----

----

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

----

| Part I. Financial Information: | PAGE                                                                                                           |
|--------------------------------|----------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                           |   |   |
|                           | ITEM 1.  Financial Statements:                                                                       |   |
|                           | a.                                                                                                             | Condensed Consolidated Balance Sheets, March 31, 2011 (unaudited) and December 31, 2010 | 1 |
|                           |                                                                                                           |   |   |
|                           | b.                                                                                                             | Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited) | 2 |
|                           |                                                                                                           |   |   |
|                           | c.                                                                                                             | Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2011 (unaudited) | 3 |
|                           |                                                                                                           |   |   |
|                           | d.                                                                                                             | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited) | 4 |
|                           |                                                                                                           |   |   |
|                           | e.                                                                                                             | Notes to Condensed Consolidated Financial Statements (unaudited) | 5 |
|                           |                                                                                                           |   |   |
|                           | ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
|                           |                                                                                                           |   |   |
|                           | ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk                                   | 36 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4.  Controls and Procedures                                                                     | 37 |
|                           |                                                                                                           |   |   |
| Part II. Other Information:    |                                                                                                           |
|                           |                                                                                                           |   |   |
|                           | ITEM 1.  Legal Proceedings                                                                           | 38 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4.   Removed and Reserved                                                                  | 39 |
|                           |                                                                                                           |   |   |
|                           | ITEM 5.   Other Information                                                                     | 39 |
|                           |                                                                                                           |   |   |
|                           | ITEM 6.  Exhibits                                                                                    | 39 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Signatures | 40 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Certifications | E-31.1 |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                    |   | March 31, 2011 |         |   | December 31, 2010 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------------|--------|-------------------|--------|
|                                                                                                                                                                    |   | (Unaudited)    |         |   |              | *      |   |
| ASSETS                                                                                                                                                                  |   |           |         |   |              |   |   |
|                                                                                                                                                                    |   |           |         |   |              |   |   |
| Current assets:                                                                                                                                                         |   |           |         |   |              |   |   |
| Cash and cash equivalents                                                                                                                                               |   | $              | 2,551,291    |   |              | $      | 3,523,948 |   |
| Accounts receivable, net of allowance for doubtful accounts of $224,000 and $265,000, respectively                                                                      |   |           | 2,960,703    |   |              |   | 3,277,095 |   |
| Inventories, net                                                                                                                                                        |   |           | 7,084,767    |   |              |   | 6,141,179 |   |
| Prepaid expenses and other current assets                                                                                                                               |   |           | 748,740      |   |              |   | 671,192 |   |
| Total current assets                                                                                                                                                    |   |           | 13,345,501   |   |              |   | 13,613,414 |   |
|                                                                                                                                                                    |   |           |         |   |              |   |   |   |
| Property and equipment, net                                                                                                                                             |   |           | 5,997,437    |   |              |   | 6,918,944 |   |
| Patents and licensed technologies, net                                                                                                                                  |   |           | 6,582,886    |   |              |   | 6,813,528 |   |
| Goodwill                                                                                                                                                                |   |           | 19,569,200   |   |              |   | 19,569,200 |   |
| Other intangible assets, net                                                                                                                                            |   |           | 1,623,351    |   |              |   | 1,688,352 |   |
| Other assets                                                                                                                                                            |   |           | 832,714      |   |              |   | 892,280 |   |
| Total assets                                                                                                                                                            |   | $              | 47,951,089   |   |              | $      | 49,495,718 |   |
|                                                                                                                                                                    |   |           |         |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                    |   |           |         |   |              |   |   |   |
|                                                                                                                                                                    |   |           |         |   |              |   |   |   |
| Current liabilities:                                                                                                                                                    |   |           |         |   |              |   |   |   |
| Current portion of notes payable                                                                                                                                        |   | $              | 33,152       |   |              | $      | 77,796 |   |
| Current portion of long-term debt                                                                                                                                       |   |           | 1,192,255    |   |              |   | 2,867,720 |   |
| Accounts payable                                                                                                                                                        |   |           | 3,553,460    |   |              |   | 2,801,568 |   |
| Accrued compensation and related expenses                                                                                                                               |   |           | 1,434,914    |   |              |   | 1,782,793 |   |
| Accrued interest payable                                                                                                                                                |   |           | 204,209      |   |              |   | 699,025 |   |
| Other accrued liabilities                                                                                                                                               |   |           | 1,851,399    |   |              |   | 1,765,523 |   |
| Deferred revenues                                                                                                                                                       |   |           | 661,911      |   |              |   | 496,443 |   |
| Total current liabilities                                                                                                                                               |   |           | 8,931,300    |   |              |   | 10,490,868 |   |
| Long-term liabilities:                                                                                                                                                  |   |           |         |   |              |   |   |   |
| Notes payable                                                                                                                                                           |   |           | 5,342        |   |              |   | 13,817 |   |
| Long-term debt                                                                                                                                                          |   |           | 1,070,664    |   |              |   | 29,933 |   |
| Convertible debt                                                                                                                                                        |   |           | 20,434,762   |   |              |   | 19,344,136 |   |
| Warrants related to convertible debt                                                                                                                                    |   |           | 1,222,145    |   |              |   | 938,623 |   |
| Total liabilities                                                                                                                                                       |   |           | 31,664,213   |   |              |   | 30,817,377 |   |
|                                                                                                                                                                    |   |           |         |   |              |   |   |   |
| Stockholders’ equity:                                                                                                                                             |   |           |         |   |              |   |   |   |
| Common stock, $.01 par value, 35,000,000 shares authorized; 3,069,749 and 2,843,749 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively |   |           | 30,697       |   |              |   | 28,437 |   |
| Additional paid-in capital                                                                                                                                              |   |           | 143,619,338  |   |              |   | 143,106,355 |   |
| Accumulated deficit                                                                                                                                                     |   |           | (127,472,533 | )      |              |   | (124,564,120 | ) |
| Accumulated other comprehensive income                                                                                                                                  |   |           | 109,374      |   |              |   | 107,669 |   |
| Total stockholders’ equity                                                                                                                                        |   |           | 16,286,876   |   |              |   | 18,678,341 |   |
| Total liabilities and stockholders’ equity                                                                                                                        |   | $              | 47,951,089   |   |              | $      | 49,495,718 |   |

----

STATEMENTS OF OPERATIONS

|                                                          |   | For the Three Months Ended March 31, |        |
|---------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                          |   | 2011                                 |        |   | 2010 |   |
|                                                          |   |                                 |        |   |   |   |
| Revenues:                                                     |   |                                 |        |   |   |   |
| Product sales                                                 |   | $                                    | 6,376,361   |   |   | $ | 4,157,328 |   |
| Services                                                      |   |                                 | 1,846,361   |   |   |   | 2,529,600 |   |
|                                                          |   |                                 | 8,222,722   |   |   |   | 6,686,928 |   |
|                                                          |   |                                 |        |   |   |   |   |   |
| Cost of revenues:                                             |   |                                 |        |   |   |   |   |   |
| Product cost of revenues                                      |   |                                 | 3,057,788   |   |   |   | 2,199,610 |   |
| Services cost of revenues                                     |   |                                 | 1,334,577   |   |   |   | 1,394,727 |   |
|                                                          |   |                                 | 4,392,365   |   |   |   | 3,594,337 |   |
|                                                          |   |                                 |        |   |   |   |   |   |
| Gross profit                                                  |   |                                 | 3,830,357   |   |   |   | 3,092,591 |   |
|                                                          |   |                                 |        |   |   |   |   |   |
| Operating expenses:                                           |   |                                 |        |   |   |   |   |   |
| Selling and marketing                                         |   |                                 | 3,298,512   |   |   |   | 3,131,934 |   |
| General and administrative                                    |   |                                 | 1,813,335   |   |   |   | 1,951,939 |   |
| Engineering and product development                           |   |                                 | 456,325     |   |   |   | 339,277 |   |
|                                                          |   |                                 | 5,568,172   |   |   |   | 5,423,150 |   |
|                                                          |   |                                 |        |   |   |   |   |   |
| Operating loss from continuing operations                     |   |                                 | (1,737,815  | ) |   |   | (2,330,559 | ) |
|                                                          |   |                                 |        |   |   |   |   |   |
| Other income (loss):                                          |   |                                 |        |   |   |   |   |   |
| Interest expense, net                                         |   |                                 | (887,076    | ) |   |   | (653,843 | ) |
| Change in fair value of warrants                              |   |                                 | (283,522    | ) |   |   | (931,381 | ) |
|                                                          |   |                                 |        |   |   |   |   |   |
| Net loss                                                      |   | $                                    | ( 2,908,413 | ) |   | $ | ( 3,915,783 | ) |
|                                                          |   |                                 |        |   |   |   |   |   |
|                                                          |   |                                 |        |   |   |   |   |   |
| Basic and diluted net loss per share                          |   | $                                    | (1.02       | ) |   | $ | (1.75 | ) |
|                                                          |   |                                 |        |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per share |   |                                 | 2,859,327   |   |   |   | 2,238,456 |   |

----

STOCKHOLDERS’ EQUITY

|                                                         |   |         |      |   |       |   |   |        |   |   | Accumulated   |   |   |   |         |
|--------------------------------------------------------------|--------|--------------|-----------|--------|------------|--------|--------|-------------|--------|--------|---------------|--------|--------|--------|--------------|
|                                                         |   |         |      |   | Additional |   |   |        |   |   | Other         |   |   |   |         |
|                                                         |   | Common Stock |      |   | Paid-In    |   |   | Accumulated |   |   | Comprehensive |   |   |   |         |
|                                                         |   | Shares       |      |   | Amount     |   |   | Capital     |   |   | Deficit       |   |   | Income |         |   | Total |   |
| BALANCE, JANUARY 1, 2011                                     |   |         | 2,843,749 |   |       | $      | 28,437 |        |   | $      | 143,106,355   |   |   | $      | (124,564,120 | ) |   | $ | 107,669 |   |   | $ | 18,678,341 |   |
| Issuance of warrants related to debt financing               |   |         | -         |   |       |   | -      |        |   |   | 433,870       |   |   |   | -            |   |   |   | - |   |   |   | 433,870 |   |
| Stock issued to consultants for services                     |   |         | 8,000     |   |       |   | 80     |        |   |   | 42,893        |   |   |   | -            |   |   |   | - |   |   |   | 42,973 |   |
| Share-based compensation related to restricted stock         |   |         | 210,000   |   |       |   | 2,100  |        |   |   | 16,709        |   |   |   | -            |   |   |   | - |   |   |   | 18,809 |   |
| Change in cumulative translation adjustments                 |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | -            |   |   |   | 1,705 |   |   |   | 1,705 |   |
| Share-based compensation expense related to employee options |   |         | -         |   |       |   | -      |        |   |   | 7,911         |   |   |   | -            |   |   |   | - |   |   |   | 7,911 |   |
| Stock issued to employees                                    |   |         | 8,000     |   |       |   | 80     |        |   |   | 11,600        |   |   |   | -            |   |   |   | - |   |   |   | 11,680 |   |
| Net loss for the three months ended March 31, 2011           |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | (2,908,413   | ) |   |   | - |   |   |   | (2,908,413 | ) |
| BALANCE, MARCH 31, 2011                                      |   |         | 3,069,749 |   |       | $      | 30,697 |        |   | $      | 143,619,338   |   |   | $      | (127,472,533 | ) |   | $ | 109,374 |   |   | $ | 16,286,876 |   |

----

CASH FLOWS

|                                                                              |   | For the Three Months EndedMarch 31, |         |
|-----------------------------------------------------------------------------------|--------|-------------------------------------|--------------|
|                                                                              |   | 2011                                |         |   | 2010 |   |
| Cash Flows From Operating Activities:                                             |   |                                |         |   |   |   |
| Net loss                                                                          |   | $                                   | ( 2,908,413  | ) |   | $ | ( 3,915,783 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:       |   |                                |         |   |   |   |   |   |
| Depreciation and amortization                                                     |   |                                | 976,289      |   |   |   | 1,157,999 |   |
| Stock issued to consultants for services                                          |   |                                | 46,000       |   |   |   | 73,765 |   |
| Stock-based compensation expense related to employee options and restricted stock |   |                                |  38,400 |   |   |   |  135,872 |   |
| Provision for bad debts                                                           |   |                                | -            |   |   |   | 53,205 |   |
| Change in estimated fair value of warrant liability                               |   |                                | 283,522      |   |   |   | 931,381 |   |
| Loss on disposal of assets                                                        |   |                                | 933          |   |   |   | - |   |
|                                                                              |   |                                |         |   |   |   |   |   |
| Changes in operating assets and liabilities:                                      |   |                                |         |   |   |   |   |   |
| Accounts receivable                                                               |   |                                | 316,665      |   |   |   | 767,686 |   |
| Inventories                                                                       |   |                                | (922,356     | ) |   |   | 383,335 |   |
| Prepaid expenses and other assets                                                 |   |                                | 188,285      |   |   |   | 97,631 |   |
| Accounts payable                                                                  |   |                                | 736,349      |   |   |   | 222,179 |   |
| Accrued compensation and related expenses                                         |   |                                | (355,819     | ) |   |   | (418,404 | ) |
| Other accrued liabilities                                                         |   |                                | 83,951       |   |   |   | (329,368 | ) |
| Interest accrued on convertible debt                                              |   |                                | 526,498      |   |   |   | 407,643 |   |
| Deferred revenues                                                                 |   |                                | 165,468      |   |   |   | 159,680 |   |
| Net cash used in operating activities                                             |   |                                | (824,228     | ) |   |   | (273,179 | ) |
|                                                                              |   |                                |         |   |   |   |   |   |
| Cash Flows From Investing Activities:                                             |   |                                |         |   |   |   |   |   |
| Purchases of property and equipment                                               |   |                                | (16,336      | ) |   |   | (3,000 | ) |
| Lasers placed into service, net                                                   |   |                                | 258,470      |   |   |   | (708,483 | ) |
| Acquisition costs, net of cash received                                           |   |                                | -            |   |   |   | (96,514 | ) |
| Net cash provided by (used in) investing activities                               |   |                                | 242,134      |   |   |   | (807,997 | ) |
|                                                                              |   |                                |         |   |   |   |   |   |
| Cash Flows From Financing Activities:                                             |   |                                |         |   |   |   |   |   |
| Registration costs                                                                |   |                                | (3,027       | ) |   |   | (433,215 | ) |
| Payments on notes payable                                                         |   |                                | (57,711      | ) |   |   | (106,452 | ) |
| Proceeds from term debt                                                           |   |                                | -            |   |   |   | 2,500,000 |   |
| Repayments on line of credit                                                      |   |                                | (332,209     | ) |   |   | (946,652 | ) |
| Net cash (used in) provided by financing activities                               |   |                                | (392,947     | ) |   |   | 1,013,681 |   |
| Effect of exchange rate changes on cash                                           |   |                                | 2,384        |   |   |   | (25,062 | ) |
| Net decrease in cash and cash equivalents                                         |   |                                | (972,657     | ) |   |   | (92,557 | ) |
|                                                                              |   |                                |         |   |   |   |   |   |
| Cash and cash equivalents, beginning of period                                    |   |                                | 3,523,948    |   |   |   | 2,116,788 |   |
|                                                                              |   |                                |         |   |   |   |   |   |
| Cash and cash equivalents, end of period                                          |   | $                                   | 2,551,291    |   |   | $ | 2,024,231 |   |

----

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 March 31, 2011    |      |   | 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) |   | $                                  | 1,222,145 |   |                                                               | $      | -      |                                              |   | $      | -                                        |   |   | $ | 1,222,145 |   |
|                                       |   |                               |      |   |                                                               |   |   |                                              |   |   |                                     |   |   |   |   |   |
|                                       |   | Fair Value as of December 31, 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) |   | $                                  | 938,623   |   |                                                               | $      | -      |                                              |   | $      | -                                        |   |   | $ | 938,623 |   |

----

----

|                                  |   | Three Months Ended March 31, 2011(unaudited) |      |
|---------------------------------------|--------|----------------------------------------------|-----------|
| Accrual at beginning of period        |   | $                                            | 1,001,236 |   |
| Additions charged to warranty expense |   |                                         | 123,491   |   |
| Expiring warranties                   |   |                                         | (59,100   | ) |
| Claims satisfied                      |   |                                         | (96,540   | ) |
| Accrual at end of period              |   | $                                            | 969,087   |   |

----

|                                        |   | Three Months Ended March 31,(unaudited) |        |
|---------------------------------------------|--------|-----------------------------------------|-------------|
|                                        |   | 2011                                    |        |   | 2010 |   |
| Net loss                                    |   | $                                       | (2,908,413  | ) |   | $ | (3,915,783 | ) |
| Change in cumulative translation adjustment |   |                                    |  1,705 |   |   |   | (25,359 | ) |
| Comprehensive loss                          |   | $                                       | (2,906,708  | ) |   | $ | (3,941,142 | ) |

|                               |   | March 31, 2011 |      |   | December 31, 2010 |   |
|------------------------------------|--------|---------------------|-----------|--------|------------------------|--------|
|                               |   | (unaudited)         |      |   |                   |   |
| Raw materials and work in progress |   | $                   | 4,660,367 |   |                   | $      | 4,114,505 |   |
| Finished goods                     |   |                | 2,424,400 |   |                   |   | 2,026,674 |   |
| Total inventories                  |   | $                   | 7,084,767 |   |                   | $      | 6,141,179 |   |

----

|                                      |   | March 31, 2011 |       |   | December 31, 2010 |   |
|-------------------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                                      |   | (unaudited)    |       |   |              |   |
| Lasers in service                         |   | $              | 12,798,070 |   |              | $      | 14,061,390 |   |
| Computer hardware and software            |   |           | 373,403    |   |              |   | 376,393 |   |
| Furniture and fixtures                    |   |           | 744,215    |   |              |   | 744,991 |   |
| Machinery and equipment                   |   |           | 770,898    |   |              |   | 835,780 |   |
| Leasehold improvements                    |   |           | 339,423    |   |              |   | 339,423 |   |
|                                      |   |           | 15,026,009 |   |              |   | 16,357,977 |   |
| Accumulated depreciation and amortization |   |           | (9,028,572 | )      |              |   | (9,439,033 | ) |
| Property and equipment, net               |   | $              | 5,997,437  |   |              | $      | 6,918,944 |   |

|                                                                                                                                                |   | March 31, 2011 |             |   | December 31, 2010 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------------|--------|-------------------|--------|
|                                                                                                                                                |   | (unaudited)    |             |   |              |   |
| Patents, owned and licensed, at gross costs of $8,033,409, net of accumulated amortization of $2,006,157 and $1,816,979, respectively.              |   | $              |   6,027,252 |   |              | $      |   6,216,430 |   |
| Other licensed or developed technologies, at gross costs of $2,337,326, net of accumulated amortization of $1,781,692 and $1,740,228, respectively. |   |           |  555,634    |   |              |   |  597,098 |   |
|                                                                                                                                                |   | $              | 6,582,886        |   |              | $      | 6,813,528 |   |

----

|                            |   | March 31, 2011 |       |   | December 31, 2010 |   |
|---------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                            |   | (unaudited)    |       |   |              |   |
| Physician Domestic segment      |   | $              | 12,793,455 |   |              | $      | 12,793,455 |   |
| Physician International segment |   |           | 4,037,934  |   |              |   | 4,037,934 |   |
| Other Channels segment          |   |           | 2,737,811  |   |              |   | 2,737,811 |   |
| Total goodwill                  |   | $              | 19,569,200 |   |              | $      | 19,569,200 |   |

|                                                                                                                             |   | March 31, 2011 |          |   | December 31, 2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------------|--------|-------------------|--------|
|                                                                                                                             |   | (unaudited)    |          |   |              |   |
| Customer Relationships, at gross cost of $2,200,000, net of accumulated amortization of $1,804,167 and $1,791,667, respectively. |   | $              |  395,833 |   |              | $      |  408,333 |   |
| Tradename, at gross cost of $2,100,000, net of accumulated amortization of $872,482 and $819,981, respectively.                  |   |           | 1,227,518     |   |              |   |  1,280,019 |   |
|                                                                                                                             |   | $              | 1,623,351     |   |              | $      | 1,688,352 |   |

|                                           |   | March 31, 2011 |      |   | December 31, 2010 |   |
|------------------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                                           |   | (unaudited)    |      |   |              |   |
| Accrued payroll and related taxes              |   | $              | 199,560   |   |              | $      | 392,994 |   |
| Accrued vacation                               |   |           | 247,544   |   |              |   | 146,495 |   |
| Accrued commissions and bonus                  |   |           | 875,577   |   |              |   | 1,021,798 |   |
| Accrued severance                              |   |           | 112,233   |   |              |   | 221,506 |   |
| Total accrued compensation and related expense |   | $              | 1,434,914 |   |              | $      | 1,782,793 |   |

----

|                                      |   | March 31, 2011 |      |   | December 31, 2010 |   |
|-------------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                                      |   | (unaudited)    |      |   |              |   |
| Accrued professional and consulting fees  |   | $              | 298,189   |   |              | $      | 203,445 |   |
| Accrued warranty                          |   |           | 969,087   |   |              |   | 1,001,236 |   |
| Accrued excise taxes and other expenses   |   |           | 414,952   |   |              |   | 391,671 |   |
| Accrued sales return – CVS/pharmacy |   |           | 169,171   |   |              |   | 169,171 |   |
| Total other accrued liabilities           |   | $              | 1,851,399 |   |              | $      | 1,765,523 |   |

|                                                                                                                                                |   | March 31, 2011 |    |   | December 31, 2010 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                                                                                                                                                |   | (unaudited)    |    |   |              |   |
| Note payable – unsecured creditor, interest at 3.78%, payable in monthly principal and interest installments of $45,278 through January 2011. |   | $              | -       |   |              | $      | 45,136 |   |
|                                                                                                                                                |   |           |    |   |              |   |   |   |
| Note Payable – unsecured creditor, interest at 6%, payable in monthly principal and interest installments of $2,880 through June 2012         |   |           | 38,494  |   |              |   | 46,477 |   |
|                                                                                                                                                |   |           |    |   |              |   |   |   |
|                                                                                                                                                |   |           | 38,494  |   |              |   | 91,613 |   |
| Less: current maturities                                                                                                                            |   |           | (33,152 | )      |              |   | (77,796 | ) |
| Notes payable, net of current maturities                                                                                                            |   | $              | 5,342   |   |              | $      | 13,817 |   |

|                                                                                                               |   | March 31, 2011 |       |   | December 31, 2010 |   |
|--------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                                                                                                               |   | (unaudited)    |       |   |              |   |
| Term note, net of unamortized debt discount of $727,192 and $427,433, respectively                                 |   | $              | 1,772,808  |   |              | $      | 2,072,567 |   |
| Total borrowings on term note credit facility, net of unamortized debt discount of $1,657 and $3,482, respectively |   |           | 445,477    |   |              |   | 775,861 |   |
| Capital lease obligations                                                                                          |   |           | 44,634     |   |              |   | 49,225 |   |
| Less: current portion                                                                                              |   |           | (1,192,255 | )      |              |   | (2,867,720 | ) |
| Total long-term debt                                                                                               |   | $              | 1,070,664  |   |              | $      | 29,933 |   |

----

|                                 |   | March 2011 |    |   | March 2010 |   |
|--------------------------------------|--------|------------|---------|--------|------------|--------|
|                                 |   |       |    |   |       |   |
| Number of shares underlying warrants |   |       | 109,650 |   |       |   | 102,180 |   |
| Exercise price                       |   | $          | 5.70    |   |       | $      | 7.34 |   |
| Fair value of warrants               |   | $          | 433,870 |   |       | $      | 769,754 |   |
| Volatility                           |   |       | 87.71   | %      |       |   | 87.68 | % |
| Risk-free interest rate              |   |       | 2.23    | %      |       |   | 2.48 | % |
| Expected dividend yield              |   |       | 0       | %      |       |   | 0 | % |
| Expected warrant life                |   | 5 years    |    |   | 5 years    |   |

----

| Year Ended December 31,                    |   |   |      |
|--------------------------------------------|--------|--------|-----------|
| Nine months of 2011                        |   | $      | 1,195,175 |   |
| 2012                                       |   |   | 2,149,416 |   |
| 2013                                       |   |   | 8,192     |   |
| Total minimum payments                     |   |   | 3,352,783 |   |
|                                       |   |   |      |   |
| Less: interest                             |   |   | (361,015  | ) |
| Less: unamortized warrant discount         |   |   | (728,849  | ) |
|                                       |   |   |      |   |
| Present value of total minimum obligations |   | $      | 2,262,919 |   |

|                                |   | March 31, 2011 |       |   | December 31, 2010 |   |
|-------------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                                |   | (unaudited)    |       |   |              |   |
| Total borrowings on credit facility |   | $              | 20,434,762 |   |              | $      | 19,344,136 |   |
| Less: current portion               |   |           | -          |   |              |   | - |   |
| Total long-term debt                |   | $              | 20,434,762 |   |              | $      | 19,344,136 |   |

----

|   • |   | The Company combined the aggregate outstanding obligations under the Convertible Notes into two convertible notes: Series B-1 and Series B-2. Each note matures on February 27, 2014 and is identical to the original form of convertible note except as noted below. The interest accruing under each note can be paid in the form of additional convertible notes, and in fact the interest earned and payable on September 1,2010 and on March 1, 2011 was paid in the form of additional convertible notes;                                                                     |
|----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   • |   | The larger, Series B-2 note had a principal amount of $16,746,270. This note remained 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 smaller, Series B-1 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 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 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 Convertible Notes.                                                                                                                                                                                                                                                                                                                                                                                     |

----

|                                 |   | March 31, 2011 |      |   | December 31, 2010 |   |    | March 31, 2010 |   |
|--------------------------------------|--------|----------------|-----------|--------|-------------------|--------|---------|----------------|--------|
| Number of shares underlying warrants |   |           | 301,288   |   |              |   | 293,610 |           |   |   | 251,528 |   |
| Exercise price                       |   | $              | 17.92     |   |              | $      | 18.39   |           |   | $ | 21.47 |   |
| Fair value of warrants               |   | $              | 1,222,145 |   |              | $      | 938,623 |           |   | $ | 1,672,906 |   |
| Volatility                           |   |           | 84.18     | %      |              |   | 83.04   | %              |   |   | 82.13 | % |
| Risk-free interest rate              |   |           | 2.21      | %      |              |   | 2.71    | %              |   |   | 3.32 | % |
| Expected dividend yield              |   |           | 0         | %      |              |   | 0       | %              |   |   | 0 | % |
| Expected warrant life                |   | 5.92 years     |      |   | 6.17 years        |   |    | 6.92 years     |   |

----

| Warrant liability:                 |   |   |      |
|------------------------------------|--------|--------|-----------|
| Balance as of December 31, 2009    |   | $      | 741,525   |   |
| Increase in fair value of warrants |   |   | 197,098   |   |
| Balance as of December 31, 2010    |   |   | 938,623   |   |
| Increase in fair value of warrants |   |   | 283,522   |   |
| Balance as of March 31, 2011       |   | $      | 1,222,145 |   |

|                                   |   |  Number of Options |   |   | Weighted Average Exercise Price |   |
|----------------------------------------|--------|-------------------------|--------|--------|--------------------------------------|--------|
| Outstanding, January 1, 2011           |   |                    | 70,661 |   |                                 | $      | 28.70 |   |
| Granted                                |   |                    | -      |   |                                 |   | - |   |
| Cancelled                              |   |                    | (952   | )      |                                 |   | 236.46 |   |
| Outstanding, March 31 2011             |   |                    | 69,709 |   |                                 | $      | 25.86 |   |
| Options excercisable at March 31, 2011 |   |                    | 44,894 |   |                                 | $      | 36.49 |   |

| Assumptions for Option Grants | Three Months Ended March 31, 2010 |
|-------------------------------|-----------------------------------|
|                          | (unaudited)                       |
| Risk-free interest rate       | 3.71%                             |
| Volatility                    | 84.37%                            |
| Expected dividend yield       | 0%                                |
| Expected life                 | 8.1 years                         |
| Estimated forfeiture rate     | 17%                               |

----

----

|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |
|-------------------------------------|--------|-------------------|---------------------------------------------------------------|--------|--------------------------|--------|---------------|---------------|--------|--------|------------------|--------|--------|--------|--------------|
|                                |   | PHYSICIANDOMESTIC |                                                          |   | PHYSICIAN INTERN’L |   |          | OTHERCHANNELS |   |   | SURGICALPRODUCTS |   |   | TOTAL  |         |
| Revenues                            |   | $                 | 4,988,716                                                     |   |                     | $      | 1,833,842     |          |   | $      | 619,237          |   |   | $      | 780,927      |   |   | $ | 8,222,722 |   |
| Costs of revenues                   |   |              | 2,477,684                                                     |   |                     |   | 1,116,578     |          |   |   | 323,853          |   |   |   | 474,250      |   |   |   | 4,392,365 |   |
| Gross profit                        |   |              | 2,511,032                                                     |   |                     |   | 717,264       |          |   |   | 295,384          |   |   |   | 306,677      |   |   |   | 3,830,357 |   |
| Gross profit %                      |   |              | 50.3                                                          | %      |                     |   | 39.1          | %             |   |   | 47.7             | %      |   |   | 39.3         | % |   |   | 46.6 | % |
|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Allocated operating expenses:       |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Selling, general and administrative |   |              |  2,944,255                                               |   |                     |   | 143,546       |          |   |   |  231,052    |   |   |   |  32,702 |   |   |   |  3,351,555 |   |
| Engineering and product development |   |              |  222,654                                                 |   |                     |   |  122,253 |          |   |   |  45,230     |   |   |   | 66,188       |   |   |   |  456,325 |   |
|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Unallocated operating expenses      |   |              |  -                                                       |   |                     |   |  -       |          |   |   |  -          |   |   |   |  -      |   |   |   |  1,760,292 |   |
|                                |   |              | 3,166,909                                                     |   |                     |   | 265,799       |          |   |   | 276,282          |   |   |   | 98,890       |   |   |   | 5,568,172 |   |
| Income (loss) from operations       |   |              | (655,877                                                      | )      |                     |   | 451,465       |          |   |   | 19,102           |   |   |   | 207,787      |   |   |   | (1,737,815 | ) |
|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Interest expense, net               |   |              | -                                                             |   |                     |   | -             |          |   |   | -                |   |   |   | -            |   |   |   | (887,076 | ) |
| Change in fair value of warrant     |   |              |           - |   |                     |   | -             |          |   |   | -                |   |   |   | -            |   |   |   | (283,522 | ) |
|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Net (loss) income                   |   | $                 | (655,877                                                      | )      |                     | $      | 451,465       |          |   | $      | 19,102           |   |   | $      | 207,787      |   |   | $ | (2,908,413 | ) |
|                                |   |              |                                                          |   |                     |   |          |          |   |   |             |   |   |   |         |   |   |   |   |   |

----

|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |
|-------------------------------------|--------|-------------------|---------------------------------------------------------------------------------|--------|--------------------------|--------|--------------|---------------|--------|--------|------------------|--------|--------|--------|--------------|
|                                |   | PHYSICIANDOMESTIC |                                                                            |   | PHYSICIAN INTERN’L |   |         | OTHERCHANNELS |   |   | SURGICALPRODUCTS |   |   | TOTAL  |         |
| Revenues                            |   | $                 | 3,874,987                                                                       |   |                     | $      | 1,230,081    |          |   | $      | 780,791          |   |   | $      | 801,069      |   |   | $ | 6,686,928 |   |
| Costs of revenues                   |   |              | 1,982,439                                                                       |   |                     |   | 692,713      |          |   |   | 414,866          |   |   |   | 504,319      |   |   |   | 3,594,337 |   |
| Gross profit                        |   |              | 1,892,548                                                                       |   |                     |   | 537,368      |          |   |   | 365,925          |   |   |   | 296,750      |   |   |   | 3,092,591 |   |
| Gross profit %                      |   |              | 48.8                                                                            | %      |                     |   | 43.7         | %             |   |   | 46.9             | %      |   |   | 37.0         | % |   |   | 46.2 | % |
|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Allocated operating expenses:       |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Selling, general and administrative |   |              |  2,787,307                                                                 |   |                     |   | 274,402      |          |   |   |  185,956    |   |   |   |  38,186 |   |   |   |  3,285,851 |   |
| Engineering and product development |   |              |  115,004                                                                   |   |                     |   |  95,193 |          |   |   |  96,063     |   |   |   | 33,017       |   |   |   |  339,277 |   |
|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Unallocated operating expenses      |   |              |  -                                                                         |   |                     |   |  -      |          |   |   |  -          |   |   |   |  -      |   |   |   |  1,798,022 |   |
|                                |   |              | 2,902,311                                                                       |   |                     |   | 369,595      |          |   |   | 282,019          |   |   |   | 71,203       |   |   |   | 5,423,150 |   |
| Income (loss) from operations       |   |              | (1,009,763                                                                      | )      |                     |   | 167,773      |          |   |   | 83,906           |   |   |   | 225,547      |   |   |   | (2,330,559 | ) |
|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Interest expense, net               |   |              | -                                                                               |   |                     |   | -            |          |   |   | -                |   |   |   | -            |   |   |   | (653,843 | ) |
| Change in fair value of warrant     |   |              |              - |   |                     |   | -            |          |   |   | -                |   |   |   | -            |   |   |   | (931,381 | ) |
|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |
| Net (loss) income                   |   | $                 | (1,009,763                                                                      | )      |                     | $      | 167,773      |          |   | $      | 83,906           |   |   | $      | 207,547      |   |   | $ | (3,915,783 | ) |
|                                |   |              |                                                                            |   |                     |   |         |          |   |   |             |   |   |   |         |   |   |   |   |   |

|                                 |   | March 31, 2011 |       |   | December 31, 2010 |   |
|--------------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                                 |   | (unaudited)    |       |   |              |   |
| Assets:                              |   |           |       |   |              |   |
| Total assets for reportable segments |   | $              | 44,593,643 |   |              | $      | 44,986,796 |   |
| Other unallocated assets             |   |           | 3,357,446  |   |              |   | 4,508,922 |   |
| Consolidated total                   |   | $              | 47,951,089 |   |              | $      | 49,495,718 |   |

|     |   | Three Months Ended March 31, (unaudited) |      |
|----------|--------|------------------------------------------|-----------|
|     |   | 2011                                     |      |   | 2010 |   |
| Domestic |   | $                                        | 6,152,513 |   |   | $ | 5,398,273 |   |
| Foreign  |   |                                     | 2,070,209 |   |   |   | 1,288,655 |   |
|     |   | $                                        | 8,222,722 |   |   | $ | 6,686,928 |   |

----

ITEM 

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

----

----

----

|                                         |   | Three Months Ended March 31,(unaudited) |      |
|----------------------------------------------|--------|-----------------------------------------|-----------|
|                                         |   | 2011                                    |      |   | 2010 |   |
| Physician Domestic                           |   | $                                       | 4,988,716 |   |   | $ | 3,874,987 |   |
| Physician International                      |   |                                    | 1,833,842 |   |   |   | 1,230,081 |   |
| Other Channels                               |   |                                    | 619,237   |   |   |   | 780,791 |   |
|    Total Dermatology Revenues |   |                                    | 7,441,795 |   |   |   | 5,885,859 |   |
|                                         |   |                                    |      |   |   |   |   |   |
| Surgical Products                            |   |                                    | 780,927   |   |   |   | 801,069 |   |
|                                         |   |                                    |      |   |   |   |   |   |
| Total Revenues                               |   | $                                       | 8,222,722 |   |   | $ | 6,686,928 |   |

|                              |   | Three Months Ended March 31, (unaudited) |      |
|-----------------------------------|--------|------------------------------------------|-----------|
|                              |   | 2011                                     |      |   | 2010 |   |
| XTRAC treatments                  |   | $                                        | 1,799,276 |   |   | $ | 2,221,897 |   |
| XTRAC laser sales                 |   |                                     | 1,410,840 |   |   |   | 128,200 |   |
| Skincare products                 |   |                                     | 1,501,856 |   |   |   | 1,244,373 |   |
| PTL products                      |   |                                     | 276,744   |   |   |   | 240,650 |   |
| Other                             |   |                                     | -         |   |   |   | 39,867 |   |
|                              |   |                                     |      |   |   |   |   |   |
| Total Physician Domestic Revenues |   | $                                        | 4,988,716 |   |   | $ | 3,874,987 |   |

----

|                                                      |   | Three Months Ended March 31,(unaudited) |          |
|-----------------------------------------------------------|--------|-----------------------------------------|---------------|
|                                                      |   | 2011                                    |          |   | 2010 |   |
| Recognized treatment revenue                              |   | $                                       | 1,799,276     |   |   | $ | 2,221,897 |   |
| Change in deferred treatmentrevenue                       |   |                                    |  143,509 |   |   |   |  148,181 |   |
| Net billed revenue                                        |   | $                                       | 1,942,785     |   |   | $ | 2,370,078 |   |
| Procedure volume total                                    |   |                                    | 31,074        |   |   |   | 38,432 |   |
| Less: Non-billed procedures                               |   |                                    | 1,603         |   |   |   | 1,391 |   |
| Net billed procedures                                     |   |                                    | 29,471        |   |   |   | 37,041 |   |
| Avg. price of treatments billed                           |   | $                                       | 65.92         |   |   | $ | 63.99 |   |
| Change in procedures with deferred treatment revenue, net |   |                                    |  2,177   |   |   |   |  2,316 |   |

----

|                                   |   | Three Months Ended March 31, (unaudited) |      |
|----------------------------------------|--------|------------------------------------------|-----------|
|                                   |   | 2011                                     |      |   | 2010 |   |
| International Dermatology Equipment    |   | $                                        | 1,136,663 |   |   | $ | 632,005 |   |
| International Skincare products        |   |                                     | 357,857   |   |   |   | 361,571 |   |
| International PTL products             |   |                                     | 339,322   |   |   |   | 236,505 |   |
|                                   |   |                                     |      |   |   |   |   |   |
| Total Physician International Revenues |   | $                                        | 1,833,842 |   |   | $ | 1,230,081 |   |

|   | • |   | We sell refurbished domestic XTRAC laser systems into the international market. The selling price for used equipment is substantially less than for new equipment, some of which may be substantially depreciated in connection with its use in the domestic market. We sold 4 of these used lasers in the three month ended March 31, 2011, at an average price of $23,000. We sold 10 of these used lasers, at an average price of $21,000 for the three months ended March 31, 2010; 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. We sold 11 VTRAC systems in the three months ended March 31, 2011 at an average price of $24,500. We sold 2 VTRAC systems, at an average price of $27,500 for the three months ended March 31, 2010.                           |

|                                      |   | Three Months Ended March 31,(unaudited) |      |
|-------------------------------------------|--------|-----------------------------------------|-----------|
|                                      |   | 2011                                    |      |   | 2010 |   |
| Revenues                                  |   | $                                       | 1,136,663 |   |   | $ | 632,005 |   |
|    Less: part sales        |   |                                    | (400,663  | ) |   |   | (188,005 | ) |
| Laser/lamp revenues                       |   |                                    | 736,000   |   |   |   | 444,000 |   |
|    Laser/lamp systems sold |   |                                    | 23        |   |   |   | 16 |   |
| Average revenue per laser/lamp            |   | $                                       | 32,000    |   |   | $ | 27,750 |   |

----

|                          |   | Three Months Ended March 31, (unaudited) |    |
|-------------------------------|--------|------------------------------------------|---------|
|                          |   | 2011                                     |    |   | 2010 |   |
| Skincare products             |   | $                                        | 307,647 |   |   | $ | 481,962 |   |
| PTL products                  |   |                                     | 311,590 |   |   |   | 298,829 |   |
|                          |   |                                     |    |   |   |   |   |   |
| Total Other Channels Revenues |   | $                                        | 619,237 |   |   | $ | 780,791 |   |

|                                        |   | Three Months Ended March 31, (unaudited) |    |
|---------------------------------------------|--------|------------------------------------------|---------|
|                                        |   | 2011                                     |    |   | 2010 |   |
| Revenues                                    |   | $                                        | 780,927 |   |   | $ | 801,069 |   |
|    Laser systems sold        |   |                                     | 7       |   |   |   | 10 |   |
| Laser system revenues                       |   | $                                        | 143,592 |   |   | $ | 241,695 |   |
|    Average revenue per laser |   | $                                        | 20,513  |   |   | $ | 24,170 |   |

----

|                    |   | Three Months Ended March 31, (unaudited) |      |
|-------------------------|--------|------------------------------------------|-----------|
|                    |   | 2011                                     |      |   | 2010 |   |
| Product:                |   |                                     |      |   |   |   |
| Physician Domestic      |   | $                                        | 1,159,705 |   |   | $ | 621,404 |   |
| Physician International |   |                                     | 1,116,578 |   |   |   | 692,713 |   |
| Other Channels          |   |                                     | 323,853   |   |   |   | 414,866 |   |
| Surgical Products       |   |                                     | 457,652   |   |   |   | 470,627 |   |
| Total Product costs     |   | $                                        | 3,057,788 |   |   | $ | 2,199,610 |   |
|                    |   |                                     |      |   |   |   |   |   |
| Services:               |   |                                     |      |   |   |   |   |   |
| Physician Domestic      |   | $                                        | 1,317,979 |   |   | $ | 1,361,035 |   |
| Surgical Products       |   |                                     | 16,598    |   |   |   | 33,692 |   |
| Total Services costs    |   | $                                        | 1,334,577 |   |   | $ | 1,394,727 |   |
|                    |   |                                     |      |   |   |   |   |   |
| Total Costs of Revenues |   | $                                        | 4,392,365 |   |   | $ | 3,594,337 |   |

----

| Company Profit Analysis |   | Three Months Ended March 31,(unaudited) |      |
|-------------------------|--------|-----------------------------------------|-----------|
|                    |   | 2011                                    |      |   | 2010 |   |
| Revenues                |   | $                                       | 8,222,722 |   |   | $ | 6,686,928 |   |
| Percent increase        |   |                                    | 23.0      | % |   |   |   |   |
| Cost of revenues        |   |                                    | 4,392,365 |   |   |   | 3,594,337 |   |
| Percent increase        |   |                                    | 22.2      | % |   |   |   |   |
| Gross profit            |   | $                                       | 3,830,357 |   |   | $ | 3,092,591 |   |
| Gross margin percentage |   |                                    | 46.6      | % |   |   | 46.2 | % |

|   | • |   | In the Physician Domestic segment, we sold approximately $1,283,000 more in domestic XTRAC lasers in the three months ended March 31, 2011 while the cost of sales associated with these sales increased $449,000 between the comparable periods. The margin on these capital equipment sales was 66% in the three months ended March 31, 2011 compared to 77% in the comparable period in 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements.                                                                                                                       |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • |   | In the Physician International segment, we sold 12 XTRAC laser systems and 11 VTRAC lamp-based excimer systems during the three months ended March 31, 2011 and 14 XTRAC laser systems and 2 VTRAC systems in the comparable period in 2010. Included in the 12 XTRAC lasers systems sold were 4 used laser systems, which have a lower average selling price and gross margin percentage, compared to 10 used laser systems sold in the three months ended March 31, 2010. Consequently, gross profit increased as a result of the number of units sold, although gross margin percentage for these units decreased due to the mix of the units sold. |

| Physician Domestic Segment |   | Three Months Ended March 31,(unaudited) |      |
|----------------------------|--------|-----------------------------------------|-----------|
|                       |   | 2011                                    |      |   | 2010 |   |
| Revenues                   |   | $                                       | 4,988,716 |   |   | $ | 3,874,987 |   |
| Percent increase           |   |                                    | 28.7      | % |   |   |   |   |
| Cost of revenues           |   |                                    | 2,477,684 |   |   |   | 1,982,439 |   |
| Percent increase           |   |                                    | 25.0      | % |   |   |   |   |
| Gross profit               |   | $                                       | 2,511,032 |   |   | $ | 1,892,548 |   |
| Gross margin percentage    |   |                                    | 50.3      | % |   |   | 48.8 | % |

----

|   | • |   | We sold approximately $1,283,000 more in domestic XTRAC lasers in the three months ended March 31, 2011 than in the comparable prior year period. The margin on these capital equipment sales was 66% in the three months ended March 31, 2011 compared to 77% in the comparable period in 2010. Certain of these lasers were being depreciated until the time of sale, since they were previously utilized as field placements. |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | • |   | For the three months ended March 31, 2011, the skincare product revenues increased $257,000 over the prior year period, while the cost of sales for these products increased $105,000 for the same comparable periods.                                                                                                                                                                                                           |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | • |   | For the three months ended March 31, 2011, PTL product revenues increased $36,000 over the prior year period, while the cost of sales for these products decreased $16,000 for the same comparable periods.                                                                                                                                                                                                                      |

| Physician International Segment |   | Three Months Ended March 31,(unaudited) |      |
|---------------------------------|--------|-----------------------------------------|-----------|
|                            |   | 2011                                    |      |   | 2010 |   |
| Revenues                        |   | $                                       | 1,833,842 |   |   | $ | 1,230,081 |   |
| Percent increase                |   |                                    | 49.1      | % |   |   |   |   |
| Cost of revenues                |   |                                    | 1,116,578 |   |   |   | 692,713 |   |
| Percent increase                |   |                                    | 61.2      | % |   |   |   |   |
| Gross profit                    |   | $                                       | 717,264   |   |   | $ | 537,368 |   |
| Gross margin percentage         |   |                                    | 39.1      | % |   |   | 43.7 | % |

|   | • |   | For the three months ended March 31, 2011, PTL product revenues increased $103,000 over the prior year period, while the cost of sales for these products increased $35,000 for the same comparable periods.                                                                                                                                                                                                                                                                                                   |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • |   | We sold 12 XTRAC laser systems and 11 VTRAC lamp-based excimer systems during the three months ended March 31, 2011 and 14 XTRAC laser systems and 2 VTRAC systems in the comparable period in 2010. Included in the 12 XTRAC lasers systems sold were 4 used laser systems, which had a higher average selling price and gross margin percentage, than the 10 used laser systems sold in the three months ended March 31, 2010. Consequently, gross profit increased as a result of the number of units sold. |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • |   | XTRAC part sales increased 113% or $212,700 for the three months ended March 31, 2011 as compared to the same period in 2010. There has been a change in the types of parts sold over the comparable periods which has resulted in a decrease in gross margin on the laser parts of 11%.                                                                                                                                                                                                                       |

----

| Other Channels Segment                   |   | Three Months Ended March 31,(unaudited) |    |
|------------------------------------------|--------|-----------------------------------------|---------|
|                                     |   | 2011                                    |    |   | 2010 |   |
| Revenues                                 |   | $                                       | 619,237 |   |   | $ | 780,791 |   |
|     Percent decrease |   |                                    | (20.7   | %) |   |   |   |   |
| Cost of revenues                         |   |                                    | 323,853 |   |   |   | 414,866 |   |
|     Percent decrease |   |                                    | (21.9   | %) |   |   |   |   |
| Gross profit                             |   | $                                       | 295,384 |   |   | $ | 365,925 |   |
| Gross margin percentage                  |   |                                    | 47.7    | % |   |   | 46.9 | % |

|   | • |   | For the three months ended March 31, 2011, skincare product revenues decreased $175,000 over the prior year period, while the cost of sales for these products decreased $52,000 for the same comparable periods.                                                                       |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                                                                                                                                    |
|   | • |   | For the three months ended March 31, 2011, PTL product revenues increased $16,000 over the prior year period, while the cost of sales for these products decreased $36,000 mainly due to the reallocation of duties previously performed in the UK to within our current US operations. |

| Surgical Products Segment |   | Three Months Ended March 31,(unaudited) |    |
|---------------------------|--------|-----------------------------------------|---------|
|                      |   | 2011                                    |    |   | 2010 |   |
| Revenues                  |   | $                                       | 780,927 |   |   | $ | 801,069 |   |
| Percent decrease          |   |                                    | (2.5    | %) |   |   |   |   |
| Cost of revenues          |   |                                    | 474,250 |   |   |   | 504,319 |   |
| Percent decrease          |   |                                    | (6.0    | %) |   |   |   |   |
| Gross profit              |   | $                                       | 306,677 |   |   | $ | 296,750 |   |
| Gross margin percentage   |   |                                    | 39.3    | % |   |   | 37.0 | % |

|   | • |   | 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 March 31, 2011 decreased by $20,000 from the three months ended March 31, 2010. There were 3 fewer laser systems sold in the three months ended March 31, 2011 than in the comparable period of 2010. Additionally, the lasers sold in the 2011 period were sold at lower prices than those sold in the comparable period in 2010. The decrease in average price per laser was largely due to the mix of lasers sold and volume discounts. Included in the laser sales for the three months ended March 31, 2011 and 2010 were sales of diode lasers of $104,000, representing 6 systems, and $190,000, representing 9 systems respectively, which have substantially lower list sales prices than our other types of surgical lasers. |
|--------|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | • |   | Additionally, there was an increase 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 increased 14% between the comparable periods ended March 31, 2011 and 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|   | • |   | There was a $206,000 increase in salaries, benefits and travel expenses associated with an increase in the sales and marketing force.                                           |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                            |
|   | • |   | There was an increase of approximately $185,000 in legal costs in the current year period.                                                                                      |
|   |    |   |                                                                                                                                                                            |
|   | • |   | Partially offsetting the above increases, we had a reduction of costs in our UK offices of approximately $118,000 due to the closing of the two office locations.               |
|   |    |   |                                                                                                                                                                            |
|   | • |   | There was a decrease of approximately $125,000 in stock compensation expense in the current year period. This was due to the completion of the option exchange program in 2010. |
|   |    |   |                                                                                                                                                                            |
|   | • |   | There was also a decrease in bad debt expense of $90,000 in the current year period.                                                                                            |
|   |    |   |                                                                                                                                                                            |
|   | • |   | Additionally, there was a decrease in amortization expense of $72,000 related to intangibles that are fully amortized.                                                          |

|                 |   | Three Months Ended March 31, (unaudited) |    |
|----------------------|--------|------------------------------------------|---------|
|                 |   | 2011                                     |    |   | 2010 |   |   | Change |   |
|                 |   |                                     |    |   |   |   |   |   |   |
| Interest expense     |   | $                                        | 887,117 |   |   | $ | 654,002 |   |   | $ | 233,115 |   |
| Interest income      |   |                                     | (41     | ) |   |   | (159 | ) |   |   | 118 |   |
| Net interest expense |   | $                                        | 887,076 |   |   | $ | 653,843 |   |   | $ | 233,233 |   |
|                 |   |                                     |    |   |   |   |   |   |   |   |   |   |

----

----

|                                                          |   | For the Three Months ended March 31, |       |
|---------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                          |   | 2011                                 |       |   | 2010 |   |   | Change |   |
|                                                          |   |                                 |       |   |   |   |   |   |   |
| Net loss                                                      |   | $                                    | (2,908,413 | ) |   | $ | (3,915,783 | ) |   | $ | 1,007,370 |   |
|                                                          |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Components included in net loss:                              |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                 |   |                                 | 976,289    |   |   |   | 1,157,999 |   |   |   | (181,710 | ) |
| Stock-based compensation expense                              |   |                                 | 84,400     |   |   |   | 209,637 |   |   |   | (125,237 | ) |
| Inventory valuation, severance and bad debt expenses          |   |                                 | -          |   |   |   | 53,205 |   |   |   | (53,205 | ) |
| Interest expense, net                                         |   |                                 | 887,076    |   |   |   | 653,843 |   |   |   | 233,233 |   |
| Change in fair value of warrants                              |   |                                 | 283,522    |   |   |   | 931,381 |   |   |   | (647,859 | ) |
| Non-GAAP adjusted income (loss)                               |   | $                                    | (677,126   | ) |   | $ | (909,718 | ) |   | $ | 232,592 |   |
|                                                          |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per share |   |                                 | 2,859,327  |   |   |   | 2,238,456 |   |   |   |   |   |
|                                                          |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Non-GAAP adjusted income (loss) per share                     |   | $                                    | (0.24      | ) |   | $ | (0.41 | ) |   | $ | 0.17 |   |

----

ITEM 3. 

----

|                                                       |   |                       |       |   | Pro-forma Information        |   |
|------------------------------------------------------------|--------|----------------------------|------------|--------|------------------------------|--------|
|                                                       |   | As Reported March 31, 2011 |       |   | Common Stock Price Reduction |   |   | Common Stock Price Increase |   |
|                                                       |   |                       |       |   |                         |   |   |   |   |
| Common stock price                                         |   | $                          | 7.37       |   |                         | $      | 5.87 |   |   | $ | 8.87 |   |
|                                                       |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Balance Sheet:                      |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Derivative financial instruments                           |   | $                          | 1,222,145  |   |                         | $      | 904,315 |   |   | $ | 1,554,327 |   |
|                                                       |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Change in fair value of derivative financial instruments   |   | $                          | -          |   |                         | $      | (317,830 | ) |   | $ | 332,182 |   |
|                                                       |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Statement of Operations:            |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Increase in fair value of derivative financial instruments |   | $                          | 283,522    |   |                         | $      | (34,308 | ) |   | $ | 615,704 |   |
|                                                       |   |                       |       |   |                         |   |   |   |   |   |   |   |
| Net loss attributable to common stockholders               |   | $                          | (2,908,413 | )      |                         | $      | (2,874,105 | ) |   | $ | (3,240,595 | ) |

ITEM 4

----

ITEM 1. Legal Proceedings

----

ITEM 4. Removed and Reserved

ITEM 5. Other Information

ITEM 6.  Exhibits

| 3.1              |     Articles of Incorporation of PhotoMedex, Inc. (a Nevada corporation), filed on December 28, 2010 (1)                                                                                                                                                                             |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2              |     Bylaws of PhotoMedex, Inc. (a Nevada corporation), adopted December 28, 2010 (1)                                                                                                                                                                                                 |
| 4.18             |     Secured Convertible Promissory Note, dated March 1, 2011, in favor of Perseus Partners VII, L.P. (Series B-1, at 10%) (1)                                                                                                                                                        |
| 4.19             |     Secured Convertible Promissory Note, dated March 1, 2011, in favor of Perseus Partners VII, L.P. (Series B-2, at 10%) (1)                                                                                                                                                        |
| 4.21             |     Amendment No. 2 to Term Loan and Security Agreement, dated March 28, 2011 (1)                                                                                                                                                                                                    |
| 4.22             |     Warrant, dated March 28, 2011, issued to Clutterbuck Funds, LLC (1)                                                                                                                                                                                                              |
| 10.46            |     Restricted Stock Agreement of Dennis M. McGrath, dated March 30, 2011 (1) *                                                                                                                                                                                                      |
| 10.47            |     Restricted Stock Agreement of Michael R. Stewart, dated March 30, 2011 (1) *                                                                                                                                                                                                     |
| 10.48            |     Restricted Stock Agreement of Christina L. Allgeier, dated March 30, 2011 (1) *                                                                                                                                                                                                  |
| 31.1   |     Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer                                                                                                                                                                                    |
| 31.2   |     Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                                  |
| 32.1   |     Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to     Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2   |     Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to     Section 906 of the Sarbanes-Oxley Act of 2002 |

| (1)   | Incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURES

|                               |   PHOTOMEDEX, INC. |                                                            |
|------------------------------------|-------------------------|-----------------------------------------------------------------|
|                               |                    |                                                            |   |
| Date   May 16, 2011 | By:                     | /s/ Dennis M. McGrath                                      |   |
|                               |                    | Name  Dennis M. McGrath                                    |   |
|                               |                    | Title    President & Chief Executive Officer |   |

| Date   May 16, 2011 | By:    | /s/ Christina L. Allgeier                  |   |
|------------------------------------|--------|-------------------------------------------------|--------|
|                               |   | Name  Christina L. Allgeier           |   |
|                               |   | Title    Chief Financial Officer |   |

----

----