----

----

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

----

| Part I. Financial Information: | PAGE                                                                                                           |
|--------------------------------|----------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                           |   |   |
|                           | ITEM 1.  Financial Statements:                                                                       |   |
|                           | a.                                                                                                             | Consolidated Balance Sheets, June 30, 2009 (unaudited) and December 31, 2008 | 3 |
|                           |                                                                                                           |   |   |
|                           | b.                                                                                                             | Consolidated Statements of Operations for the three months ended June 30, 2009 and 2008 (unaudited) | 4 |
|                           |                                                                                                           |   |   |
|                           | c.                                                                                                             | Consolidated Statements of Operations for the six months ended June 30, 2009 and 2008 (unaudited) | 5 |
|                           |                                                                                                           |   |   |
|                           | d.                                                                                                             | Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2009 (unaudited) | 6 |
|                           |                                                                                                           |   |   |
|                           | e.                                                                                                             | Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited) | 7 |
|                           |                                                                                                           |   |   |
|                           | f.                                                                                                             | Notes to Consolidated Financial Statements (unaudited) | 8 |
|                           |                                                                                                           |   |   |
|                           | ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 |
|                           |                                                                                                           |   |   |
|                           | ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk                                   | 47 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4.  Controls and Procedures                                                                     | 48 |
|                           |                                                                                                           |   |   |
| Part II. Other Information:    |                                                                                                           |
|                           |                                                                                                           |   |   |
|                           | ITEM 1  Legal Proceedings                                                                            | 48 |
|                           |                                                                                                           |   |   |
|                           | ITEM 1A.  Risk Factors                                                                               | 49 |
|                           |                                                                                                           |   |   |
|                           | ITEM 4   Submission of Matters to a Vote of Security Holders                                    | 49 |
|                           |                                                                                                           |   |   |
|                           | ITEM 5.  Other Information                                                                           | 50 |
|                           |                                                                                                           |   |   |
|                           | ITEM 6.  Exhibits                                                                                    | 50 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Signatures | 50 |
|                           |                                                                                                           |   |   |
|                           |                                                                                                           | Certifications | 51 |

----

CONSOLIDATED 

|                                                                                                                            |   | June 30, 2009     |            |   | December 31, 2008 |    |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------------|--------|-------------------|---------|
| ASSETS                                                                                                                          |   |  (unaudited) |            |   |              | *  |   |
|                                                                                                                            |   |              |            |   |              |    |   |
| Current assets:                                                                                                                 |   |              |            |   |              |    |   |
| Cash and cash equivalents                                                                                                       |   | $                 | 2,056,567       |   |              | $       | 3,658,607 |   |
| Restricted cash                                                                                                                 |   |              | 78,000          |   |              |    | 78,000 |   |
| Accounts receivable, net of allowance for doubtful accounts of $483,190 and $486,000, respectively                              |   |              |  5,085,576 |   |              |    |  5,421,688 |   |
| Inventories, net                                                                                                                |   |              | 8,982,526       |   |              |    | 6,974,194 |   |
| Prepaid expenses and other current assets                                                                                       |   |              | 707,299         |   |              |    | 322,549 |   |
| Total current assets                                                                                                            |   |              | 16,909,968      |   |              |    | 16,455,038 |   |
|                                                                                                                            |   |              |            |   |              |    |   |   |
| Property and equipment, net                                                                                                     |   |              | 10,763,387      |   |              |    | 10,388,406 |   |
| Patents and licensed technologies, net                                                                                          |   |              | 8,230,091       |   |              |    | 1,142,462 |   |
| Goodwill, net                                                                                                                   |   |              | 19,472,686      |   |              |    | 16,917,808 |   |
| Other intangible assets, net                                                                                                    |   |              | 2,320,625       |   |              |    | 1,095,625 |   |
| Other assets                                                                                                                    |   |              | 1,235,631       |   |              |    | 714,930 |   |
| Total assets                                                                                                                    |   | $                 | 58,932,388      |   |              | $       | 46,714,269 |   |
|                                                                                                                            |   |              |            |   |              |    |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                            |   |              |            |   |              |    |   |   |
|                                                                                                                            |   |              |            |   |              |    |   |   |
| Current liabilities:                                                                                                            |   |              |            |   |              |    |   |   |
| Current portion of notes payable                                                                                                |   | $                 | 420,290         |   |              | $       | 28,975 |   |
| Current portion of long-term debt                                                                                               |   |              | 3,916,933       |   |              |    | 4,663,281 |   |
| Accounts payable                                                                                                                |   |              | 5,573,911       |   |              |    | 5,204,334 |   |
| Accrued compensation and related expenses                                                                                       |   |              | 2,160,117       |   |              |    | 1,487,153 |   |
| Accrued interest payable                                                                                                        |   |              | 480,000         |   |              |    | - |   |
| Other accrued liabilities                                                                                                       |   |              | 1,285,289       |   |              |    | 864,433 |   |
| Deferred revenues                                                                                                               |   |              | 1,140,449       |   |              |    | 798,675 |   |
| Total current liabilities                                                                                                       |   |              | 14,976,989      |   |              |    | 13,046,851 |   |
| Long-term liabilities:                                                                                                          |   |              |            |   |              |    |   |   |
| Notes payable                                                                                                                   |   |              | 62,088          |   |              |    | 77,239 |   |
| Long-term debt                                                                                                                  |   |              | 2,152,705       |   |              |    | 3,907,752 |   |
| Convertible debt                                                                                                                |   |              | 16,527,479      |   |              |    | - |   |
| Warrants related to convertible debt                                                                                            |   |              | 626,595         |   |              |    | - |   |
| Total liabilities                                                                                                               |   |              | 34,345,856      |   |              |    | 17,031,842 |   |
|                                                                                                                            |   |              |            |   |              |    |   |   |
| Stockholders’ equity:                                                                                                     |   |              |            |   |              |    |   |   |
| Common stock, $.01 par value, 21,428,572 shares authorized; 9,033,175 and 9,004,601 shares issued and outstanding, respectively |   |              |  90,331    |   |              |    |  90,046 |   |
| Additional paid-in capital                                                                                                      |   |              | 135,929,611     |   |              |    | 134,912,537 |   |
| Accumulated deficit                                                                                                             |   |              | (111,541,775    | )      |              |    | (105,320,156 | ) |
| Accumulated other comprehensive income                                                                                          |   |              | 108,365         |   |              |    | - |   |
| Total stockholders’ equity                                                                                                |   |              | 24,586,532      |   |              |    | 29,682,427 |   |
| Total liabilities and stockholders’ equity                                                                                |   | $                 | 58,932,388      |   |              | $       | 46,714,269 |   |

----

CONSOLIDATED 

|                                                          |   | For the Three Months Ended June 30, |        |
|---------------------------------------------------------------|--------|-------------------------------------|-------------|
|                                                          |   | 2009                                |        |   | 2008 |   |
|                                                          |   |                                |        |   |   |   |
| Revenues:                                                     |   |                                |        |   |   |   |
| Product sales                                                 |   | $                                   | 5,665,810   |   |   | $ | 7,028,605 |   |
| Services                                                      |   |                                | 2,647,499   |   |   |   | 2,361,174 |   |
|                                                          |   |                                | 8,313,309   |   |   |   | 9,389,779 |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Cost of revenues:                                             |   |                                |        |   |   |   |   |   |
| Product cost of revenues                                      |   |                                | 2,656,350   |   |   |   | 2,989,481 |   |
| Services cost of revenues                                     |   |                                | 1,249,767   |   |   |   | 1,045,623 |   |
|                                                          |   |                                | 3,906,117   |   |   |   | 4,035,104 |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Gross profit                                                  |   |                                | 4,407,192   |   |   |   | 5,354,675 |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Operating expenses:                                           |   |                                |        |   |   |   |   |   |
| Selling and marketing                                         |   |                                | 3,641,187   |   |   |   | 3,755,834 |   |
| General and administrative                                    |   |                                | 3,289,898   |   |   |   | 2,237,259 |   |
| Engineering and product development                           |   |                                | 336,710     |   |   |   | 218,344 |   |
|                                                          |   |                                | 7,267,795   |   |   |   | 6,211,437 |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Operating loss from continuing operations                     |   |                                | (2,860,603  | ) |   |   | (856,762 | ) |
|                                                          |   |                                |        |   |   |   |   |   |
| Other income (loss):                                          |   |                                |        |   |   |   |   |   |
| Interest expense, net                                         |   |                                | (681,323    | ) |   |   | (281,765 | ) |
| Change in fair value of warrants (see Note 1)                 |   |                                | 832,494     |   |   |   | - |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Loss from continuing operations                               |   |                                | (2,709,432  | ) |   |   | (1,138,527 | ) |
|                                                          |   |                                |        |   |   |   |   |   |
| Discontinued operations:                                      |   |                                |        |   |   |   |   |   |
| Income from discontinued operations, net of nil in taxes      |   |                                | -           |   |   |   | 77,069 |   |
| Loss on sale of discontinued operations                       |   |                                | -           |   |   |   | (545,844 | ) |
|                                                          |   |                                |        |   |   |   |   |   |
| Net loss                                                      |   | $                                   | ( 2,709,432 | ) |   | $ | ( 1,607,302 | ) |
|                                                          |   |                                |        |   |   |   |   |   |
|                                                          |   |                                |        |   |   |   |   |   |
| Basic and diluted net loss per share:                         |   |                                |        |   |   |   |   |   |
| Continuing operations                                         |   | $                                   | (0.30       | ) |   | $ | (0.13 | ) |
| Discontinued operations                                       |   | $                                   | (0.00       | ) |   | $ | (0.05 | ) |
| Basic and diluted net loss per share                          |   | $                                   | (0.30       | ) |   | $ | (0.18 | ) |
|                                                          |   |                                |        |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per share |   |                                | 9,009,790   |   |   |   | 9,004,601 |   |

----

CONSOLIDATED 

|                                                          |   | For the Six Months Ended June 30, |        |
|---------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                          |   | 2009                              |        |   | 2008 |   |
|                                                          |   |                              |        |   |   |   |
| Revenues:                                                     |   |                              |        |   |   |   |
| Product sales                                                 |   | $                                 | 10,863,660  |   |   | $ | 13,763,772 |   |
| Services                                                      |   |                              | 4,947,992   |   |   |   | 3,956,841 |   |
|                                                          |   |                              | 15,811,652  |   |   |   | 17,720,613 |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Cost of revenues:                                             |   |                              |        |   |   |   |   |   |
| Product cost of revenues                                      |   |                              | 5,115,698   |   |   |   | 5,853,932 |   |
| Services cost of revenues                                     |   |                              | 2,588,019   |   |   |   | 2,299,202 |   |
|                                                          |   |                              | 7,703,717   |   |   |   | 8,153,134 |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Gross profit                                                  |   |                              | 8,107,935   |   |   |   | 9,567,479 |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Operating expenses:                                           |   |                              |        |   |   |   |   |   |
| Selling and marketing                                         |   |                              | 7,541,938   |   |   |   | 7,868,799 |   |
| General and administrative                                    |   |                              | 6,089,079   |   |   |   | 4,381,701 |   |
| Engineering and product development                           |   |                              | 538,407     |   |   |   | 657,032 |   |
|                                                          |   |                              | 14,169,424  |   |   |   | 12,907,532 |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Operating loss from continuing operations                     |   |                              | (6,061,489  | ) |   |   | (3,340,053 | ) |
|                                                          |   |                              |        |   |   |   |   |   |
| Other income (loss):                                          |   |                              |        |   |   |   |   |   |
| Interest expense, net                                         |   |                              | (1,083,846  | ) |   |   | (509,137 | ) |
| Change in fair value of warrants (see Note 1)                 |   |                              | 923,716     |   |   |   | - |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Loss from continuing operations                               |   |                              | (6,221,619  | ) |   |   | (3,849,190 | ) |
|                                                          |   |                              |        |   |   |   |   |   |
| Discontinued operations:                                      |   |                              |        |   |   |   |   |   |
| Income from discontinued operations, net of nil in taxes      |   |                              | -           |   |   |   | 245,870 |   |
| Loss on sale of discontinued operations                       |   |                              | -           |   |   |   | (545,844 | ) |
|                                                          |   |                              |        |   |   |   |   |   |
| Net loss                                                      |   | $                                 | ( 6,221,619 | ) |   | $ | ( 4,149,164 | ) |
|                                                          |   |                              |        |   |   |   |   |   |
|                                                          |   |                              |        |   |   |   |   |   |
| Basic and diluted net loss per share:                         |   |                              |        |   |   |   |   |   |
| Continuing operations                                         |   | $                                 | (0.69       | ) |   | $ | (0.43 | ) |
| Discontinued operations                                       |   | $                                 | (0.00       | ) |   | $ | (0.03 | ) |
| Basic and diluted net loss per share                          |   | $                                 | (0.69       | ) |   | $ | (0.46 | ) |
|                                                          |   |                              |        |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per share |   |                              | 9,007,413   |   |   |   | 9,004,601 |   |

----

CONSOLIDATED 

|                                                          |   |         |      |   |       |   |   |        |   |   | Accumulated   |   |   |   |         |
|---------------------------------------------------------------|--------|--------------|-----------|--------|------------|--------|--------|-------------|--------|--------|---------------|--------|--------|--------|--------------|
|                                                          |   |         |      |   | Additional |   |   |        |   |   | Other         |   |   |   |         |
|                                                          |   | Common Stock |      |   | Paid-In    |   |   | Accumulated |   |   | Comprehensive |   |   |   |         |
|                                                          |   | Shares       |      |   | Amount     |   |   | Capital     |   |   | Deficit       |   |   | Income |         |   | Total |   |
| BALANCE, DECEMBER 31, 2008                                    |   |         | 9,004,601 |   |       | $      | 90,046 |        |   | $      | 134,912,537   |   |   | $      | (105,320,156 | ) |   | $ | - |   |   | $ | 29,682,427 |   |
| Round up for fractional shares due to the reverse stock split |   |         | 574       |   |       |   | 5      |        |   |   | (5            | )      |   |   | -            |   |   |   | - |   |   |   | - |   |
| Stock options issued to consultants for services              |   |         | -         |   |       |   | -      |        |   |   | 30,905        |   |   |   | -            |   |   |   | - |   |   |   | 30,905 |   |
| Issuance of restricted stock                                  |   |         | 28,000    |   |       |   | 280    |        |   |   | -             |   |   |   | -            |   |   |   | - |   |   |   | 280 |   |
| Amortization of expense for restricted stock                  |   |         | -         |   |       |   | -      |        |   |   | 546,295       |   |   |   | -            |   |   |   | - |   |   |   | 546,295 |   |
| Change in cumulative translation adjustments                  |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | -            |   |   |   | 108,365 |   |   |   | 108,365 |   |
| Stock-based compensation expense related to employee options  |   |         | -         |   |       |   | -      |        |   |   | 523,192       |   |   |   | -            |   |   |   | - |   |   |   | 523,192 |   |
| Registration costs                                            |   |         | -         |   |       |   | -      |        |   |   | (83,313       | )      |   |   | -            |   |   |   | - |   |   |   | (83,313 | ) |
| Net loss for the six months ended June 30, 2009               |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | (6,221,619   | ) |   |   | - |   |   |   | (6,221,619 | ) |
| BALANCE, JUNE 30, 2009                                        |   |         | 9,033,175 |   |       | $      | 90,331 |        |   | $      | 135,929,611   |   |   | $      | (111,541,775 | ) |   | $ | 108,365 |   |   | $ | 24,586,532 |   |

----

CONSOLIDATED 

|                                                                                              |   | For the Six Months Ended June 30, |            |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------------|
|                                                                                              |   | 2009                              |            |   | 2008 |   |
| Cash Flows From Operating Activities:                                                             |   |                              |            |   |   |   |
| Net loss                                                                                          |   | $                                 | ( 6,221,619     | ) |   | $ | ( 4,149,164 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities-continuing operations: |   |                              |            |   |   |   |   |   |
| Depreciation and amortization                                                                     |   |                              | 2,187,467       |   |   |   | 2,039,800 |   |
| Stock options issued to consultants for services                                                  |   |                              | 30,905          |   |   |   | 62,380 |   |
| Stock-based compensation expense related to employee options and restricted stock                 |   |                              |  1,069,487 |   |   |   |  643,091 |   |
| Provision for bad debts                                                                           |   |                              | 26,843          |   |   |   | 43,084 |   |
| Change in estimated fair value of warrant liability (See Note 1)                                  |   |                              | (923,716        | ) |   |   | - |   |
| Changes in operating assets and liabilities, net of effects from discontinued operations:         |   |                              |            |   |   |   |   |   |
| Accounts receivable                                                                               |   |                              | 1,152,276       |   |   |   | 402,086 |   |
| Inventories                                                                                       |   |                              | 16,119          |   |   |   | 401,545 |   |
| Prepaid expenses and other assets                                                                 |   |                              | (143,554        | ) |   |   | (137,727 | ) |
| Accounts payable                                                                                  |   |                              | (566,522        | ) |   |   | 1,253,909 |   |
| Accrued compensation and related expenses                                                         |   |                              | 637,058         |   |   |   | (462,012 | ) |
| Other accrued liabilities                                                                         |   |                              | 1,674           |   |   |   | 142,493 |   |
| Interest accrued on convertible debt                                                              |   |                              | 480,000         |   |   |   | - |   |
| Deferred revenues                                                                                 |   |                              | (234,575        | ) |   |   | 104,537 |   |
| Net cash (used in) provided by operating activities – continuing operations                 |   |                              | (2,488,157      | ) |   |   | 344,022 |   |
| Net cash provided by operating activities – discontinued operations                         |   |                              | -               |   |   |   | 1,239,475 |   |
| Net cash (used in) provided by operating activities                                               |   |                              | (2,488,157      | ) |   |   | 1,583,497 |   |
| Cash Flows From Investing Activities:                                                             |   |                              |            |   |   |   |   |   |
| Purchases of property and equipment                                                               |   |                              | (61,511         | ) |   |   | (144,692 | ) |
| Lasers placed into service                                                                        |   |                              | (1,839,400      | ) |   |   | (2,697,734 | ) |
| Acquisition costs, net of cash received                                                           |   |                              | (12,578,022     | ) |   |   | - |   |
| Net cash used in investing activities – continuing operations                               |   |                              | (14,478,933     | ) |   |   | (2,842,426 | ) |
| Net cash used in investing activities – discontinued operations                             |   |                              | -               |   |   |   | (64,093 | ) |
| Net cash used in investing activities                                                             |   |                              | (14,478,933     | ) |   |   | (2,906,519 | ) |
| Cash Flows From Financing Activities:                                                             |   |                              |            |   |   |   |   |   |
| Registration costs                                                                                |   |                              | (83,313         | ) |   |   | - |   |
| Issuance of restricted stock                                                                      |   |                              | 280             |   |   |   | - |   |
| Payments on long-term debt other than line of credit                                              |   |                              | -               |   |   |   | (41,709 | ) |
| Payments on notes payable                                                                         |   |                              | (109,695        | ) |   |   | (301,543 | ) |
| Advances on line of credit                                                                        |   |                              | -               |   |   |   | 832,675 |   |
| Repayments on line of credit                                                                      |   |                              | (2,553,674      | ) |   |   | (1,711,676 | ) |
| Proceeds from convertible debt                                                                    |   |                              | 18,000,000      |   |   |   | - |   |
| Net cash provided by (used in) financing activities  - continuing operations            |   |                              | 15,253,598      |   |   |   | (1,222,253 | ) |
| Net cash provided by (used in) financing activities  - discontinued operations          |   |                              | -               |   |   |   | - |   |
| Net cash provided by (used in) financing activities                                               |   |                              | 15,253,598      |   |   |   | (1,222,253 | ) |
| Effect of exchange rate changes on cash                                                           |   |                              | 111,452         |   |   |   | - |   |
| Net decrease in cash and cash equivalents                                                         |   |                              | (1,602,040      | ) |   |   | (2,545,275 | ) |
|                                                                                              |   |                              |            |   |   |   |   |   |
| Cash and cash equivalents, beginning of period                                                    |   |                              | 3,658,607       |   |   |   | 9,837,303 |   |
| Cash and cash equivalents, end of period                                                          |   | $                                 | 2,056,567       |   |   | $ | 7,292,028 |   |

----

NOTES 

----

----

|   | • | Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Level 3 - unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                       |   | Fair Value as of June 30, 2009 |      |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|--------------------------------------------|--------|--------------------------------|-----------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|
| Assets:                                    |   |                           |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| Cash equivalents                           |   | $                              | 1,185,016 |   |                                                          | $      | -      |                                         |   | $      | 1,185,016                                |   |   | $ | - |   |
| Liabilities:                               |   |                           |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| Derivative financial instruments (Note 11) |   | $                              | 626,595   |   |                                                          | $      | -      |                                         |   | $      | -                                        |   |   | $ | 626,595 |   |

----

----

|                                  |   | Six Months Ended June 30, 2009(unaudited) |    |
|---------------------------------------|--------|-------------------------------------------|---------|
| Accrual at beginning of period        |   | $                                         | 442,527 |   |
| Additions due to PTL acquisition      |   |                                      | 227,334 |   |
| Additions charged to warranty expense |   |                                      | 160,872 |   |
| Expiring warranties                   |   |                                      | (53,067 | ) |
| Claims satisfied                      |   |                                      | (78,171 | ) |
| Accrual at end of period              |   | $                                         | 699,495 |   |

----

|                                        |   | Three Months Ended June 30,(unaudited) |         |   | Six Months Ended June 30, (unaudited) |   |
|---------------------------------------------|--------|----------------------------------------|--------------|--------|---------------------------------------|--------|
|                                        |   | 2009                                   |         |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Net loss                                    |   | $                                      | (2,709,432   | )      |                                  | $      | (1,607,302 | ) |   | $ | (6,221,619 | ) |   | $ | (4,149,164 | ) |
| Change in cumulative translation adjustment |   |                                   |  82,655 |   |                                  |   |  - |   |   |   | 108,365 |   |   |   | - |   |
| Comprehensive loss                          |   | $                                      | (2,626,777   | )      |                                  | $      | (1,607,302 | ) |   | $ | (6,113,254 | ) |   | $ | (4,149,164 |   |

----

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

----

|                                                        |   | Three Months Ended June 30,(unaudited) |            |   | Six Months Ended June 30, (unaudited) |   |
|-------------------------------------------------------------|--------|----------------------------------------|-----------------|--------|---------------------------------------|--------|
|                                                        |   | 2009                                   |            |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
|                                                        |   |                                   |            |   |                                  |   |   |   |   |   |   |   |
| Net revenues                                                |   | $                                      | 8,313,309       |   |                                  | $      | 11,332,177 |   |   | $ | 16,639,060 |   |   | $ | 21,763,551 |   |
| Net loss                                                    |   | $                                      | (2,709,432      | )      |                                  | $      | (3,174,461 | ) |   | $ | (6,934,782 | ) |   | $ | (6,332,396 | ) |
| Basic and diluted loss per share                            |   | $                                      | (0.30           | )      |                                  | $      | (0.35 | ) |   | $ | (0.77 | ) |   | $ | (0.70 | ) |
| Shares used in calculating basic and diluted loss per share |   |                                   |  9,009,790 |   |                                  |   | 9,004,601 |   |   |   |  9,007,413 |   |   |   | 9,004,601 |   |

----

|                               |   | June 30, 2009 |      |   | December 31, 2008 |   |
|------------------------------------|--------|--------------------|-----------|--------|------------------------|--------|
|                               |   | (unaudited)        |      |   |                   |   |
| Raw materials and work in progress |   | $                  | 5,643,530 |   |                   | $      | 5,157,455 |   |
| Finished goods                     |   |               | 3,338,996 |   |                   |   | 1,816,739 |   |
| Total inventories                  |   | $                  | 8,982,526 |   |                   | $      | 6,974,194 |   |

|                                      |   | June 30, 2009 |       |   | December 31, 2008 |   |
|-------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                                      |   | (unaudited)   |       |   |              |   |
| Lasers in service                         |   | $             | 18,500,870 |   |              | $      | 17,288,400 |   |
| Computer hardware and software            |   |          | 368,782    |   |              |   | 341,407 |   |
| Furniture and fixtures                    |   |          | 626,821    |   |              |   | 562,418 |   |
| Machinery and equipment                   |   |          | 832,406    |   |              |   | 830,778 |   |
| Leasehold improvements                    |   |          | 262,395    |   |              |   | 259,595 |   |
| Vehicles                                  |   |          | 4,521      |   |              |   | - |   |
|                                      |   |          | 20,595,795 |   |              |   | 19,282,598 |   |
| Accumulated depreciation and amortization |   |          | (9,832,408 | )      |              |   | (8,894,192 | ) |
| Property and equipment, net               |   | $             | 10,763,387 |   |              | $      | 10,388,406 |   |

|                                                                                                                                                               |   | June 30, 2009 |            |   | December 31, 2008 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------------|--------|-------------------|--------|
|                                                                                                                                                               |   | (unaudited)   |            |   |              |   |
| Patents, owned and licensed, at gross costs of $8,023,733 and $583,623, net of accumulated amortization of $630,629 and $359,195, respectively.                    |   | $             |  7,393,104 |   |              | $      |  224,428 |   |
| Other licensed or developed technologies, at gross costs of $2,329,211 and $2,328,059, net of accumulated amortization of $1,492,224 and $1,410,025, respectively. |   |          |  836,987   |   |              |   |  918,034 |   |
|                                                                                                                                                               |   | $             | 8,230,091       |   |              | $      | 1,142,462 |   |

----

|                                                                                                                                            |   | June 30, 2009 |            |   | December 31, 2008 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------------|--------|-------------------|--------|
|                                                                                                                                            |   | (unaudited)   |            |   |              |   |
| Customer Relationships, at gross cost of $2,200,000 and $1,700,000, net of accumulated amortization of $1,474,400 and $1,287,735, respectively. |   | $             |  725,600   |   |              | $      |  412,265 |   |
| Tradename, at gross cost of $2,100,000 and $1,100,000, net of accumulated amortization of $504,975 and $416,640, respectively.                  |   |          |  1,595,025 |   |              |   |  683,360 |   |
|                                                                                                                                            |   | $             | 2,320,625       |   |              | $      | 1,095,625 |   |

|                                           |   | June 30, 2009 |      |   | December 31, 2008 |   |
|------------------------------------------------|--------|---------------|-----------|--------|-------------------|--------|
|                                           |   | (unaudited)   |      |   |              |   |
| Accrued payroll and related taxes              |   | $             | 276,828   |   |              | $      | 348,677 |   |
| Accrued vacation                               |   |          | 238,588   |   |              |   | 143,922 |   |
| Accrued commissions and bonus                  |   |          | 953,142   |   |              |   | 930,355 |   |
| Accrued severance                              |   |          | 691,559   |   |              |   | 64,199 |   |
| Total accrued compensation and related expense |   | $             | 2,160,117 |   |              | $      | 1,487,153 |   |

----

|                                     |   | June 30, 2009 |      |   | December 31, 2008 |   |
|------------------------------------------|--------|---------------|-----------|--------|-------------------|--------|
|                                     |   | (unaudited)   |      |   |              |   |
| Accrued professional and consulting fees |   | $             | 276,447   |   |              | $      | 186,162 |   |
| Accrued warranty                         |   |          | 699,495   |   |              |   | 442,527 |   |
| Accrued sales taxes                      |   |          | 248,856   |   |              |   | 196,121 |   |
| Accrued other expense                    |   |          | 60,491    |   |              |   | 39,623 |   |
| Total other accrued liabilities          |   | $             | 1,285,289 |   |              | $      | 864,433 |   |

|                                                                                                                                           |   | June 30, 2009 |     |   | December 31, 2008 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|----------|--------|-------------------|--------|
|                                                                                                                                           |   | (unaudited)   |     |   |              |   |
| Note Payable – secured creditor, interest at 6%, payable in monthly principal and interest installments of $2,880 through June 2012      |   | $             | 91,944   |   |              | $      | 106,214 |   |
|  Note Payable- unsecured creditor, interest at 5.43%, payable in monthly principal and interest payments of $49,803 through February 2010 |   |          | 390,434  |   |              |   | - |   |
|                                                                                                                                           |   |          | 482,378  |   |              |   | 106,214 |   |
| Less: current maturities                                                                                                                       |   |          | (420,290 | )      |              |   | (28,975 | ) |
| Notes payable, net of current maturities                                                                                                       |   | $             | 62,088   |   |              | $      | 77,239 |   |

|                                |   | June 30, 2009 |       |   | December 31, 2008 |   |
|-------------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                                |   | (unaudited)   |       |   |              |   |
| Total borrowings on credit facility |   | $             | 6,069,638  |   |              | $      | 8,571,033 |   |
| Less: current portion               |   |          | (3,916,933 | )      |              |   | (4,663,281 | ) |
| Total long-term debt                |   | $             | 2,152,705  |   |              | $      | 3,907,752 |   |

----

|                    |   | December 2007 |    |   | September 2008 |   |
|-------------------------|--------|---------------|---------|--------|---------------------|--------|
|                    |   |          |    |   |                |   |
| Number of warrants      |   |          | 67,292  |   |                |   | 27,536 |   |
| Exercise price          |   | $             | 7.84    |   |                | $      | 3.08 |   |
| Fair value of warrants  |   | $             | 221,716 |   |                | $      | 44,366 |   |
| Volatility              |   |          | 59.44   | %      |                |   | 60.92 | % |
| Risk-free interest rate |   |          | 3.45    | %      |                |   | 2.98 | % |
| Expected dividend yield |   |          | 0       | %      |                |   | 0 | % |
| Expected warrant life   |   | 5 years       |    |   | 5 years             |   |

| Year Ended December 31,                    |   |   |      |
|--------------------------------------------|--------|--------|-----------|
| 2009 for the last six months               |   | $      | 2,432,773 |   |
| 2010                                       |   |   | 3,444,782 |   |
| 2011                                       |   |   | 811,059   |   |
| Total minimum payments                     |   |   | 6,688,614 |   |
|                                       |   |   |      |   |
| Less: interest                             |   |   | (550,811  | ) |
| Less: unamortized warrant discount         |   |   | (68,165   | ) |
|                                       |   |   |      |   |
| Present value of total minimum obligations |   | $      | 6,069,638 |   |

----

|                                          |   | June 30, 2009(unaudited) |       |
|-----------------------------------------------|--------|--------------------------|------------|
| Total borrowings on convertible debt facility |   | $                        | 16,527,479 |   |
| Less: current portion                         |   |                     | -          |   |
| Total long-term debt                          |   | $                        | 16,527,479 |   |

----

|                    |   | Feb. 27, 2009 |      |   | March 31, 2009 |   |      | June 30, 2009 |   |
|-------------------------|--------|---------------|-----------|--------|----------------|--------|-----------|---------------|--------|
| Number of warrants      |   |          | 1,046,204 |   |           |   | 1,046,204 |          |   |   | 1,046,204 |   |
| Exercise price          |   | $             | 5.16      |   |           | $      | 5.16      |          |   | $ | 5.16 |   |
| Fair value of warrants  |   | $             | 1,550,311 |   |           | $      | 1,459,089 |          |   | $ | 626,595 |   |
| Volatility              |   |          | 87.89     | %      |           |   | 88.67     | %             |   |   | 88.68 | % |
| Risk-free interest rate |   |          | 2.69      | %      |           |   | 2.28      | %             |   |   | 3.19 | % |
| Expected dividend yield |   |          | 0         | %      |           |   | 0         | %             |   |   | 0 | % |
| Expected warrant life   |   | 8 years       |      |   | 7.92 years     |   |      | 7.67 years    |   |

| Warrant liability:                 |   |   |      |
|------------------------------------|--------|--------|-----------|
| Balance as of January 1, 2009      |   | $      | -         |   |
| Initial measurement of warrants    |   |   | 1,550,311 |   |
| Decrease in fair value of warrants |   |   | (923,716  | ) |
| Balance as of June 30, 2009        |   | $      | 626,595   |   |

----

|                                 |   |  Number of Options |     |   | Weighted Average Exercise Price |   |
|--------------------------------------|--------|-------------------------|----------|--------|---------------------------------|--------|
| Outstanding, January 1, 2009         |   |                    | 870,865  |   |                            | $      | 12.49 |   |
| Granted                              |   |                    | 243,592  |   |                            |   | 1.24 |   |
| Cancelled                            |   |                    | (154,369 | )      |                            |   | 12.71 |   |
| Outstanding, June 30 2009            |   |                    | 960,088  |   |                            | $      | 9.66 |   |
| Options exercisable at June 30, 2009 |   |                    | 536,641  |   |                            | $      | 13.41 |   |

| Assumptions for Option Grants | Three Months Ended June 30, |   | Six Months Ended June 30, |
|-------------------------------|-----------------------------|--------|---------------------------|
|                          | 2009                        |   | 2008                      |   | 2009 |   | 2008 |
| Risk-free interest rate       | 3.71%                       |   | 3.71%                     |   | 3.46% |   | 3.72% |
| Volatility                    | 89.15%                      |   | 83.56%                    |   | 88.68% |   | 84.16% |
| Expected dividend yield       | 0%                          |   | 0%                        |   | 0% |   | 0% |
| Expected life                 | 8.1 years                   |   | 8.1 years                 |   | 8.1 years |   | 8.1 years |
| Estimated forfeiture rate     | 12%                         |   | 12%                       |   | 12% |   | 12% |

----

----

|                                     |   | Three Months Ended June 30, 2009 (unaudited) |            |
|------------------------------------------|--------|----------------------------------------------|-----------------|
|                                     |   | DOMESTICXTRAC                                |            |   | INTERN’LDERM. EQUIPMENT |   |   |  SKIN CARE |   |   |  PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                 |   | $                                            | 3,159,303       |   |   | $ | 1,060,607 |   |   | $ | 2,011,730 |   |   | $ | 1,280,588 |   |   | $ | 801,081 |   |   | $ | 8,313,309 |   |
| Costs of revenues                        |   |                                         | 1,371,630       |   |   |   | 604,092 |   |   |   | 678,791 |   |   |   | 661,543 |   |   |   | 590,061 |   |   |   | 3,906,117 |   |
| Gross profit                             |   |                                         | 1,787,673       |   |   |   | 456,515 |   |   |   | 1,332,939 |   |   |   | 619,045 |   |   |   | 211,020 |   |   |   | 4,407,192 |   |
| Gross profit %                           |   |                                         | 56.6            | % |   |   | 43.0 | % |   |   | 66.3 | % |   |   | 48.3 | % |   |   | 26.3 | % |   |   | 53.0 | % |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:            |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative      |   |                                         |  1,752,089 |   |   |   | 109,977 |   |   |   |  1,262,061 |   |   |   | 718,300 |   |   |   |  110,129 |   |   |   |  3,952,556 |   |
| Engineering and product development      |   |                                         |  -         |   |   |   |  - |   |   |   |  139,536 |   |   |   | 69,121 |   |   |   | 128,053 |   |   |   |  336,710 |   |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses           |   |                                         |  -         |   |   |   |  - |   |   |   |  - |   |   |   | - |   |   |   |  - |   |   |   |  2,978,529 |   |
|                                     |   |                                         | 1,752,089       |   |   |   | 109,977 |   |   |   | 1,401,597 |   |   |   | 787,421 |   |   |   | 238,182 |   |   |   | 7,267,795 |   |
| Income (loss) from operations            |   |                                         | 35,584          |   |   |   | 346,538 |   |   |   | (68,658 | ) |   |   | (168,376 | ) |   |   | (27,162 | ) |   |   | (2,860,603 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                    |   |                                         | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (681,323 | ) |
| Change in fair value of warrant          |   |                                         | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 832,494 |   |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   |                                         |  35,584    |   |   |   |  346,538 |   |   |   | (68,658 | ) |   |   | (168,376 | ) |   |   | (27,162 | ) |   |   | (2,709,432 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                 |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations      |   |                                         |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                                            | 35,584          |   |   | $ | 346,538 |   |   | $ | (68,658 | ) |   | $ | (168,376 | ) |   | $ | (27,162 | ) |   | $ | (2,709,432 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                     |   | Three Months Ended June 30, 2008 (unaudited) |            |
|------------------------------------------|--------|----------------------------------------------|-----------------|
|                                     |   | DOMESTICXTRAC                                |            |   | INTERN’LDERM. EQUIPMENT |   |   |  SKIN CARE |   |   |  PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                 |   | $                                            | 3,433,998       |   |   | $ | 697,973 |   |   | $ | 3,424,557 |   |   | $ | - |   |   | $ | 1,833,251 |   |   | $ | 9,389,779 |   |
| Costs of revenues                        |   |                                         | 1,483,806       |   |   |   | 336,039 |   |   |   | 1,180,012 |   |   |   | - |   |   |   | 1,035,247 |   |   |   | 4,035,104 |   |
| Gross profit                             |   |                                         | 1,950,192       |   |   |   | 361,934 |   |   |   | 2,244,545 |   |   |   | - |   |   |   | 798,004 |   |   |   | 5,354,675 |   |
| Gross profit %                           |   |                                         | 56.8            | % |   |   | 51.9 | % |   |   | 65.5 | % |   |   | N/A |   |   |   | 43.5 | % |   |   | 57.03 | % |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:            |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative      |   |                                         |  2,064,442 |   |   |   | 64,393 |   |   |   |  1,480,392 |   |   |   |  - |   |   |   |  165,607 |   |   |   |  3,774,834 |   |
| Engineering and product development      |   |                                         |  -         |   |   |   |  - |   |   |   |  106,446 |   |   |   |  - |   |   |   | 111,898 |   |   |   |  218,344 |   |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses           |   |                                         |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  2,218,259 |   |
|                                     |   |                                         | 2,064,442       |   |   |   | 64,393 |   |   |   | 1,586,838 |   |   |   | - |   |   |   | 277,505 |   |   |   | 6,211,437 |   |
| Income (loss) from operations            |   |                                         | (114,250        | ) |   |   | 297,541 |   |   |   | 657,707 |   |   |   | - |   |   |   | 520,499 |   |   |   | (856,762 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                    |   |                                         | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (281,765 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   |                                         | (114,250        | ) |   |   |  297,541 |   |   |   |  657,707 |   |   |   |  - |   |   |   |  520,499 |   |   |   | (1,138,527 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                 |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations      |   |                                         |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  77,069 |   |
| Loss on sale of discontinued operations  |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (545,844 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                                            | (114,250        | ) |   | $ | 297,541 |   |   | $ | 657,707 |   |   | $ | - |   |   | $ | 520,499 |   |   | $ | (1,607,302 | ) |
|                                     |   |                                         |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                     |   | Six Months Ended June 30, 2009 (unaudited) |            |
|------------------------------------------|--------|--------------------------------------------|-----------------|
|                                     |   | DOMESTICXTRAC                              |            |   | INTERN’LDERM. EQUIPMENT |   |   |  SKIN CARE |   |   |  PTL * |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                 |   | $                                          | 5,834,612       |   |   | $ | 2,059,691 |   |   | $ | 4,214,189 |   |   | $ | 2,026,636 |   |   | $ | 1,676,524 |   |   | $ | 15,811,652 |   |
| Costs of revenues                        |   |                                       | 2,906,461       |   |   |   | 1,288,955 |   |   |   | 1,448,723 |   |   |   | 840,625 |   |   |   | 1,218,953 |   |   |   | 7,703,717 |   |
| Gross profit                             |   |                                       | 2,928,151       |   |   |   | 770,736 |   |   |   | 2,765,466 |   |   |   | 1,186,011 |   |   |   | 457,571 |   |   |   | 8,107,935 |   |
| Gross profit %                           |   |                                       | 50.2            | % |   |   | 37.4 | % |   |   | 65.6 | % |   |   | 58.5 | % |   |   | 27.3 | % |   |   | 51.3 | % |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:            |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative      |   |                                       |  3,844,357 |   |   |   | 183,319 |   |   |   |  2,764,027 |   |   |   | 1,025,850 |   |   |   |  176,450 |   |   |   |  7,994,003 |   |
| Engineering and product development      |   |                                       |  -         |   |   |   |  - |   |   |   |  219,052 |   |   |   | 91,292 |   |   |   | 228,063 |   |   |   |  538,407 |   |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses           |   |                                       |  -         |   |   |   |  - |   |   |   |  - |   |   |   | - |   |   |   |  - |   |   |   |  5,637,014 |   |
|                                     |   |                                       | 3,844,357       |   |   |   | 183,319 |   |   |   | 2,983,079 |   |   |   | 1,117,142 |   |   |   | 404,513 |   |   |   | 14,169,424 |   |
| Income (loss) from operations            |   |                                       | (916,206        | ) |   |   | 587,417 |   |   |   | (217,613 | ) |   |   | 68,869 |   |   |   | 53,058 |   |   |   | (6,061,489 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                    |   |                                       | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,083,846 | ) |
| Change in fair value of warrant          |   |                                       | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 923,716 |   |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   |                                       | (916,206        | ) |   |   |  587,417 |   |   |   | (217,613 | ) |   |   | 68,869 |   |   |   |  53,058 |   |   |   | (6,221,619 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                 |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations      |   |                                       |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                                          | (916,206        | ) |   | $ | 587,417 |   |   | $ | (217,613 | ) |   | $ | 68,869 |   |   | $ | 53,058 |   |   | $ | (6,221,619 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                     |   | Six Months Ended June 30, 2008 (unaudited) |            |
|------------------------------------------|--------|--------------------------------------------|-----------------|
|                                     |   | DOMESTICXTRAC                              |            |   | INTERN’LDERM. EQUIPMENT |   |   |  SKIN CARE |   |   |  PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                 |   | $                                          | 5,544,705       |   |   | $ | 1,866,178 |   |   | $ | 6,699,249 |   |   | $ | - |   |   | $ | 3,610,481 |   |   | $ | 17,720,613 |   |
| Costs of revenues                        |   |                                       | 2,914,584       |   |   |   | 906,688 |   |   |   | 2,140,464 |   |   |   | - |   |   |   | 2,191,398 |   |   |   | 8,153,134 |   |
| Gross profit                             |   |                                       | 2,630,121       |   |   |   | 959,490 |   |   |   | 4,558,785 |   |   |   | - |   |   |   | 1,419,083 |   |   |   | 9,567,479 |   |
| Gross profit %                           |   |                                       | 47.4            | % |   |   | 51.4 | % |   |   | 68.0 | % |   |   | N/A |   |   |   | 39.3 | % |   |   | 54.0 | % |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:            |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative      |   |                                       |  4,055,941 |   |   |   | 137,881 |   |   |   |  3,405,099 |   |   |   |  - |   |   |   |  307,878 |   |   |   |  7,906,799 |   |
| Engineering and product development      |   |                                       |  168,214   |   |   |   |  20,790 |   |   |   |  247,634 |   |   |   |  - |   |   |   | 220,394 |   |   |   |  657,032 |   |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses           |   |                                       |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  4,343,701 |   |
|                                     |   |                                       | 4,224,155       |   |   |   | 158,671 |   |   |   | 3,652,733 |   |   |   | - |   |   |   | 528,272 |   |   |   | 12,907,532 |   |
| Income (loss) from operations            |   |                                       | (1,594,034      | ) |   |   | 800,819 |   |   |   | 906,052 |   |   |   | - |   |   |   | 890,811 |   |   |   | (3,340,053 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                    |   |                                       | -               |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (509,137 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   |                                       | (1,594,034      | ) |   |   |  800,819 |   |   |   |  906,052 |   |   |   |  - |   |   |   |  890,808 |   |   |   | (3,849,190 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                 |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations      |   |                                       |  -         |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  245,870 |   |
| Loss on sale of discontinued operations  |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (545,844 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                                          | (1,594,034      | ) |   | $ | 800,819 |   |   | $ | 906,052 |   |   | $ | - |   |   | $ | 890,808 |   |   | $ | (4,149,164 | ) |
|                                     |   |                                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                 |   | June 30, 2009     |       |   | December 31, 2008 |   |
|--------------------------------------|--------|-------------------|------------|--------|-------------------|--------|
|                                 |   |  (unaudited) |       |   |              |   |
| Assets:                              |   |              |       |   |              |   |
| Total assets for reportable segments |   | $                 | 55,296,379 |   |              | $      | 42,075,242 |   |
| Other unallocated assets             |   |              | 3,636,009  |   |              |   | 4,639,027 |   |
| Consolidated total                   |   | $                 | 58,932,388 |   |              | $      | 46,714,269 |   |

|     |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June30, (unaudited) |   |
|----------|--------|-----------------------------------------|-----------|--------|--------------------------------------|--------|
|     |   | 2009                                    |      |   | 2008                                 |   |   | 2009 |   | 2008 |   |
| Domestic |   | $                                       | 6,147,212 |   |                                 | $      | 7,843,450 |   |   | $ | 11,824,342 |   |   | $ | 14,114,257 |   |
| Foreign  |   |                                    | 2,166,097 |   |                                 |   | 1,546,329 |   |   |   | 3,987,310 |   |   |   | 3,606,356 |   |
|     |   | $                                       | 8,313,309 |   |                                 | $      | 9,389,779 |   |   | $ | 15,811,652 |   |   | $ | 17,720,613 |   |

Management’s 

----

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

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

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

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

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

----

----

----

|                                         |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|----------------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                         |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| XTRAC Domestic Services                      |   | $                                       | 3,159,303 |   |                                  | $      | 3,433,998 |   |   | $ | 5,834,612 |   |   | $ | 5,544,705 |   |
| International Dermatology Equipment Products |   |                                    | 1,060,607 |   |                                  |   | 697,973 |   |   |   |  2,059,691 |   |   |   |  1,866,178 |   |
| Skin Care (ProCyte) Products                 |   |                                    | 2,011,730 |   |                                  |   | 3,424,557 |   |   |   | 4,214,189 |   |   |   | 6,699,249 |   |
| Photo Therapeutics (PTL) Products            |   |                                    | 1,280,588 |   |                                  |   | - |   |   |   | 2,026,636 |   |   |   | - |   |
|    Total Dermatology Revenues |   |                                    | 7,512,228 |   |                                  |   | 7,556,528 |   |   |   | 14,135,128 |   |   |   | 14,110,132 |   |
|                                         |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Surgical Products                            |   |                                    | 801,081   |   |                                  |   | 1,833,251 |   |   |   | 1,676,524 |   |   |   | 3,610,481 |   |
|    Total Surgical Revenues    |   |                                    | 801,081   |   |                                  |   | 1,833,251 |   |   |   | 1,676,524 |   |   |   | 3,610,481 |   |
|                                         |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total Revenues                               |   | $                                       | 8,313,309 |   |                                  | $      | 9,389,779 |   |   | $ | 15,811,652 |   |   | $ | 17,720,613 |   |

----

|                                                      |   | Three Months Ended June 30, (unaudited) |         |   | Six Months Ended June 30, (unaudited) |   |
|-----------------------------------------------------------|--------|-----------------------------------------|--------------|--------|---------------------------------------|--------|
|                                                      |   | 2009                                    |         |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Total revenue                                             |   | $                                       | 3,159,303    |   |                                  | $      | 3,433,998 |   |   | $ | 5,834,612 |   |   | $ | 5,544,705 |   |
| Less: laser sales revenue                                 |   |                                    | (523,680     | )      |                                  |   | (1,096,850 | ) |   |   | (1,161,985 | ) |   |   | (1,641,650 | ) |
| Recognized treatment revenue                              |   |                                    | 2,635,623    |   |                                  |   | 2,337,148 |   |   |   | 4,672,627 |   |   |   | 3,903,055 |   |
| Change in deferred programRevenue                         |   |                                    |  30,285 |   |                                  |   |  58,120 |   |   |   |  3,901 |   |   |   |  58,847 |   |
| Change in deferred unusedTreatments                       |   |                                    | (329,166     | )      |                                  |   | (212,519 | ) |   |   |  18,251 |   |   |   |  107,678 |   |
| Net billed revenue                                        |   | $                                       | 2,336,742    |   |                                  | $      | 2,182,749 |   |   | $ | 4,694,779 |   |   | $ | 4,069,580 |   |
| Procedure volume total                                    |   |                                    | 36,823       |   |                                  |   | 34,606 |   |   |   | 74,372 |   |   |   | 64,944 |   |
| Less: Non-billed procedures                               |   |                                    | 1,221        |   |                                  |   | 1,130 |   |   |   | 3,026 |   |   |   | 2,649 |   |
| Net billed procedures                                     |   |                                    | 35,602       |   |                                  |   | 33,476 |   |   |   | 71,346 |   |   |   | 62,295 |   |
| Avg. price of treatments billed                           |   | $                                       | 65.64        |   |                                  | $      | 65.20 |   |   | $ | 65.80 |   |   | $ | 65.33 |   |
| Change in procedures with deferred program revenue, net   |   |                                    |  461    |   |                                  |   |  891 |   |   |   |  59 |   |   |   |  901 |   |
| Change in procedures with deferred unused treatments, net |   |                                    | (5,015       | )      |                                  |   | (3,259 | ) |   |   |  277 |   |   |   |  1,648 |   |

----

| ·   | We sell refurbished domestic XTRAC laser systems into the international market. The selling price for used equipment is substantially less than new equipment, some of which may be substantially depreciated in connection with its use in the domestic market. We sold four such used lasers in the three and six months ended June 30, 2009 at an average priceof $32,500. We sold two and four such lasers in the three and six months ended June 30, 2008, at an average price of $25,000 and $31,250, respectively; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In addition to the XTRAC laser system (both new and used), we sell the VTRAC, a lamp-based, alternative UVB light source that has a wholesale sales price that is targeted to be below our competitors’ international dermatology equipment and below our XTRAC laser. In the six months ended June 30, 2009, we sold 13 VTRAC systems all of which occurredin the three months ended June 30, 2009. In the three and six months ended June 30, 2008, we sold three and 13 VTRAC systems, respectively. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|--------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                 |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                             |   | $                                       | 1,060,607 |   |                                  | $      | 697,973 |   |   | $ | 2,059,691 |   |   | $ | 1,866,178 |   |
|    Less: part sales   |   |                                    | (208,707  | )      |                                  |   | (161,973 | ) |   |   | (437,891 | ) |   |   | (391,178 | ) |
| Laser revenues                       |   |                                    | 851,900   |   |                                  |   | 536,000 |   |   |   | 1,621,800 |   |   |   | 1,475,000 |   |
|    Laser systems sold |   |                                    | 25        |   |                                  |   | 14 |   |   |   | 40 |   |   |   | 38 |   |
| Average revenue per laser            |   | $                                       | 34,076    |   |                                  | $      | 38,286 |   |   | $ | 40,545 |   |   | $ | 38,816 |   |

| ·   | The product sales decreased for the three and six months ended June 30, 2009 due to macro-economic conditions and to transitioning from our discontinued MD Lash Factor eyelash conditioning product to our internally developed Neova Advanced Essential Lash™ eyelash conditioner, which was launched February 1, 2009. This segment is more susceptible tosuch economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the three months ended June 30, 2009 were approximately $2.0 million, down from approximately $3.3 million for the three months ended June 30, 2008. Product sales for the six months ended June 30, 2009 |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Included in product sales for the three and six months ended June 30, 2008, were $656,257 and $1,107,834, respectively, of revenues from MD Lash Factor as part of an exclusive license to distribute in the United States. In the three and six months ended June 30, 2009, there were no revenues from this product as we have discontinued marketing MD Lash Factoras of January 31, 2009 under the terms of an agreement with Allergan, Inc. in settlement of certain patent litigation, and we have replaced it with our own peptide-based conditioner. For the three and six months ended June 30, 2009, we sold $60,580 and $190,772 of Neova Advanced Essential Lash, respectively. The launch date for the Neova Advanced Essential Lash was February 1, 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Bulk compound sales decreased by $128,000 and $80,080 for the three and six months ended June 30, 2009, respectively, compared to the three and six months ended June 30, 2008. There were no bulk compound sales in the current quarter. Minimum contractual royalties from Neutrogena expired in November 2007, and as a result such royalties were immaterial overthe two periods. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|------------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                     |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Product sales                            |   | $                                       | 2,010,930 |   |                                  | $      | 3,293,370 |   |   | $ | 4,132,506 |   |   | $ | 6,536,062 |   |
| Bulk compound sales                      |   |                                    | -         |   |                                  |   | 128,000 |   |   |   | 79,920 |   |   |   | 160,000 |   |
| Royalties                                |   |                                    | 800       |   |                                  |   | 3,187 |   |   |   | 1,763 |   |   |   | 3,187 |   |
|    Total ProCyte revenues |   | $                                       | 2,011,730 |   |                                  | $      | 3,424,557 |   |   | $ | 4,214,189 |   |   | $ | 6,699,249 |   |

|                                 |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|--------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                 |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Product revenues                     |   | $                                       | 1,280,588 |   |                                  | $      | - |   |   | $ | 1,813,531 |   |   | $ | - |   |
| Licensing revenues                   |   |                                    | -         |   |                                  |   | - |   |   |   | 213,105 |   |   |   | - |   |
|    Total PTL revenues |   | $                                       | 1,280,588 |   |                                  | $      | - |   |   | $ | 2,026,636 |   |   | $ | - |   |

----

|                                        |   | Three Months Ended June 30, (unaudited) |    |   | Six Months Ended June 30, (unaudited) |   |
|---------------------------------------------|--------|-----------------------------------------|---------|--------|---------------------------------------|--------|
|                                        |   | 2009                                    |    |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                                    |   | $                                       | 801,081 |   |                                  | $      | 1,833,251 |   |   | $ | 1,676,524 |   |   | $ | 3,610,481 |   |
|    Laser systems sold        |   |                                    | 5       |   |                                  |   | 62 |   |   |   | 7 |   |   |   | 126 |   |
| Laser system revenues                       |   | $                                       | 67,000  |   |                                  | $      | 935,995 |   |   | $ | 130,646 |   |   | $ | 1,908,740 |   |
|    Average revenue per laser |   | $                                       | 13,400  |   |                                  | $      | 15,097 |   |   | $ | 18,664 |   |   | $ | 15,149 |   |

----

|                                     |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|------------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                     |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Product:                                 |   |                                    |      |   |                                  |   |   |   |   |   |   |   |
| XTRAC Domestic                           |   | $                                       | 155,630   |   |                                  | $      | 467,790 |   |   | $ | 382,720 |   |   | $ | 669,673 |   |
| International Dermatology Equipment |   |                                    | 604,092   |   |                                  |   | 336,039 |   |   |   | 1,288,955 |   |   |   | 906,688 |   |
| Skin Care                                |   |                                    | 678,791   |   |                                  |   | 1,180,012 |   |   |   | 1,448,723 |   |   |   | 2,140,464 |   |
| PTL                                      |   |                                    | 661,543   |   |                                  |   | - |   |   |   | 840,625 |   |   |   | - |   |
| Surgical products                        |   |                                    | 556,294   |   |                                  |   | 1,005,640 |   |   |   | 1,154,675 |   |   |   | 2,137,107 |   |
| Total Product costs                      |   | $                                       | 2,656,350 |   |                                  | $      | 2,989,481 |   |   | $ | 5,115,698 |   |   | $ | 5,853,932 |   |
|                                     |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Services:                                |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| XTRAC Domestic                           |   | $                                       | 1,216,000 |   |                                  | $      | 1,016,016 |   |   | $ | 2,523,741 |   |   | $ | 2,244,911 |   |
| Surgical products                        |   |                                    | 33,767    |   |                                  |   | 29,607 |   |   |   | 64,278 |   |   |   | 54,291 |   |
| Total Services costs                     |   | $                                       | 1,249,767 |   |                                  | $      | 1,045,623 |   |   | $ | 2,588,019 |   |   | $ | 2,299,202 |   |
|                                     |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total Costs of Revenues                  |   | $                                       | 3,906,117 |   |                                  | $      | 4,035,104 |   |   | $ | 7,703,717 |   |   | $ | 8,153,136 |   |

----

| Company Profit Analysis |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|-------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                    |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                |   | $                                       | 8,313,309 |   |                                  | $      | 9,389,779 |   |   | $ | 15,811,652 |   |   | $ | 17,720,613 |   |
| Percent decrease        |   |                                    | (11.5     | %)     |                                  |   |   |   |   |   | (10.8 | %) |   |   |   |   |
| Cost of revenues        |   |                                    | 3,906,117 |   |                                  |   | 4,035,104 |   |   |   | 7,703,717 |   |   |   | 8,153,134 |   |
| Percent decrease        |   |                                    | (3.2      | %)     |                                  |   |   |   |   |   | (5.5 | %) |   |   |   |   |
| Gross profit            |   | $                                       | 4,407,192 |   |                                  | $      | 5,354,675 |   |   | $ | 8,107,935 |   |   | $ | 9,567,479 |   |
| Gross margin percentage |   |                                    | 53.0      | %      |                                  |   | 57.0 | % |   |   | 51.3 | % |   |   | 54.0 | % |

| ·   | The current world macro economic conditions as well as the related credit crisis have affected our revenues and consequently have required us to lower our expectations of growth until the market conditions improve. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our Skin Care segment is more susceptible to the macro economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the second quarter of 2009 were approximately $2.0 million down from approximately $3.3 million for the second quarter of 2008. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In our Surgical Products segment there were 57 fewer laser systems sold in the three months ended June 30, 2009 than in the comparable period of 2008. This included 50 sales under an OEM arrangement, but in the second half of 2008, AngioDynamics elected out of the OEM contract. Since that time, our sales to AngioDynamics have been $0. Additionally, thehigher manufacturing levels in 2008 caused better absorption of fixed overheads which lowered average unit costs resulting in a higher gross margin in 2008 compared to 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $573,100 less in domestic XTRAC lasers in the three months ended June 30, 2009, although at higher margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were previously placements. The margin on these capital equipment sales was 70% in 2009 compared to 57% in 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We recorded severance of approximately $142,000 related to the integration of the PTL acquisition and the relocation of the Skin Care facility. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting the above items that had a negative impact on gross profit, is the gross profit realized from our PTL segment. We acquired PTL on February 27, 2009, so only the activity after that date is recorded in our financial statements. There was no activity recorded in our financial statements in 2008. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We increased the number of laser systems placed with our customers and sold a greater number of XTRAC treatment procedures in 2009 than in 2008. Procedure volume increased 6% from 33,476 to 35,602 billed procedures in the three months ended June 30, 2009 compared to the same period in 2008. Increased usage at existing sites carries negligible variablecost thereby enhancing profit margins. Our ability to increase placements and increase the number of procedures sold is a direct result of improved insurance reimbursement and increased marketing efforts. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Our Skin Care segment is more susceptible to the macro economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the first half of 2009 were approximately $4.1 million down from approximately $6.5 million for the second quarter of 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In our Surgical Products segment there were 119 fewer laser systems sold in the six months ended June 30, 2009 than in the comparable period of 2008. This included 100 sales due to our OEM arrangement, but in the second half of 2008, AngioDynamics elected out of the OEM contract. Since that time, our sales to AngioDynamics have been $0. Additionally, thehigher manufacturing levels in 2008 caused better absorption of fixed overheads which lowered average unit costs and resulting in a higher gross margin in 2008 compared to 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $479,665 less in domestic XTRAC lasers in the six months ended June 30, 2009, although at higher margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were previously placements. The margin on these capital equipment sales was 67% in 2009 compared to 59% in 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | Offsetting the above items that had a negative impact on gross profit, is the gross profit realized from our PTL segment. We acquired PTL on February 27, 2009, so only the activity after that date is recorded in our financial statements. There was no activity recorded in our financial statements in 2008. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We increased the number of laser systems placed with our customers and sold a greater number of XTRAC treatment procedures in 2009 than in 2008. Procedure volume increased 15% from 62,295 to 71,346 billed procedures in the six months ended June 30, 2009 compared to the same period in 2008. Increased usage at existing sites carries negligible variable costthereby enhancing profit margins. Our ability to increase placements and increase the number of procedures sold is a direct result of improved insurance reimbursement and increased marketing efforts. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Domestic XTRAC Segment      |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|-----------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                        |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                    |   | $                                       | 3,159,303 |   |                                  | $      | 3,433,998 |   |   | $ | 5,834,612 |   |   | $ | 5,544,705 |   |
| Percent (decrease)/increase |   |                                    | (8.0      | %)     |                                  |   |   |   |   |   | 5.2 | % |   |   |   |   |
| Cost of revenues            |   |                                    | 1,371,630 |   |                                  |   | 1,483,806 |   |   |   | 2,906,461 |   |   |   | 2,914,584 |   |
| Percent decrease            |   |                                    | (7.6      | %)     |                                  |   |   |   |   |   | (0.3 | %) |   |   |   |   |
| Gross profit                |   | $                                       | 1,787,673 |   |                                  | $      | 1,950,192 |   |   | $ | 2,928,151 |   |   | $ | 2,630,121 |   |
| Gross margin percentage     |   |                                    | 56.6      | %      |                                  |   | 56.8 | % |   |   | 50.2 | % |   |   | 47.4 | % |

----

| ·   | Key drivers in increasing the fee-per-procedure revenue from this segment  are insurance reimbursement and increased direct-to-consumer advertising in targeted territories. Improved insurance reimbursement, together with greater consumer awareness of the XTRAC therapy, resulted in an increase in the number of laser placed and a correspondingincrease in treatment revenue. Consequently, procedure volume increased 6% from 33,476 to 35,602 billed procedures in the three months ended June 30, 2009 compared to the same period in 2008. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $573,170 less in domestic XTRAC lasers in the three months ended June 30, 2009, although at higher margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were previous placements. The margin on these capital equipment sales was 70% in the three months ended June 30, 2009compared to 57% in the comparable period in 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The cost of revenues decreased by $112,176 for the three months ended June 30, 2009. This decrease is due to a decrease in cost of revenues related to laser sales of $312,150 over the comparable period in 2008. Offsetting this decrease were increases in the service expenses due to the increase in lasers placed in the field, of approximately $96,700 andin certain allocable XTRAC manufacturing overhead costs that are charged against the XTRAC service revenues. The depreciation costs will continue to increase in subsequent periods as the number of net placements grows. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Key drivers in increasing the fee-per-procedure revenue from this segment are insurance reimbursement and increased direct-to-consumer advertising in targeted territories. Improved insurance reimbursement, together with greater consumer awareness of the XTRAC therapy, resulted in an increase in the number of laser placed and resulted in a correspondingincrease in treatment revenue. Consequently, procedure volume increased 15% from 62,295 to 71,346 billed procedures in the six months ended June 30, 2009 compared to the same period in 2008. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $478,665 less in domestic XTRAC lasers in the six months ended June 30, 2009, although at higher margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were previously placements. The margin on these capital equipment sales was 67% in the six months ended June 30, 2009 comparedto 59% in the comparable period in 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The cost of revenues decreased by $8,123 for the six months ended June 30, 2009. This decrease is due to a decrease in cost of revenues related to laser sales of $286,952 over the comparable period in 2008. Offsetting this decrease were increases in the service expenses due to the increase in lasers placed in the field, of approximately $198,400 and incertain allocable XTRAC manufacturing overhead costs that are charged against the XTRAC service revenues. The depreciation costs will continue to increase in subsequent periods as the number of net placements grows.   |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| International Dermatology Equipment Segment |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|---------------------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                                        |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                                    |   | $                                       | 1,060,607 |   |                                  | $      | 697,973 |   |   | $ | 2,059,691 |   |   | $ | 1,866,178 |   |
| Percent increase                            |   |                                    | 52.0      | %      |                                  |   |   |   |   |   | 10.4 | % |   |   |   |   |
| Cost of revenues                            |   |                                    | 604,092   |   |                                  |   | 336,039 |   |   |   | 1,288,955 |   |   |   | 906,688 |   |
| Percent increase                            |   |                                    | 79.8      | %      |                                  |   |   |   |   |   | 42.2 | % |   |   |   |   |
| Gross profit                                |   | $                                       | 456,515   |   |                                  | $      | 361,934 |   |   | $ | 770,736 |   |   | $ | 959,490 |   |
| Gross margin percentage                     |   |                                    | 43.0      | %      |                                  |   | 51.9 | % |   |   | 37.4 | % |   |   | 51.4 | % |

| ·   | We sold 12 XTRAC laser systems and 13 VTRAC lamp-based excimer systems during the three months ended June 30, 2009 and 11 XTRAC laser systems and 3 VTRAC systems in the comparable period in 2008. Consequently, gross profit increased as a result of an increase in the volume of units sold. The gross margin percentage for the VTRAC is higher than for theXTRAC. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | International part sales, which have a higher margin percentage than system sales, increased approximately $46,700 for the three months ended June 30, 2009 as compared to the same period in 2008. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting these increases to gross profit were increases in certain allocable XTRAC manufacturing overhead costs that are charged against our international dermatology equipment revenues. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold 27 XTRAC laser systems and 13 VTRAC lamp-based excimer systems during the six months ended June 30, 2009 and 25 XTRAC laser systems and 13 VTRAC systems in the comparable period in 2008. The gross margin percentage for the VTRAC is higher than for the XTRAC. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | International part sales, which have a higher margin percentage than system sales, increased approximately $46,713 for the three months ended June 30, 2009 as compared to the same period in 2008. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In addition, there were increases in certain allocable XTRAC manufacturing overhead costs that are charged against our international dermatology equipment revenues. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Skin Care (ProCyte) Segment    |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|--------------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                           |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Product revenues               |   | $                                       | 2,010,930 |   |                                  | $      | 3,293,370 |   |   | $ | 4,132,506 |   |   | $ | 6,536,062 |   |
| Bulk compound revenues         |   |                                    | -         |   |                                  |   | 128,000 |   |   |   | 79,920 |   |   |   | 160,000 |   |
| Royalties                      |   |                                    | 800       |   |                                  |   | 3,187 |   |   |   | 1,763 |   |   |   | 3,187 |   |
| Total revenues                 |   |                                    | 2,011,730 |   |                                  |   | 3,424,557 |   |   |   | 4,214,189 |   |   |   | 6,699,249 |   |
| Percent decrease               |   |                                    | (41.3     | %)     |                                  |   |   |   |   |   | (37.1 | %) |   |   |   |   |
|                           |   |                                    |      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Product cost of revenues       |   |                                    | 678,791   |   |                                  |   | 1,088,876 |   |   |   | 1,403,155 |   |   |   | 2,026,544 |   |
| Bulk compound cost of revenues |   |                                    |  -   |   |                                  |   |  91,136 |   |   |   | 45,568 |   |   |   | 113,920 |   |
| Total cost of revenues         |   |                                    | 678,791   |   |                                  |   | 1,180,012 |   |   |   | 1,448,723 |   |   |   | 2,140,464 |   |
| Percent decrease               |   |                                    | (42.5     | %)     |                                  |   |   |   |   |   | (32.3 | %) |   |   |   |   |
| Gross profit                   |   | $                                       | 1,332,939 |   |                                  | $      | 2,244,545 |   |   | $ | 2,765,466 |   |   | $ | 4,558,785 |   |
| Gross margin percentage        |   |                                    | 66.3      | %      |                                  |   | 65.5 | % |   |   | 65.6 | % |   |   | 68.0 | % |

| ·   | The decrease in revenues for the three months ended June 30, 2009 is due in large part to the macro economic conditions. This segment is more susceptible to such economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the second quarter of 2009 were approximately$2.0 million down from approximately $3.3 million for the second quarter of 2008. Product sales for the first half of 2009 were approximately $4.1 million down from approximately $6.5 million for the first half of 2008. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Copper peptide bulk compound is sold at a substantially lower gross margin than our other skin care products. |
|--------------------|---------------------------------------------------------------------------------------------------------------|

| ·   | In the three and six months ended June 30, 2009, severance and lease liability expense of approximately $84,000 and $168,000, respectively, were recorded with respect to the relocation of the warehouse facility. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| PTL Segment             |   | Three Months Ended June 30, (unaudited) |      |   | Six Months Ended June 30, (unaudited) |   |
|-------------------------|--------|-----------------------------------------|-----------|--------|---------------------------------------|--------|
|                    |   | 2009                                    |      |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                |   | $                                       | 1,280,588 |   |                                  | $      | - |   |   | $ | 2,026,636 |   |   | $ | - |   |
| Percent increase        |   |                                    | 100       | %      |                                  |   |   |   |   |   | 100 | % |   |   |   |   |
| Cost of revenues        |   |                                    | 661,543   |   |                                  |   | - |   |   |   | 840,625 |   |   |   | - |   |
| Percent increase        |   |                                    | 100       | %      |                                  |   |   |   |   |   | 100 | % |   |   |   |   |
| Gross profit            |   | $                                       | 619,045   |   |                                  | $      | - |   |   | $ | 1,186,011 |   |   | $ | - |   |
| Gross margin percentage |   |                                    | 48.3      | %      |                                  |   |   |   |   |   | 58.5 | % |   |   |   |   |

| ·   | Since the business was acquired on February 27, 2009, there was no corresponding activity for the periods ending 2008. Consequently, the activity for the six months ended June 30, 2009 includes activity from February 27, 2009 through June 30, 2009. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The six months ended June 30, 2009 includes revenues from a milestone payment of $213,000 under a certain licensing arrangement for the Clear U™ hand-held device. The licensee intends to use the device and its technology as a platform to attempt to address the mass consumer acne market. There are no specific costs allocated to this revenue stream. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Surgical Products Segment |   | Three Months Ended June 30, (unaudited) |    |   | Six Months Ended June 30, (unaudited) |   |
|---------------------------|--------|-----------------------------------------|---------|--------|---------------------------------------|--------|
|                      |   | 2009                                    |    |   | 2008                                  |   |   | 2009 |   |   | 2008 |   |
| Revenues                  |   | $                                       | 801,081 |   |                                  | $      | 1,833,251 |   |   | $ | 1,676,524 |   |   | $ | 3,610,481 |   |
| Percent decrease          |   |                                    | (56.3   | %)     |                                  |   |   |   |   |   | (53.6 | %) |   |   |   |   |
| Cost of revenues          |   |                                    | 590,061 |   |                                  |   | 1,035,247 |   |   |   | 1,218,953 |   |   |   | 2,191,398 |   |
| Percent decrease          |   |                                    | (43.0   | %)     |                                  |   |   |   |   |   | (44.4 | %) |   |   |   |   |
| Gross profit              |   | $                                       | 211,020 |   |                                  | $      | 798,004 |   |   | $ | 457,571 |   |   | $ | 1,419,083 |   |
| Gross margin percentage   |   |                                    | 26.3    | %      |                                  |   | 43.5 | % |   |   | 27.3 | % |   |   | 39.3 | % |

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

----

| ·   | Revenues for the three months ended June 30, 2009 decreased by $1,032,170 from the three months ended June 30, 2008, while cost of revenues decreased by $445,186 between the same periods. There were 57 fewer laser systems sold in the three months ended June 30, 2009 than in the comparable period of 2008. Revenues for the six months ended June 30, 2009decreased by $1,933,957 from the six months ended June 30, 2008 while cost of revenues decreased by $972,445 between the same periods. There were 119 fewer laser systems sold in the six months ended June 30, 2009 than in the comparable period of 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The sales of diode systems, in the three and six months ended June 30, 2008, included 50 and 100, respectively, sales due to our OEM arrangement, but in the second half of 2008 AngioDynamics elected not continue the contract. Since that time, our sales to AngioDynamics have been $0. Additionally, the higher manufacturing levels in 2008 caused better absorptionof fixed overhead costs, which lowered average unit costs resulting in a higher gross margin in 2008 compared to 2009. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, there was a decrease in sales of disposables between the periods, which have a higher gross margin as a percent of revenues than lasers. Fiber and other disposables sales decreased 19% and 8% between the comparable three and six-month periods ended June 30, 2009 and 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Selling, general and administrative expenses related to our PTL segment accounted for $718,320 of the increase. This amount included severance costs of approximately $66,000 related to the integration of this acquisition. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We expensed approximately $987,000 related to severance and accelerated vesting of restricted stock and options in connection with the departure of our former chief executive officer. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting the above increases was a decrease of $493,000 in salaries, benefits and travel expenses associated with a decrease in the sales force and decreased revenues which generated lower commission expenses, particularly in our Skin Care segment. Additionally, there was a decrease in amortization expense of $82,500 related to the impairment of certainintangibles as of the year end December 31, 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Selling, general and administrative expenses related to our PTL segment accounted for $1,025,870 of the increase. |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | We expensed approximately $987,000 related to severance and accelerated vesting of restricted stock and options in connection with the departure of our former chief executive officer. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We expensed $432,000 of additional costs under SFAS No. 141R incurred in connection with the acquisition of our PTL segment. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting the above increases was a decrease of $1,022,000 in salaries, benefits and travel expenses associated with a decrease in the sales force and decreased revenues which generated lower commission expenses, particularly in our Skin Care segment. Additionally, there was a decrease in amortization expense of $190,000 related to the impairment of certainintangibles as of the year end December 31, 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                 |   | Three Months Ended June 30, (unaudited) |    |
|----------------------|--------|-----------------------------------------|---------|
|                 |   | 2009                                    |    |   | 2008 |   |   | Change |   |
|                 |   |                                    |    |   |   |   |   |   |   |
| Interest expense     |   | $                                       | 683,437 |   |   | $ | 319,327 |   |   | $ | 364,110 |   |
| Interest income      |   |                                    | (2,114  | ) |   |   | (37,562 | ) |   |   | 35,448 |   |
| Net interest expense |   | $                                       | 681,323 |   |   | $ | 281,765 |   |   | $ | 399,558 |   |
|                 |   |                                    |    |   |   |   |   |   |   |   |   |   |

|                 |   | Six Months Ended June 30, (unaudited) |      |
|----------------------|--------|---------------------------------------|-----------|
|                 |   | 2009                                  |      |   | 2008 |   |   | Change |   |
|                 |   |                                  |      |   |   |   |   |   |   |
| Interest expense     |   | $                                     | 1,090,475 |   |   | $ | 616,343 |   |   | $ | 474,132 |   |
| Interest income      |   |                                  | (6,629    | ) |   |   | (107,206 | ) |   |   | 100,577 |   |
| Net interest expense |   | $                                     | 1,083,846 |   |   | $ | 509,137 |   |   | $ | 574,709 |   |
|                 |   |                                  |      |   |   |   |   |   |   |   |   |   |

----

|                                    |   | For the three months ended June 30, (unaudited) |       |
|-----------------------------------------|--------|-------------------------------------------------|------------|
|                                    |   | 2009                                            |       |   | 2008 |   |   | Change |   |
|                                    |   |                                            |       |   |   |   |   |   |   |
| Net loss                                |   | $                                               | 2,709,432  |   |   | $ | 1,607,302 |   |   | $ | 1,102,130 |   |
|                                    |   |                                            |       |   |   |   |   |   |   |   |   |   |
| Components included in net loss:        |   |                                            |       |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization           |   |                                            | (1,192,247 | ) |   |   | (1,194,851 | ) |   |   | 2,604 |   |
| Stock-based compensation                |   |                                            | (807,717   | ) |   |   | (278,928 | ) |   |   | (528,789 | ) |
| Severance costs                         |   |                                            | (737,520   | ) |   |   | - |   |   |   | (737,520 | ) |
| Litigation costs                        |   |                                            | (143,145   | ) |   |   | (138,587 | ) |   |   | (4,558 | ) |
| Interest expense, net                   |   |                                            | (681,323   | ) |   |   | (281,765 | ) |   |   | (399,558 | ) |
| Change in fair value of warrants        |   |                                            | 832,494    |   |   |   | - |   |   |   | 832,494 |   |
| Loss on sale of discontinued operations |   |                                            | -          |   |   |   | (545,844 | ) |   |   | 545,844 |   |
|                                    |   | $                                               | (2,729,458 | ) |   | $ | (2,439,975 | ) |   | $ | (289,483 | ) |

|                                    |   | For the six months ended June 30, (unaudited) |           |
|-----------------------------------------|--------|-----------------------------------------------|----------------|
|                                    |   | 2009                                          |           |   | 2008 |   |   | Change |   |
|                                    |   |                                          |           |   |   |   |   |   |   |
| Net loss                                |   | $                                             | 6,221,619      |   |   | $ | 4,149,164 |   |   | $ | 2,072,455 |   |
|                                    |   |                                          |           |   |   |   |   |   |   |   |   |   |
| Components included in net loss:        |   |                                          |           |   |   |   |   |   |   |   |   |   |
| Acquisition expenses                    |   | $                                             | ( 432,352 | ) |   | $ | - |   |   | $ | (432,352 | ) |
| Depreciation and amortization           |   |                                          | (2,187,467     | ) |   |   | (2,409,463 | ) |   |   | 261,996 |   |
| Stock-based compensation                |   |                                          | (1,100,391     | ) |   |   | (705,471 | ) |   |   | (394,920 | ) |
| Severance costs                         |   |                                          | (827,935       | ) |   |   | - |   |   |   | (827,935 | ) |
| Litigation costs                        |   |                                          | (340,681       | ) |   |   | (471,099 | ) |   |   | 130,418 |   |
| Interest expense, net                   |   |                                          | (1,083,846     | ) |   |   | (509,137 | ) |   |   | (574,709 | ) |
| Change in fair value of warrants        |   |                                          | 923,716        |   |   |   | - |   |   |   | 923,716 |   |
| Loss on sale of discontinued operations |   |                                          | -              |   |   |   | (545,844 | ) |   |   | 545,844 |   |
|                                    |   | $                                             | (5,048,956     | ) |   | $ | (4,641,014 | ) |   | $ | (367,942 | ) |

----

----

Quantitative 

|                                                                  |   |                      |       |   | Pro-forma Information        |   |
|-----------------------------------------------------------------------|--------|---------------------------|------------|--------|------------------------------|--------|
|                                                                  |   | As Reported June 30, 2009 |       |   | Common Stock Price Reduction |   |   | Common Stock Price Increase |   |
|                                                                  |   |                      |       |   |                         |   |   |   |   |
| Common stock price                                                    |   | $                         | 1.00       |   |                         | $      | 0.75 |   |   | $ | 1.25 |   |
|                                                                  |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Balance Sheet:                                 |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Derivative financial instruments                                      |   | $                         | 626,595    |   |                         | $      | 436,482 |   |   | $ | 825,377 |   |
|                                                                  |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Change in fair value of derivative financial instruments              |   | $                         | -          |   |                         | $      | (190,113 | ) |   | $ | 198,782 |   |
|                                                                  |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Statement of Operations:                       |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Increase (decrease) in fair value of derivative financial instruments |   | $                         | (923,716   | )      |                         | $      | (1,113,829 | ) |   | $ | (724,934 | ) |
|                                                                  |   |                      |       |   |                         |   |   |   |   |   |   |   |
| Net loss attributable to common stockholders                          |   | $                         | (6,221,619 | )      |                         | $      | (6,031,506 | ) |   | $ | (6,420,401 | ) |

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Controls 

Legal 

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Risk 

S
ubmission 

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Other 

Exhibits

| 10.41            | Restricted Stock Agreement, dated June 15, 2009, between PhotoMedex, Inc. and Dennis McGrath                                                                                                                                                           |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.42            | Restricted Stock Agreement, dated June 15, 2009, between PhotoMedex, Inc. and Michael R. Stewart                                                                                                                                                       |
| 10.43            | Code of Ethics on Interactions with Health Care Professionals, effective June 30, 2009                                                                                                                                                                 |
| 31.1   | Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer and Chief Financial Officer                                                                                                                              |
| 32.1   | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

SIGNATURES

|   |                            | PHOTOMEDEX, INC. |                                         |
|--------|---------------------------------|------------------|----------------------------------------------|
|   |                            |             |                                         |   |
|   | Date  August 14, 2009 | By:              | /s/ Dennis M. McGrath                   |   |
|   |                            |             | Dennis M. McGrath                       |   |
|   |                            |             | President, Chief Executive Officer and  |   |
|   |                            |             | Chief Financial Officer                      |   |

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