1,133,346                |

----

|                                     | June 30, 2010              |   | December 31, 2009      |
|------------------------------------------|----------------------------|--------|------------------------|
|                                     | (unaudited)                |   |                   |
| Accrued professional and consulting fees | $   459,750 |   | $  552,990   |
| Accrued warranty                         | 699,942                    |   | 773,627                |
| Accrued sales return                     | 169,171                    |   | -                      |
| Accrued sales taxes and other expenses   | 278,944                    |   | 274,797                |
| Total other accrued liabilities          | $ 1,607,807                |   | $  1,601,414 |

|                                                                                                                                                 | June 30, 2010             |   | December 31, 2009                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|--------|-----------------------------------------------------------------------|
|                                                                                                                                                 | (unaudited)               |   |                                                                  |
| Note payable – unsecured creditor, interest at 3.78%, payable in monthly principal and interest installments of $45,278 through February 2011. | $ 312,997                 |   | $            - |
|                                                                                                                                                 |                      |   |                                                                  |
| 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.         |    62,088  |   | 77,239                                                                |
|                                                                                                                                                 |                      |   |                                                                  |
|                                                                                                                                                 | 375,085                   |   | 176,173                                                               |
| Less: current maturities                                                                                                                             | (344,694)                 |   | (129,696)                                                             |
| Notes payable, net of current maturities                                                                                                             | $   30,391 |   | $  46,477                                                   |

----

|                                                                                                                | June 30, 2010 |   | December 31, 2009                                                                             |
|---------------------------------------------------------------------------------------------------------------------|---------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                                | (unaudited)   |   |                                                                                          |
| Term note, net of unamortized debt discount of $656,804                                                             | $ 1,843,196   |   | $                - |
| Total borrowings on term note credit facility, net of unamortized debt discount of $13,035 and $33,744 respectively | 2,163,847     |   | 3,940,252                                                                                     |
| Capital lease obligations                                                                                           | 57,974        |   | -                                                                                             |
| Less: current portion                                                                                               | (2,002,556)   |   | (3,179,469)                                                                                   |
| Total long-term debt                                                                                                | $ 2,062,461   |   | $    760,783                                                              |

|                                 |   | March 2010                                  |
|--------------------------------------|--------|---------------------------------------------|
|                                 |   |                                        |
| Number of shares underlying warrants |   | 102,180                                     |
| Exercise price                       |   | $        7.34 |
| Fair value of warrants               |   | $  769,754                             |
| Volatility                           |   | 87.68%                                      |
| Risk-free interest rate              |   | 2.48%                                       |
| Expected dividend yield              |   | 0%                                          |
| Expected warrant life                |   | 5 years                                     |

----

|                                 |   | December 2007                   |   | September 2008 |
|--------------------------------------|--------|---------------------------------|--------|---------------------|
|                                 |   |                            |   |                |
| Number of shares underlying 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,                    |   |                   |
|--------------------------------------------|--------|------------------------|
| Six months of 2010                         |   | $  1,644,628 |
| 2011                                       |   | 3,576,456              |
| 2012                                       |   | 24,575                 |
| 2013                                       |   | 8,192                  |
| Total minimum payments                     |   | 5,253,851              |
|                                       |   |                   |
| Less: interest                             |   | (518,995)              |
| Less: unamortized warrant discount         |   | (669,839)              |
|                                       |   |                   |
| Present value of total minimum obligations |   | $  4,065,017 |

|                                         | June 30, 2010           |   | December 31, 2009       |
|----------------------------------------------|-------------------------|--------|-------------------------|
|                                         | (unaudited)             |   |                    |
| Total borrowings, net of discounts and costs | $  18,332,881 |   | $  17,369,943 |
| Less: current portion                        | -                       |   | -                       |
| Total convertible debt                       | $  18,332,881 |   | $  17,369,943 |

----

|   | • | 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. This note remains subject to the same down-round anti-dilution adjustment to the conversion price which was in the unmodified notes. 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 paid in kind (“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 $11.26 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; and |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | 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.                                                                                                                                                                                                                                                                                                                                                                                 |

----

|                                 |   | June 30, 2010 |   | December 31, 2009 |   | June 30, 2009 |
|--------------------------------------|--------|---------------|--------|-------------------|--------|---------------|
| Number of shares underlying warrants |   | 293,611       |   | 244,251           |   | 174,367       |
| Exercise price                       |   | $18.39        |   | $22.108           |   | $30.96        |
| Fair value of warrants               |   | $839,481      |   | $741,525          |   | $626,595      |
| Volatility                           |   | 82.96%        |   | 79.23%            |   | 88.67%        |
| Risk-free interest rate              |   | 2.42%         |   | 3.39%             |   | 2.28          |
| Expected dividend yield              |   | 0%            |   | 0%                |   | 0%            |
| Expected warrant life                |   | 6.67 years    |   | 7.17 years        |   | 7.92years     |

| Warrant liability:                 |   |                             |
|------------------------------------|--------|----------------------------------|
| Balance as of January 1, 2010      |   | $    741,525 |
| Increase in fair value of warrants |   | 97,956                           |
| Balance as of June 30, 2010        |   | $ 839,481                        |

----

|                                  |   | Number of Options |   | Weighted Average Exercise Price |
|---------------------------------------|--------|-------------------|--------|---------------------------------|
| Outstanding, January 1, 2010          |   | 158,304           |   | $57.42                          |
| Granted                               |   | 16,250            |   | 7.15                            |
| Cancelled                             |   | (19,621)          |   | 91.15                           |
| Outstanding, June 30, 2010            |   | 154,933           |   | $47.84                          |
| Options excercisable at June 30, 2010 |   | 111,201           |   | $57.92                          |

| Assumptions for Option Grants | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|-------------------------------|----------------------------------------|--------|--------------------------------------|
|                          | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Risk-free interest rate       | 3.21%                                  |   | 3.71%                                |   | 3.67% |   | 3.46% |
| Volatility                    | 83.62%                                 |   | 89.15%                               |   | 84.31% |   | 88.68% |
| Expected dividend yield       | 0%                                     |   | 0%                                   |   | 0% |   | 0% |
| Expected life                 | 8.1 years                              |   | 8.1 years                            |   | 8.1 years |   | 8.1 years |
| Estimated forfeiture rate     | 17%                                    |   | 12%                                  |   | 17% |   | 12% |

----

----

|                                | PHYSICIAN DOMESTIC |   | PHYSICIAN INTERN’L |   | OTHER CHANNELS |   | SURGICAL PRODUCTS |   | TOTAL        |
|-------------------------------------|--------------------|--------|--------------------------|--------|----------------|--------|-------------------|--------|--------------|
| Revenues                            | $9,264,751         |   | $  2,426,775   |   | $1,418,887     |   | $1,587,552        |   | $14,697,965  |
| Costs of revenues                   | 4,502,840          |   | 1,553,073                |   | 793,231        |   | 830,462           |   | 7,679,606    |
| Gross profit                        | 4,761,911          |   | 873,702                  |   | 625,656        |   | 757,090           |   | 7,018,359    |
| Gross profit %                      | 51.4%              |   | 36.0%                    |   | 44.1%          |   | 47.7%             |   | 47.8%        |
|                                |               |   |                     |   |           |   |              |   |         |
| Allocated operating expenses:       |               |   |                     |   |           |   |              |   |         |
| Selling, general and administrative | 5,378,171          |   | 538,290                  |   | 329,080        |   | 71,110            |   | 6,316,651    |
| Engineering and product development | 222,937            |   | 163,378                  |   | 168,521        |   | 64,251            |   | 619,087      |
|                                |               |   |                     |   |           |   |              |   |         |
| Unallocated operating expenses      | -                  |   | -                        |   | -              |   | -                 |   | 3,522,036    |
|                                | 5,601,108          |   | 701,668                  |   | 497,601        |   | 135,361           |   | 10,457,774   |
| Income (loss) from operations       | (839,197)          |   | 172,034                  |   | 128,055        |   | 621,729           |   | (3,439,415)  |
|                                |               |   |                     |   |           |   |              |   |         |
| Interest expense, net               | -                  |   | -                        |   | -              |   | -                 |   | (1,538,844)  |
| Change in fair value of warrant     | -                  |   | -                        |   | -              |   | -                 |   | (97,956)     |
|                                |               |   |                     |   |           |   |              |   |         |
| Net (loss) income                   | ($839,197)         |   | $172,034                 |   | $128,055       |   | $621,729          |   | ($5,076,215) |
|                                |               |   |                     |   |           |   |              |   |         |

|                                | PHYSICIAN DOMESTIC |   | PHYSICIAN INTERN’L |   | OTHER CHANNELS |   | SURGICAL PRODUCTS |   | TOTAL             |
|-------------------------------------|--------------------|--------|--------------------------|--------|----------------|--------|-------------------|--------|-------------------|
| Revenues                            | $9,235,242         |   | $3,212,589               |   | $1,687,297     |   | $1,676,524        |   | $15,811,652       |
| Costs of revenues                   | 4,111,062          |   | 1,785,830                |   | 587,872        |   | 1,218,953         |   | 7,703,717         |
| Gross profit                        | 5,124,180          |   | 1,426,759                |   | 1,099,425      |   | 457,571           |   | 8,107,935         |
| Gross profit %                      | 55.5%              |   | 44.4%                    |   | 65.2%          |   | 27.3%             |   | 51.3%             |
|                                |               |   |                     |   |           |   |              |   |              |
| Allocated operating expenses:       |               |   |                     |   |           |   |              |   |              |
| Selling, general and administrative | 6,689,607          |   | 769,034                  |   | 320,914        |   | 176,450           |   | 7,956,005         |
| Engineering and product development | 175,455            |   | 63,255                   |   | 71,635         |   | 228,062           |   | 538,407           |
|                                |               |   |                     |   |           |   |              |   |              |
| Unallocated operating expenses      | -                  |   | -                        |   | -              |   | -                 |   | 5,675,012         |
|                                | 6,865,062          |   | 832,289                  |   | 392,549        |   | 404,512           |   | 14,169,424        |
| Income (loss) from operations       |  (1,740,882)  |   | 594,470                  |   | 706,876        |   | 53,059            |   |  (6,061,489) |
|                                |               |   |                     |   |           |   |              |   |              |
| Interest expense, net               | -                  |   | -                        |   | -              |   | -                 |   | (1,083,846)       |
| Change in fair value of warrants    | -                  |   | -                        |   | -              |   | -                 |   | 923,716           |
|                                |               |   |                     |   |           |   |              |   |              |
| Net (loss) income                   | ($1,740,882)       |   | $594,470                 |   | $706,876       |   | $53,059           |   | ($6,221,619)      |
|                                |               |   |                     |   |           |   |              |   |              |

----

|                                | PHYSICIAN DOMESTIC |   | PHYSICIAN INTERN’L |   | OTHER CHANNELS |   | SURGICAL PRODUCTS |   | TOTAL        |
|-------------------------------------|--------------------|--------|--------------------------|--------|----------------|--------|-------------------|--------|--------------|
| Revenues                            | $9,264,751         |   | $  2,426,775   |   | $1,418,887     |   | $1,587,552        |   | $14,697,965  |
| Costs of revenues                   | 4,502,840          |   | 1,553,073                |   | 793,231        |   | 830,462           |   | 7,679,606    |
| Gross profit                        | 4,761,911          |   | 873,702                  |   | 625,656        |   | 757,090           |   | 7,018,359    |
| Gross profit %                      | 51.4%              |   | 36.0%                    |   | 44.1%          |   | 47.7%             |   | 47.8%        |
|                                |               |   |                     |   |           |   |              |   |         |
| Allocated operating expenses:       |               |   |                     |   |           |   |              |   |         |
| Selling, general and administrative | 5,378,171          |   | 538,290                  |   | 329,080        |   | 71,110            |   | 6,316,651    |
| Engineering and product development | 222,937            |   | 163,378                  |   | 168,521        |   | 64,251            |   | 619,087      |
|                                |               |   |                     |   |           |   |              |   |         |
| Unallocated operating expenses      | -                  |   | -                        |   | -              |   | -                 |   | 3,522,036    |
|                                | 5,601,108          |   | 701,668                  |   | 497,601        |   | 135,361           |   | 10,457,774   |
| Income (loss) from operations       | (839,197)          |   | 172,034                  |   | 128,055        |   | 621,729           |   | (3,439,415)  |
|                                |               |   |                     |   |           |   |              |   |         |
| Interest expense, net               | -                  |   | -                        |   | -              |   | -                 |   | (1,538,844)  |
| Change in fair value of warrant     | -                  |   | -                        |   | -              |   | -                 |   | (97,956)     |
|                                |               |   |                     |   |           |   |              |   |         |
| Net (loss) income                   | ($839,197)         |   | $172,034                 |   | $128,055       |   | $621,729          |   | ($5,076,215) |
|                                |               |   |                     |   |           |   |              |   |         |

|                                | PHYSICIAN DOMESTIC |   | PHYSICIAN INTERN’L |   | OTHER CHANNELS |   | SURGICAL PRODUCTS |   | TOTAL             |
|-------------------------------------|--------------------|--------|--------------------------|--------|----------------|--------|-------------------|--------|-------------------|
| Revenues                            | $9,235,242         |   | $3,212,589               |   | $1,687,297     |   | $1,676,524        |   | $15,811,652       |
| Costs of revenues                   | 4,111,062          |   | 1,785,830                |   | 587,872        |   | 1,218,953         |   | 7,703,717         |
| Gross profit                        | 5,124,180          |   | 1,426,759                |   | 1,099,425      |   | 457,571           |   | 8,107,935         |
| Gross profit %                      | 55.5%              |   | 44.4%                    |   | 65.2%          |   | 27.3%             |   | 51.3%             |
|                                |               |   |                     |   |           |   |              |   |              |
| Allocated operating expenses:       |               |   |                     |   |           |   |              |   |              |
| Selling, general and administrative | 6,689,607          |   | 769,034                  |   | 320,914        |   | 176,450           |   | 7,956,005         |
| Engineering and product development | 175,455            |   | 63,255                   |   | 71,635         |   | 228,062           |   | 538,407           |
|                                |               |   |                     |   |           |   |              |   |              |
| Unallocated operating expenses      | -                  |   | -                        |   | -              |   | -                 |   | 5,675,012         |
|                                | 6,865,062          |   | 832,289                  |   | 392,549        |   | 404,512           |   | 14,169,424        |
| Income (loss) from operations       |  (1,740,882)  |   | 594,470                  |   | 706,876        |   | 53,059            |   |  (6,061,489) |
|                                |               |   |                     |   |           |   |              |   |              |
| Interest expense, net               | -                  |   | -                        |   | -              |   | -                 |   | (1,083,846)       |
| Change in fair value of warrants    | -                  |   | -                        |   | -              |   | -                 |   | 923,716           |
|                                |               |   |                     |   |           |   |              |   |              |
| Net (loss) income                   | ($1,740,882)       |   | $594,470                 |   | $706,876       |   | $53,059           |   | ($6,221,619)      |
|                                |               |   |                     |   |           |   |              |   |              |

----

|                                 | June 30, 2010 |   | December 31, 2009 |
|--------------------------------------|---------------|--------|-------------------|
|                                 | (unaudited)   |   |              |
| Assets:                              |          |   |              |
| Total assets for reportable segments | $ 47,627,739  |   | $49,890,944       |
| Other unallocated assets             | 5,009,752     |   | 3,277,202         |
| Consolidated total                   | $ 52,637,491  |   | $53,168,146       |

|     | Three Months Ended June 30, (unaudited) |   | Six Months Ended June30, (unaudited) |
|----------|-----------------------------------------|--------|--------------------------------------|
|     | 2010                                    |   | 2009                                 |   | 2010 |   | 2009 |
| Domestic | $ 6,815,561                             |   | 6,147,212                            |   | $12,273,834 |   | $11,824,342 |
| Foreign  | 1,195,476                               |   | 2,166,097                            |   | 2,424,131 |   | 3,987,310 |
|     | $ 8,011,037                             |   | $ 8,313,309                          |   | $14,697,965 |   | $15,811,652 |

ITEM 

----

|   | • | Physician Domestic;      |
|--------|---------|--------------------------|
|   | • | Physician International; |
|   | • | Other Channels; and      |
|   | • | Surgical Products.       |

----

----

----

|                                         | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|----------------------------------------------|----------------------------------------|--------|--------------------------------------|
|                                         | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Physician Domestic Revenues                  | $5,389,764                             |   | $4,955,100                           |   | $9,264,751 |   | $9,235,242 |
| Physician International Revenues             | 1,196,694                              |   | 1,791,619                            |   | 2,426,775 |   | 3,212,589 |
| Other Channels Revenues                      | 638,096                                |   | 765,509                              |   | 1,418,887 |   | 1,687,297 |
|    Total Dermatology Revenues | 7,224,554                              |   | 7,512,228                            |   | 13,110,413 |   | 14,135,128 |
|                                         |                                   |   |                                 |   |   |   |   |
| Surgical Products                            | 786,483                                |   | 801,082                              |   | 1,587,552 |   | 1,676,524 |
|                                         |                                   |   |                                 |   |   |   |   |
| Total Revenues                               | $8,011,037                             |   | $8,313,310                           |   | $14,697,965 |   | $15,811,652 |

|                              | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30,(unaudited) |
|-----------------------------------|-----------------------------------------|--------|--------------------------------------|
|                              | 2010                                    |   | 2009                                 |   | 2010 |   | 2009 |
| XTRAC treatments                  | $2,532,957                              |   | $2,635,623                           |   | $4,754,854 |   | $4,672,627 |
| XTRAC laser sales                 | 1,163,046                               |   | 523,680                              |   | 1,291,246 |   | 1,161,985 |
| Skincare products                 | 1,311,524                               |   | 1,416,311                            |   | 2,555,897 |   | 2,832,465 |
| PTL products                      | 325,628                                 |   | 379,486                              |   | 566,278 |   | 568,165 |
| Metvixia                          | 56,609                                  |   | -                                    |   | 96,476 |   | - |
|                              |                                    |   |                                 |   |   |   |   |
| Total Physician Domestic Revenues | $5,389,764                              |   | $4,955,100                           |   | $9,264,751 |   | $9,235,242 |

----

|                                                      | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30, (unaudited) |
|-----------------------------------------------------------|-----------------------------------------|--------|---------------------------------------|
|                                                      | 2010                                    |   | 2009                                  |   | 2010 |   | 2009 |
| Recognized treatment revenue                              | $2,532,957                              |   | $2,635,623                            |   | $4,754,854 |   | $4,672,627 |
| Change in deferred treatment revenue                      | (17,801)                                |   | (298,881)                             |   | 130,380 |   | 22,152 |
| Net billed revenue                                        | $2,515,156                              |   | $2,336,742                            |   | $4,885,234 |   | $4,694,779 |
| Procedure volume total                                    | 40,474                                  |   | 36,823                                |   | 78,906 |   | 74,372 |
| Less: Non-billed procedures                               | 1,400                                   |   | 1,221                                 |   | (2,791) |   | (3,026) |
| Net billed procedures                                     | 39,074                                  |   | 35,602                                |   | 76,115 |   | 71,346 |
| Avg. price of treatments billed                           | $64.37                                  |   | $65.64                                |   | $64.18 |   | $65.80 |
| Change in procedures with deferred treatment revenue, net | (277)                                   |   | (4,554)                               |   | 2,031 |   | 337 |

----

|                                   | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30, (unaudited) |
|----------------------------------------|-----------------------------------------|--------|---------------------------------------|
|                                   | 2010                                    |   | 2009                                  |   | 2010 |   | 2009 |
| International dermatology equipment    | $   667,257              |   | $1,060,607                            |   | $1,299,262 |   | $2,059,691 |
| Skincare products                      | 326,409                                 |   | 207,483                               |   | 687,980 |   | 479,167 |
| PTL products                           | 203,028                                 |   | 523,529                               |   | 439,533 |   | 673,731 |
|                                   |                                    |   |                                  |   |   |   |   |
| Total Physician International Revenues | $1,196,694                              |   | $1,791,619                            |   | $2,426,775 |   | $3,212,589 |

|   | • | 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 no such lasers in the three months ended June 30, 2010, and sold 10 such lasers at an average price of $21,000 in the six months ended June 30, 2010. In the six months ended June 30, 2009, we sold four such used lasers all of which occurred in the three months ended June 30, 2009 at an average price of $32,500; 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 below our competitors’ international dermatology equipment and below our XTRAC laser. In the three and six months ended June 30, 2010, we sold 10 and 12 VTRAC systems, at an average price of $24,300 and $24,800, respectively. In the six months ended June 30, 2009, we sold 13 VTRAC systems all of which occurred in the three months ended June 30, 2009. Additionally, we have a backorder of 19 VTRAC systems as of June 30, 2010 due to delays in the production process. |

----

|                                      | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|-------------------------------------------|----------------------------------------|--------|--------------------------------------|
|                                      | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                                  | $667,257                               |   | $1,060,607                           |   | $1,299,262 |   | $2,059,691 |
|    Less: part sales        | (197,257)                              |   | (208,707)                            |   | (385,262) |   | (437,891) |
| Laser/lamp revenues                       | 470,000                                |   | 851,900                              |   | 914,000 |   | 1,621,800 |
|    Laser/lamp systems sold | 15                                     |   | 25                                   |   | 31 |   | 40 |
| Average revenue per laser/lamp            | $31,333                                |   | $34,076                              |   | $29,484 |   | $40,545 |

|                          | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30, (unaudited) |
|-------------------------------|-----------------------------------------|--------|---------------------------------------|
|                          | 2010                                    |   | 2009                                  |   | 2010 |   | 2009 |
| Skincare products             | $ 297,734                               |   | $   387,936            |   | $   779,696 |   | $  902,557 |
| PTL products                  | 340,362                                 |   | 377,573                               |   | 639,191 |   | 784,740 |
|                          |                                    |   |                                  |   |   |   |   |
| Total Other Channels revenues | $638,096                                |   | $765,509                              |   | $1,418,887 |   | $1,687,297 |

----

|                                        | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30, (unaudited) |
|---------------------------------------------|-----------------------------------------|--------|--------------------------------------------|
|                                        | 2010                                    |   | 2009                                       |   | 2010 |   | 2009 |
| Revenues                                    | $786,483                                |   | $801,082                                   |   | $1,587,552 |   | $1,676,524 |
|    Laser systems sold        | 4                                       |   | 5                                          |   | 14 |   | 7 |
| Laser system revenues                       | $106,495                                |   | $67,000                                    |   | $348,190 |   | $130,646 |
|    Average revenue per laser | $26,624                                 |   | $13,400                                    |   | $24,871 |   | $18,664 |

----

|                    | Three Months Ended June 30, (unaudited) |   | Six Months Ended June 30,(unaudited) |
|-------------------------|-----------------------------------------|--------|--------------------------------------|
|                    | 2010                                    |   | 2009                                 |   | 2010 |   | 2009 |
| Product:                |                                    |   |                                 |   |   |   |   |
| Physician Domestic      | $1,063,543                              |   | $   829,552           |   | $1,684,947 |   | $1,587,321 |
| Physician International | 837,410                                 |   | 944,537                              |   | 1,553,073 |   | 1,785,830 |
| Other Channels          | 378,365                                 |   | 325,967                              |   | 793,231 |   | 587,872 |
| Surgical Products       | 318,503                                 |   | 556,294                              |   | 766,180 |   | 1,154,675 |
| Total Product costs     | $2,597,821                              |   | $2,656,350                           |   | $4,797,431 |   | $5,115,698 |
|                    |                                    |   |                                 |   |   |   |   |
| Services:               |                                    |   |                                 |   |   |   |   |
| Physician Domestic      | $1,456,858                              |   | $1,216,000                           |   | $2,817,893 |   | $2,523,741 |
| Surgical Products       | 30,590                                  |   | 33,767                               |   | 64,282 |   | 64,278 |
| Total Services costs    | $1,487,448                              |   | $1,249,767                           |   | $2,882,175 |   | $2,588,019 |
|                    |                                    |   |                                 |   |   |   |   |
| Total Costs of Revenues | $4,085,269                              |   | $3,906,117                           |   | $7,679,606 |   | $7,703,717 |

----

| Company Profit Analysis     | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|-----------------------------|----------------------------------------|--------|--------------------------------------|
|                        | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                    | $8,011,037                             |   | $8,313,309                           |   | $14,697,965 |   | $15,811,652 |
| Percent decrease            | (3.6%)                                 |   |                                 |   | (7.0%) |   |   |
| Cost of revenues            | 4,085,269                              |   | 3,906,117                            |   | 7,679,606 |   | 7,703,717 |
| Percent increase (decrease) | 4.6%                                   |   |                                 |   | (0.3%) |   |   |
| Gross profit                | $3,925,768                             |   | $4,407,192                           |   | $7,018,359 |   | $8,107,935 |
| Gross margin percentage     | 49.0%                                  |   | 53.0%                                |   | 47.8% |   | 51.3% |

|   | • | There were increases in certain allocable XTRAC manufacturing overhead costs due to an under-absorption of the overhead costs of approximately $315,000. These under-absorptions were due to delays in production during the three months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | Gross profit decreased as a result of the mix of units sold in the international dermatology equipment segment. In this segment, we sold 5 XTRAC laser systems and 10 VTRAC lamp-based excimer systems during the three months ended June 30, 2010 and 12 XTRAC laser systems and 13 VTRAC systems in the comparable period in 2009. Included in the 12 XTRAC lasers systems sold, in the three months ended June 30, 2009 were 4 used laser systems, which have a lower average selling price and gross margin percentage, compared to no used laser systems in the three months ended June 30, 2010. 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. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | We sold approximately $639,000 more in domestic XTRAC lasers in the three months ended June 30, 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements. The cost of sales associated with these sales increased $202,000 between the comparable three month periods. The margin on these capital equipment sales was 69% in the three months ended Jun e30, 2010 compared to 70% in the comparable period in 2009.                                                                                                                                                                                                                                                          |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | The change in XTRAC Domestic deferred revenues decreased $281,080 between the three-month periods without any offset in the cost of revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | Offsetting the above items that had a negative impact on gross profit the revenues for Metvixia products of $56,609 have no associated cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | We began offering enhanced services to our XTRAC treatment consignment program customers through a 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 10% from 35,602 to 39,074 billed procedures in the three months ended June 30, 2010 compared to the same period in 2009. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost.                                                                                                           |

----

|   | • | There were increases in certain allocable XTRAC manufacturing overhead costs due to an under-absorption of the overhead costs of approximately $535,000. Additionally there were under-absorbed overhead costs related to the Surgical Products segment of $45,000. These under-absorptions were due to delays in production during the six months ended June 30, 2010.                                                                                                                                                                                                      |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | Revenues for the six months ended June 30, 2009 included a milestone payment to us from a licensee of $213,000 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 were no costs associated with this revenue stream.                                                                                                                                                                                          |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | We sold approximately $129,000 more in domestic XTRAC lasers in the six months ended June 30, 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements. The cost of sales associated with these sales increased $5,000 between the comparable six month periods. The margin on these capital equipment sales was 70% in the six months ended June 30, 2010 compared to 67% in the comparable period in 2009.                                                                                     |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | We sold 19 XTRAC laser systems and 12 VTRAC lamp-based excimer systems during the six months ended June 30, 2010 and 27 XTRAC laser systems and 13 VTRAC systems in the comparable period in 2009. Included in the 19 XTRAC lasers systems sold were 10 used laser systems, which have a lower average selling price and gross margin percentage, compared to 4 used laser systems in the six months ended June 30, 2009. Consequently, gross profit increased as a result of the mix of units sold. The gross margin percentage for the VTRAC is higher than for the XTRAC. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | Offsetting the above items that had a negative impact on gross profit, Photo Therapeutics was acquired on February 27, 2009, costs covering the period ended June 30, 2010 include six months of activity, while costs covering the period ended June 30, 2009 only include four months.                                                                                                                                                                                                                                                                                     |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | The revenues for Metvixia products of $56,609 have no associated cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| Physician Domestic Segment | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|----------------------------|----------------------------------------|--------|--------------------------------------|
|                       | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                   | $5,389,764                             |   | $4,955,100                           |   | $9,264,751 |   | $9,235,242 |
| Percent increase           | 8.8%                                   |   |                                 |   | 0.3% |   |   |
| Cost of revenues           | 2,520,401                              |   | 2,045,553                            |   | 4,502,840 |   | 4,111,062 |
| Percent increase           | 23.2%                                  |   |                                 |   | 9.5% |   |   |
| Gross profit               | $2,869,363                             |   | $2,909,547                           |   | $4,761,911 |   | $5,124,180 |
| Gross margin percentage    | 53.2%                                  |   | 58.7%                                |   | 51.4% |   | 55.5% |

|   | • | There was an increase in certain allocable XTRAC manufacturing overhead costs due to an under-absorption of the overhead costs of approximately $230,000. This increase was due to delays in production during the three months ended June 30, 2010. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                 |

----

|   | • | We sold approximately $639,000 more in domestic XTRAC lasers in the three months ended June 30, 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements. The cost of sales associated with these sales increased $201,700 between the comparable three month periods. The margin on these capital equipment sales was 69% in the three months ended June 30, 2010 compared to 70% in the comparable period in 2009. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | • | The change in XTRAC Domestic deferred revenues decreased $281,080 between the three-month periods without any offset in the cost of revenues.                                                                                                                                                                                                                                                                                                                                                    |

|   | • | For the three months ended June 30, 2010, PTL product revenues decreased $53,858 over the prior year period, while the cost of sales for these products increased $65,956 for the same comparable periods. Due to the acquisition, an additional amortization of $185,000 is allocated to the segments based on each segment’s revenues for PTL products.                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • | Offsetting the above items that had a negative impact on gross profit, we began offering enhanced services to our XTRAC treatment consignment program customers through a 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 10% from 35,602 to 39,074 billed procedures in the three months ended June 30, 2010 compared to the same period in 2009. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • | The revenues for Metvixia products of $56,609 have no associated cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|   | • | There was an increase in certain allocable XTRAC manufacturing overhead costs due to an under-absorption of the overhead costs of approximately $400,000. This increase was due to delays in production during the six months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | For the six months ended June 30, 2010, PTL product revenues were consistent with the prior year period, while the cost of sales for these products increased $218,859 for the same comparable periods. This cost of sales was due to the acquisition of Photo Therapeutics occurred on February 27, 2009, so there was only four month’s activity in the comparable prior year period. Due to the acquisition, an additional amortization of $370,000 is allocated to the segments based on each segment’s revenues for PTL products.                                                                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | Offsetting the above items that had a negative impact on gross profit, we began offering enhanced services to our XTRAC treatment consignment program customers through a 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 7% from 71,346 to 76,115 billed procedures in the six months ended June 30, 2010 compared to the same period in 2009. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | We sold approximately $129,000 more in domestic XTRAC lasers in the six months ended June 30, 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements. The cost of sales associated with these sales decreased $5,000 between the comparable six month periods. The margin on these capital equipment sales was 70% in the six months ended June 30, 2010 compared to 67% in the comparable period in 2009.                                                                                                                                                                                                                            |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | The revenues for Metvixia products of $96,476 have no associated cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| Physician International Segment | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|---------------------------------|----------------------------------------|--------|--------------------------------------|
|                            | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                        | $1,196,694                             |   | $1,791,619                           |   | $2,426,775 |   | $3,212,589 |
| Percent decrease                | (33.2%)                                |   |                                 |   | (24.5%) |   |   |
| Cost of revenues                | 837,410                                |   | 944,537                              |   | 1,553,073 |   | 1,785,830 |
| Percent decrease                | (11.3%)                                |   |                                 |   | (13.0%) |   |   |
| Gross profit                    | $359,284                               |   | $847,082                             |   | $873,702 |   | $1,426,759 |
| Gross margin percentage         | 30.0%                                  |   | 47.3%                                |   | 36.0% |   | 44.4% |

|   | • | We sold 5 XTRAC laser systems and 10 VTRAC lamp-based excimer systems during the three months ended June 30, 2010 and 12 XTRAC laser systems and 13 VTRAC systems in the comparable period in 2009. Included in the 12 XTRAC lasers systems sold in the three months ended June 30, 2009 were 4 used laser systems, which have a lower average selling price and gross margin percentage, compared to no used laser systems in the three months ended June 30, 2010. 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. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | Gross profit for the three months ended June 30, 2010 was negatively impacted by increases in certain allocable XTRAC manufacturing overhead costs that are charged against international dermatology equipment. These increased costs, which approximately $85,000, related to an under-absorption of manufacturing costs due to delays in production.                                                                                                                                                                                                                                                                 |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | International part sales, which have a higher margin percentage than system sales, decreased 5% or $11,450 for the three months ended June 30, 2010 as compared to the same period in 2009.                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | For the three months ended June 30, 2010, skincare product revenues increased $118,926 over the prior year period, while the cost of sales for these products increased $45,032 for the same comparable periods.                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | For the three months ended June 30, 2010, PTL product revenues decreased $320,501 over the prior year period, while the cost of sales for these products decreased $107,097 for the same comparable periods. Due to the acquisition there is additional amortization of $185,000 that is allocated to the segments based on each segment’s revenues for PTL products.                                                                                                                                                                                                                                             |

|   | • | Gross profit for the six months ended June 30, 2010 was negatively impacted by increases in certain allocable XTRAC manufacturing overhead costs that are charged against international dermatology equipment. These increased costs, which approximately $135,000, related to an under-absorption of manufacturing costs due to delays in production. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                   |

----

|   | • | International part sales, which have a higher margin percentage than system sales, decreased 12% or $52,629 for the six months ended June 30, 2010 as compared to the same period in 2009.                     |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                           |
|   | • | For the six months ended June 30, 2010, skincare product revenues increased $208,813 over the prior year period, while the cost of sales for these products increased $70,554 for the same comparable periods. |

|   | • | For the six months ended June 30, 2010, PTL product revenues decreased $234,198 over the prior year period, while the cost of sales for these products increased $32,885 for the same comparable periods. This cost of sales was due to the acquisition of Photo Therapeutics occurred on February 27, 2009, so there was only four months’ activity in the comparable prior year period. Due to the acquisition there is additional amortization of $370,000 that is allocated to the segments based on each segment’s revenues for PTL products.                                                                                      |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | Offsetting the above items that had a negative impact on gross profit, we sold 19 XTRAC laser systems and 12 VTRAC lamp-based excimer systems during the six months ended June 30, 2010 and 27 XTRAC laser systems and 13 VTRAC systems in the comparable period in 2009. Included in the 19 XTRAC lasers systems sold were 10 used laser systems, which have a lower average selling price and gross margin percentage, compared to 4 used laser systems in the six months ended June 30, 2009. Consequently, gross profit increased as a result of the mix of units sold. The gross margin percentage for the VTRAC is higher than for the XTRAC. |

| Other Channels Segment                   | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|------------------------------------------|----------------------------------------|--------|--------------------------------------|
|                                     | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                                 | $638,096                               |   | $765,509                             |   | $1,418,887 |   | $1,687,297 |
|     Percent decrease | (16.6%)                                |   |                                 |   | (15.9%) |   |   |
| Cost of revenues                         | 378,365                                |   | 325,967                              |   | 793,231 |   | 587,872 |
|     Percent increase | 16.1%                                  |   |                                 |   | 34.9% |   |   |
| Gross profit                             | $259,731                               |   | $439,542                             |   | $625,656 |   | $1,099,425 |
| Gross margin percentage                  | 40.7%                                  |   | 57.4%                                |   | 44.1% |   | 65.2% |

|   | • | For the three months ended June 30, 2010, skincare product revenues decreased $110,702 over the prior year period, while the cost of sales for these products decreased $33,218 for the same comparable periods. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                             |
|   | • | The cost of sales for the PTL business increased mainly due to the additional amortization of $185,000 that is allocated to the segments based on each segment’s revenues for PTL products.                |

|   | • | Revenues for the six months ended June 30, 2009 included a milestone payment of $213,000 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 costs associated with this revenue stream.                          |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                  |
|   | • | The cost of sales for the PTL business increased mainly due to the fact that it was acquired on February 27, 2009, and consequently the comparable prior year period reflects only one month of activity. In addition, due to the acquisition there is additional amortization of $370,000 that is allocated to the segments based on each segment’s revenues for PTL products. |

----

| Surgical Products Segment | Three Months Ended June 30,(unaudited) |   | Six Months Ended June 30,(unaudited) |
|---------------------------|----------------------------------------|--------|--------------------------------------|
|                      | 2010                                   |   | 2009                                 |   | 2010 |   | 2009 |
| Revenues                  | $786,483                               |   | $801,082                             |   | $1,587,552 |   | $1,676,524 |
| Percent decrease          | (1.8%)                                 |   |                                 |   | (5.3%) |   |   |
| Cost of revenues          | 349,093                                |   | 590,062                              |   | 830,462 |   | 1,218,954 |
| Percent decrease          | (40.8%)                                |   |                                 |   | (31.9%) |   |   |
| Gross profit              | $  437,390                   |   | $  211,020                 |   | $757,090 |   | $  457,570 |
| Gross margin percentage   | 55.6%                                  |   | 26.3%                                |   | 47.7% |   | 27.3% |

|   | • | 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 three months ended June 30, 2010 decreased by $14,599 from the three months ended June 30, 2009. There was one laser system less sold in the three months ended June 30, 2010 than in the comparable period of 2009. However, the lasers sold in the 2010 period were sold at higher prices than those sold in the comparable period in 2009. The increase in average price per laser was largely due to volume discounts in the prior year period. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | Beginning in 2010, the various allocable manufacturing costs of the Pennsylvania facility are allocated to surgical products, skincare and PTL products. In prior years, these costs were allocated to surgical products only. During 2009 we relocated our skincare and PTL facilities into our Pennsylvania facility and are now able to spread these fixed costs over many product lines.                                                                         |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | 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 10% between the comparable three-month periods ended June 30, 2010 and 2009.                                                                                                                                                                                      |

|   | • | 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 six months ended June 30, 2010 decreased by $88,972 from the six months ended June 30, 2009. There were 7 additional laser systems sold in the six months ended June 30, 2010 than in the comparable period of 2009. Additionally, the lasers sold in the 2010 period were sold at higher prices than those sold in the comparable period in 2009. The increase in average price per laser was largely due to the mix of lasers sold and volume discounts. Included in the laser sales for the six months ended June 30, 2010 and 2009 were sales of diode lasers of $297,000, representing 13 systems, and $91,000, representing 6 systems respectively, which have substantially lower list sales prices than our other types of surgical lasers. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | Beginning in 2010, the various allocable manufacturing costs of the Pennsylvania facility are allocated to surgical products, skincare and PTL products. In prior years, these costs were allocated to surgical products only. During 2009 we relocated our skincare and PTL facilities into our Pennsylvania facility and are now able to spread these fixed costs over many product lines.                                                                                                                                                                                                                                                                                                                                                                         |

----

|   | • | Gross profit for the six months ended June 30, 2010 for surgical products was negatively impacted by approximately $45,000 due to delays in laser production that caused an under-absorption of fixed overhead costs.                                                         |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                          |
|   | • | 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 22% between the comparable six-month periods ended June 30, 2010 and 2009. |

|   | • | The majority of the decrease related to a $567,000 decrease in salaries, benefits and travel expenses associated with a decrease in the sales and marketing force and decreased revenues which generated lower commission expenses.                                                                                                                                                                                                                 |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | We expensed approximately $987,000 during the three months ended June 30, 2009 related to severance and accelerated vesting of restricted stock and options in connection with the termination of our former chief executive officer. In addition there was a decrease in stock compensation expense of $53,000, mainly due to this termination and a decrease in general and administrative salary and benefit expenses of approximately $128,000. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | There was also a decrease in marketing expense of $88,000 which resulted from improved control over marketing efforts.                                                                                                                                                                                                                                                                                                                              |

|   | • | The majority of the decrease related to a $1,106,000 decrease in salaries, benefits and travel expenses associated with a decrease in the sales and marketing force and decreased revenues which generated lower commission expenses.                                                                                                                                                                                                                |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | In the six months ended June 30, 2009, we expensed $432,000 of legal and transaction costs under ASC Topic 718 incurred in connection with the acquisition of Photo Therapeutics. There was no such corresponding expense in the six months ended June 30, 2010.                                                                                                                                                                                     |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | We expensed approximately $987,000 during the three months ended June 30, 2009 related to severance and accelerated vesting of restricted stock and options in connection with the termination of our former chief executive officer. In addition there was a decrease in stock compensation expense of $136,000, mainly due to this termination and a decrease in general and administrative salary and benefit expenses of approximately $194,000. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | There was also a decrease in marketing expense of $256,000 which resulted from improved control over marketing efforts.                                                                                                                                                                                                                                                                                                                              |

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|                 |   | Three Months Ended June 30, (unaudited) |
|----------------------|--------|-----------------------------------------|
|                 |   | 2010                                    |   | 2009 |   | Change |
|                 |   |                                    |   |   |   |   |
| Interest expense     |   | $885,211                                |   | $683,437 |   | $201,774 |
| Interest income      |   | (210)                                   |   | (2,114) |   | 1,904 |
| Net interest expense |   | $885,001                                |   | $681,323 |   | $203,678 |

|                 |   | Six Months Ended June 30, (unaudited) |
|----------------------|--------|---------------------------------------|
|                 |   | 2010                                  |   | 2009 |   | Change |
|                 |   |                                  |   |   |   |   |
| Interest expense     |   | $1,539,213                            |   | $1,090,475 |   | $448,738 |
| Interest income      |   | (369)                                 |   | (6,629) |   | 6,260 |
| Net interest expense |   | $1,538,844                            |   | $1,083,846 |   | $454,998 |

|                             |   | For the three months ended June 30, (unaudited) |
|----------------------------------|--------|-------------------------------------------------|
|                             |   | 2010                                            |   | 2009 |   | Change |
|                             |   |                                            |   |   |   |   |
| Net loss                         |   | $1,160,432                                      |   | $2,709,432 |   | $1,549,000 |
|                             |   |                                            |   |   |   |   |
| Components included in net loss: |   |                                            |   |   |   |   |
| Depreciation and amortization    |   | ($1,100,497)                                    |   | ($1,192,247) |   | $  91,750 |
| Stock-based compensation         |   | (166,879)                                       |   | (807,717) |   | 640,838 |
| Interest expense, net            |   | (885,001)                                       |   | (681,323) |   | (203,678) |
| Change in fair value of warrants |   | 833,425                                         |   | 832,494 |   | 931 |
|                             |   | ($1,318,952)                                    |   | ($1,848,793) |   | $529,841 |

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|                             |   | For the six months ended June 30, (unaudited) |
|----------------------------------|--------|-----------------------------------------------|
|                             |   | 2010                                          |   | 2009 |   | Change |
|                             |   |                                          |   |   |   |   |
| Net loss                         |   | $5,076,215                                    |   | $6,221,619 |   | $1,145,404 |
|                             |   |                                          |   |   |   |   |
| Components included in net loss: |   |                                          |   |   |   |   |
| Depreciation and amortization    |   | ($2,258,494)                                  |   | ($2,187,467) |   | ($  71,027) |
| Stock-based compensation         |   | (376,516)                                     |   | (1,100,391) |   | 723,875 |
| Acquisition expenses             |   | -                                             |   | (432,352) |   | 432,352 |
| Interest expense, net            |   | (1,538,844)                                   |   | (1,083,846) |   | (454,998) |
| Change in fair value of warrants |   | (97,956)                                      |   | 923,716 |   | (1,021,672) |
|                             |   | ($4,271,810)                                  |   | ($3,880,340) |   | ($  391,470) |

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|   | • | We 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 note remains subject to the same down-round anti-provision adjustment to the conversion price which was in the unmodified notes. 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 our assets other than the assets pledged with first-priority liens to CIT and to Clutterbuck Funds. When assets are released from the lien of CIT, such assets will become subject to the first-priority lien of Clutterbuck Funds and a second-priority lien of the Investor. Finally, when assets are released from the lien of Clutterbuck Funds, such assets will become subject to the first-priority lien of the Investor; and |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | • | Three of our subsidiaries (ProCyte Corporation, Photo Therapeutics, Inc. and SLT Technology, Inc.) have guaranteed our obligations under the modified Convertible Notes.                                                                                                                                                                                                                                                                                                                                                                      |

----

ITEM 

|                                                       |   |                                               |   | Pro-forma Information        |
|------------------------------------------------------------|--------|----------------------------------------------------|--------|------------------------------|
|                                                       |   | As Reported June 30, 2010                          |   | Common Stock Price Reduction |   | Common Stock Price Increase |
|                                                       |   |                                               |   |                         |   |   |
| Common stock price                                         |   | $ 5.21                                             |   | $ 3.71                       |   | $ 6.71 |
|                                                       |   |                                               |   |                         |   |   |
| Condensed Consolidated Balance Sheet:                      |   |                                               |   |                         |   |   |
| Derivative financial instruments                           |   | $839,481                                           |   | $533,955                     |   | $1,165,744 |
|                                                       |   |                                               |   |                         |   |   |
| Change in fair value of derivative financial instruments   |   | $        - |   | ($305,526)                   |   | $326,263 |
|                                                       |   |                                               |   |                         |   |   |
| Condensed Consolidated Statement of Operations:            |   |                                               |   |                         |   |   |
| Decrease in fair value of derivative financial instruments |   | ($833,425)                                         |   | ($1,138,951)                 |   | ($507,162) |
|                                                       |   |                                               |   |                         |   |   |
| Net loss attributable to common stockholders               |   | ($1,160,418)                                       |   | ($854,892)                   |   | ($1,486,681) |

----

ITEM 

ITEM 

----

----

ITEM 

ITEM 

ITEM 

| 1.1      | Underwriting Agreement, dated May 4, 2010, between PhotoMedex, Inc. and Ladenburg Thalmann & Co. Inc. (1)                                                                                                                                                   |
|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1     | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                 |
| 31.2     | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                 |
| 32.1     | Certification 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     | Certification 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 Current Report on Form 8-K on May 4, 2010 |
|------------------|----------------------------------------------------------------|

SIGNATURES

|                                  |   PHOTOMEDEX, INC. |                                                             |
|---------------------------------------|-------------------------|------------------------------------------------------------------|
|                                  |                    |                                                             |   |
| Date   August 16, 2010 | By:                     | /s/ Dennis M. McGrath                                       |   |
|                                  |                    | Name:  Dennis M. McGrath                                    |   |
|                                  |                    | Title:    President & Chief Executive Officer |   |

| Date   August 16, 2010 | By:    | /s/ Christina L. Allgeier                   |   |
|---------------------------------------|--------|--------------------------------------------------|--------|
|                                  |   | Name:  Christina L. Allgeier           |   |
|                                  |   | Title:    Chief Financial Officer |   |

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