UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.  20549

FORM 10-Q

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|x | QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2006

OR

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

For the transition period from ______________ to
______________

Commission file number 000-51158

TRUEYOU.COM INC.(Exact
name of registrant as specified in its charter)

|                                                                      |  |                                  
|--------------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                              |  | 13-4024017                       
|                                                                      |  |                                  
|(State or other jurisdiction of                                       |  | (IRS Employer Identification No.)
|incorporation or organization)                                        |  |                                  
|                                                                      |  |                                  
|Building No. 501, Fifth Floor, 7 Corporate Park,
  Norwalk, CT  06851
|                                                                     
|(Address of principal executive offices with zip
  code)             

Registrants Telephone Number Including Area
Code: (203) 295-2121

|                                                                                   
|-----------------------------------------------------------------------------------
|501 Madison Avenue, Suite 407, New York, New York
10022                            
|                                                                                   
|Former Name, Former Address and Former Fiscal Year,
  if Changed Since Last Report.

Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes x   No o

Indicate
by check mark whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes o   No x

Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o   No x

APPLICABLE ONLY TO CORPORATE ISSUERS

The
number of shares of common stock, par value $0.001 per share, outstanding as of
July 12, 2006 was 14,995,513.

---



TRUEYOU.COM  INC.

Table of Contents

|              |                       |                                                                                                                                             |   
|------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --
|PART I.       | FINANCIAL INFORMATION | 1                                                                                                                                          
|              |                       |                                                                                                                                            
|              | Item 1.               | Financial Statements.                                                                                                                       | 1 
|              |                       |                                                                                                                                             |   
|              |                       | Condensed Consolidated Balance Sheets  as of April
1, 2006 (unaudited) and June
  30, 2005 (As Restated)                                    | 1 
|              |                       |                                                                                                                                             |   
|              |                       | Condensed Consolidated Statements of Operations
  (unaudited) for the three months and nine months ended April 1, 2006 and
  March 31, 2005 | 3 
|              |                       |                                                                                                                                             |   
|              |                       | Condensed Consolidated Statements of Cash Flows
  (unaudited) for the nine months ended April 1, 2006 and March 31, 2005                    | 4 
|              |                       |                                                                                                                                             |   
|              |                       | Notes to Condensed Consolidated Financial
Statements                                                                                        | 5 
|              |                       |                                                                                                                                             |   
|              | Item 2.               | Managements Discussion and Analysis of Financial Condition and
  Results of Operations.                                                    | 25
|              |                       |                                                                                                                                             |   
|              | Item 3.               | Quantitative and Qualitative Disclosure About Market Risk.                                                                                  | 39
|              |                       |                                                                                                                                             |   
|              | Item 4.               | Controls and Procedures.                                                                                                                    | 39
|              |                       |                                                                                                                                             |   
|PART II.      | OTHER INFORMATION     | 41                                                                                                                                         
|              |                       |                                                                                                                                            
|              | Item 4                | Submission of matters to vote of
  Securityholders.                                                                                         |   
|              |                       |                                                                                                                                             |   
|              | Item 5                | Other Information.                                                                                                                          | 41
|              |                       |                                                                                                                                             |   
|              | Item 6.               | Exhibits.                                                                                                                                   | 41
|              |                       |                                                                                                                                             |   
|SIGNATURES    | 43                   
|              |                      
|EXHIBIT INDEX | 44                   

-i-

---



|        |                      
|------- | ---------------------
|PART I. | FINANCIAL INFORMATION
|       
|Item 1. | Financial Statements.

TrueYou.Com  Inc.
Condensed Consolidated Balance Sheets

|                                                                                                                                                  |  |             |         |                 |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | --------------- | - | ------ | 
|                                                                                                                                                  |  | As of       |        
|                                                                                                                                                  |  |             |        
|                                                                                                                                                  |  | April 1,    |         | June 30,        |  
|                                                                                                                                                  |  |             |         |                 |  
|                                                                                                                                                  |  | 2006        |         | 2005            |  
|In thousands, except share and per share amounts                                                                                                  |  | (Unaudited) |         | (As
  Restated) |  
|                                                                                                                                                  |  |             |         |                 |  
|Assets:                                                                                                                                           |  |             |         |                 |   |        | 
|Current assets:                                                                                                                                   |  |             |         |                 |   |        | 
|Cash and cash equivalents                                                                                                                         |  | $           | 3,494   |                 | $ | 173    | 
|Restricted cash, current portion                                                                                                                  |  |             | 1,212   |                 |   | 1,228  | 
|Accounts receivable, net                                                                                                                          |  |             | 966     |                 |   | 244    | 
|Inventories                                                                                                                                       |  |             | 2,361   |                 |   | 1,977  | 
|Other current assets                                                                                                                              |  |             | 938     |                 |   | 501    | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Total current assets                                                                                                                              |  |             | 8,971   |                 |   | 4,123  | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Property and equipment, net                                                                                                                       |  |             | 9,112   |                 |   | 6,561  | 
|Other assets                                                                                                                                      |  |             | 526     |                 |   | 392    | 
|Deferred financing costs, net                                                                                                                     |  |             | 264     |                 |   | 330    | 
|Restricted cash, non-current portion                                                                                                              |  |             | 1,479   |                 |   | 369    | 
|Goodwill                                                                                                                                          |  |             | 18,072  |                 |   | 18,072 | 
|Other intangibles, net                                                                                                                            |  |             | 5,490   |                 |   | 7,116  | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Total assets                                                                                                                                      |  | $           | 43,914  |                 | $ | 36,963 | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Liabilities
  and Shareholders deficit:                                                                                                          |  |             |         |                 |   |        | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Liabilities:                                                                                                                                      |  |             |         |                 |   |        | 
|Current liabilities:                                                                                                                              |  |             |         |                 |   |        | 
|Cash overdraft                                                                                                                                    |  | $           |        |                 | $ | 163    | 
|Accounts payable                                                                                                                                  |  |             | 3,989   |                 |   | 3,641  | 
|Accrued expenses and other current
liabilities                                                                                                    |  |             | 10,830  |                 |   | 9,915  | 
|Deferred revenue                                                                                                                                  |  |             | 8,673   |                 |   | 8,882  | 
|Current portion of long term debt                                                                                                                 |  |             |        |                 |   | 744    | 
|Senior Debt Current (net of debt discount of $0.931
million as of
  April 1, 2006)                                                                |  |             | 9,069   |                 |   |       | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Total current liabilities                                                                                                                         |  |             | 32,561  |                 |   | 23,345 | 
|                                                                                                                                                 
|Senior debt (net of debt discount of $1.164 million
as of June 30,
  2005)                                                                        |  |             |        |                 |   | 8,836  | 
|Senior subordinated debt (net of debt discount
$1.234 million as of
  June 30, 2005)                                                              |  |             |        |                 |   | 12,066 | 
|Other long term debt (net of current
portion)                                                                                                     |  |             | 1,000   |                 |   | 7,061  | 
|Convertible securities                                                                                                                            |  |             | 349,631 |                 |   | 11,684 | 
|Other long term liabilities                                                                                                                       |  |             | 7,645   |                 |   | 9,780  | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Total liabilities                                                                                                                                 |  |             | 390,837 |                 |   | 72,772 | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Minority Interest in KAAI                                                                                                                         |  |             | 135     |                 |   | 135    | 
|                                                                                                                                                 
|Shareholders
  deficit:                                                                                                                          |  |             |         |                 |   |        | 
|Common stock, par value $0.001, authorized
20,000,000; issued and
  outstanding 14,995,513 as of  April 1,
  2006 and June 30, 2005, respectively |  |             | 15      |                 |   | 15     | 
|                                                                                                                                                  |  |             |         |                 |   |        | 
|Additional paid-in capital                                                                                                                        |  |             | 3,755   |                 |   | 3,782  | 

1

---



|                                                 |  |             |          |                 |   |         |  
|------------------------------------------------ |  | ----------- | -------- | --------------- | - | ------- | -
|                                                 |  | As of       |         
|                                                 |  |             |         
|                                                 |  | April 1,    |          | June 30,        |  
|                                                 |  |             |          |                 |  
|                                                 |  | 2006        |          | 2005            |  
|In thousands, except share and per share amounts |  | (Unaudited) |          | (As
  Restated) |  
|                                                 |  |             |          |                 |  
|                                                 |  |             |          |                 |   |         |  
|Accumulated deficit                              |  |             | (350,828 | )               |   | (39,741 | )
|                                                 |  |             |          |                 |   |         |  
|                                                 |  |             |          |                 |   |         |  
|Total shareholders deficit                      |  |             | (346,923 | )               |   | (35,809 | )
|                                                 |  |             |          |                 |   |         |  
|                                                 |  |             |          |                 |   |         |  
|Total liabilities and shareholders
deficit      |  | $           | 43,914   |                 | $ | 36,963  |  
|                                                 |  |             |          |                 |   |         |  

The accompanying notes are an integral part of the
condensed consolidated financial statements

-2-

---



TrueYou.Com Inc.
Condensed Consolidated Statements of Operations
(unaudited)

|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|------------------------------------------------------------- |  | ------------------- | ---------- | -------------------- | - | ---------- | - | --------- | ---------- | - | - | ---------- | -
|                                                              |  | Nine
  Months Ended |            | Three
  Months Ended |  
|                                                              |  |                     |            |                      |  
|                                                              |  | April 1,            |            | March 31,            |   | April 1,   |   | March 31, |           
|In thousands, except share and per share amounts              |  | 2006                |            | 2005                 |   | 2006       |   | 2005      |           
|                                                              |  |                     |            |                      |  
|Revenues:                                                     |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Service                                                       |  | $                   | 18,446     |                      | $ | 19,198     |   | $         | 6,492      |   | $ | 7,008      |  
|Retail                                                        |  |                     | 7,355      |                      |   | 5,641      |   |           | 3,991      |   |   | 1,794      |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Total
  Revenue                                               |  |                     | 25,801     |                      |   | 24,839     |   |           | 10,483     |   |   | 8,802      |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Cost of
  Revenue:                                            |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Service                                                       |  |                     | 10,805     |                      |   | 10,312     |   |           | 3,945      |   |   | 3,422      |  
|Retail                                                        |  |                     | 2,593      |                      |   | 2,236      |   |           | 1,233      |   |   | 761        |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Total
  Cost of Revenue                                       |  |                     | 13,398     |                      |   | 12,548     |   |           | 5,178      |   |   | 4,183      |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Gross
  margin                                                |  |                     | 12,403     |                      |   | 12,291     |   |           | 5,305      |   |   | 4,619      |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Selling, general and
  administrative expenses                |  |                     | 29,468     |                      |   | 21,055     |   |           | 10,985     |   |   | 6,800      |  
|Depreciation and
  amortization                               |  |                     | 3,141      |                      |   | 2,771      |   |           | 873        |   |   | 953        |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Total
  operating expenses                                    |  |                     | 32,609     |                      |   | 23,826     |   |           | 11,858     |   |   | 7,753      |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Operating loss                                                |  |                     | (20,206    | )                    |   | (11,535    | ) |           | (6,553     | ) |   | (3,134     | )
|Interest expense, net                                         |  |                     | 3,391      |                      |   | 2,974      |   |           | 348        |   |   | 1,064      |  
|Unrealized loss on
  convertible securities                   |  |                     | 284,749    |                      |   |           |   |           | 147,000    |   |   |           |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Loss before income tax
  provision                            |  |                     | (308,346   | )                    |   | (14,509    | ) |           | (153,901   | ) |   | (4,198     | )
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Income tax provision
  (benefit)                              |  |                     |           |                      |   |           |   |           |           |   |   |           |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Net loss                                                      |  |                     | (308,346   | )                    |   | (14,509    | ) |           | (153,901   | ) |   | (4,198     | )
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Dividends on preferred
  stock                                |  |                     | 769        |                      |   | 1,023      |   |           | 407        |   |   | 376        |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Net loss applicable to
  common shareholders                  |  | $                   | (309,115   | )                    | $ | (15,532    | ) | $         | (154,308   | ) | $ | (4,574     | )
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Basic and diluted loss per
  common share:                    |  | $                   | (20.61     | )                    | $ | (1.04      | ) | $         | (10.29     | ) | $ | (0.31      | )
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  
|Weighted average common shares outstanding, basic and
diluted |  |                     | 14,995,513 |                      |   | 14,995,513 |   |           | 14,995,513 |   |   | 14,995,513 |  
|                                                              |  |                     |            |                      |   |            |   |           |            |   |   |            |  

The accompanying notes are an integral part of the
condensed consolidated financial statements

-3-

---



TrueYou.Com Inc.
Condensed Consolidated Statements of Cash Flows

(unaudited)

|                                                                                                          |  |                   |          |           |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | --------- | - | ------- | -
|                                                                                                          |  | Nine Months Ended |         
|                                                                                                          |  |                   |         
|                                                                                                          |  | April 1,          |          | March 31, |  
|In thousands                                                                                              |  | 2006              |          | 2005      |  
|                                                                                                          |  |                   |         
|Cash
  flows from operating activities:                                                                   |  |                   |          |           |   |         |  
|Net loss                                                                                                  |  | $                 | (308,346 | )         | $ | (14,509 | )
|Adjustments to reconcile net loss to net cash used
in operating
  activities:                             |  |                   |          |           |   |         |  
|Depreciation and amortization                                                                             |  |                   | 3,141    |           |   | 2,771   |  
|Amortization of deferred financing costs                                                                  |  |                   | 66       |           |   |        |  
|Stock based compensation expense                                                                          |  |                   | 146      |           |   | 131     |  
|Non-cash interest expense                                                                                 |  |                   | 1,478    |           |   | 9       |  
|Unrealized Loss on Convertible Securities                                                                 |  |                   | 284,749  |           |   |        |  
|Changes
  in operating assets and liabilities:                                                            |  |                   |          |           |   |         |  
|Inventories                                                                                               |  |                   | (384     | )         |   | (1,095  | )
|Accounts receivable                                                                                       |  |                   | (722     | )         |   |        |  
|Other current assets                                                                                      |  |                   | (437     | )         |   | (1,432  | )
|Other assets                                                                                              |  |                   | (134     | )         |   | (637    | )
|Accounts payable                                                                                          |  |                   | 337      |           |   | 1,434   |  
|Accrued expenses and other current
liabilities                                                            |  |                   | 719      |           |   | 5,861   |  
|Deferred revenue                                                                                          |  |                   | (209     | )         |   | (361    | )
|                                                                                                          |  |                   |         
|Net cash used in operating
activities                                                                     |  |                   | (19,596  | )         |   | (7,828  | )
|                                                                                                          |  |                   |         
|Cash
  flows from investing activities:                                                                   |  |                   |          |           |   |         |  
|Capital expenditures                                                                                      |  |                   | (3,983   | )         |   | (1,751  | )
|Purchase of intangible asset                                                                              |  |                   | (84      | )         |   | (977    | )
|                                                                                                          |  |                   |         
|Net cash used in investing
activities                                                                     |  |                   | (4,067   | )         |   | (2,728  | )
|                                                                                                          |  |                   |         
|Cash
  flows provided by financing activities:                                                            |  |                   |          |           |   |         |  
|Cash overdraft                                                                                            |  |                   | (163     | )         |   | (1      | )
|Restricted cash                                                                                           |  |                   | (1,094   | )         |   | 1,204   |  
|Proceeds of Issuance of long term debt net of
deferred financing
  costs                                  |  |                   |         |           |   | (22     | )
|Other long-term liabilities                                                                               |  |                   | (635     | )         |   | 4,979   |  
|Proceeds of issuance of TrueYou Series D Preferred
Stock                                                  |  |                   | 14,964   |           |   |        |  
|Proceeds of issuance of KAAI Series G preferred
stock                                                     |  |                   | 10,058   |           |   |        |  
|Repayment of Sellers Note                                                                                |  |                   | (900     | )         |   |        |  
|Proceeds of issuance of KAAI Series F preferred
stock                                                     |  |                   | 4,754    |           |   |        |  
|                                                                                                          |  |                   |         
|Net cash provided by financing
activities                                                                 |  |                   | 26,984   |           |   | 6,160   |  
|                                                                                                          |  |                   |         
|                                                                                                          |  |                   |          |           |   |         |  
|Net increase (decrease) in
  cash and cash equivalents                                                    |  |                   | 3,321    |           |   | (4,396  | )
|Cash and cash equivalents
  - beginning of period                                                         |  |                   | 173      |           |   | 6,689   |  
|                                                                                                          |  |                   |         
|Cash and cash equivalents
  - end of period                                                               |  | $                 | 3,494    |           | $ | 2,293   |  
|                                                                                                          |  |                   |          |           |   |         |  
|Supplemental
  cash flow information                                                                      |  |                   |          |           |   |         |  
|Non-cash financing activities:                                                                            |  |                   |          |           |   |         |  
|Preferred stock dividends,
  net of preferred stock forfeitures                                           |  | $                 | 769      |           | $ | 1,023   |  
|Reclassification of
  preferred stock into convertible securities                                         |  | $                 | 11,726   |           | $ | 11,591  |  
|Beneficial conversion
  feature on preferred stock                                                        |  | $                 | 11,435   |           | $ |        |  
|Exchange of KAAI Common
  Stock for TrueYou Series B Preferred Stock                                      |  | $                 |         |           | $ | 93      |  
|Exchange of KAAI accrued
  dividends for TrueYou Series B Preferred Stock                                 |  | $                 | 464      |           | $ |        |  
|Exchange of KAAI long term
  debt for TrueYou Series B Preferred Stock                                    |  | $                 | 19,205   |           | $ |        |  
|Exchange of KAAI accrued
  interest for  TrueYou Series B
  Preferred Stock                               |  | $                 | 1,598    |           | $ |        |  
|Classification of KAAI
  warrants issued with KAAI preferred stock as liabilities                         |  | $                 | 3,765    |           | $ |        |  
|Deferred licensing fees and related liability in connection with
  licensing agreements with John Hopkins |  | $                 |         |           | $ | 3,805   |  

The accompanying notes are an integral part
of the condensed consolidated financial statements

-4-

---



TRUEYOU.COM
INC.

NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unless
otherwise indicated: references to TrueYou refer to TrueYou.Com Inc.;
references to KAAI refer to Klinger Advanced Aesthetics, Inc. and its
consolidated subsidiaries; references to the Company, refer to TrueYou.Com
Inc. and its consolidated subsidiaries (including KAAI); and the terms fiscal
quarter and three months in this Quarterly Report on Form 10-Q refer to the
quarter ended April 1, 2006.

1. BUSINESS AND BASIS OF
PRESENTATION

The
Company offers both cosmetic services and medical procedures to customers under
one delivery system and brings cosmetic surgery, cosmetic dentistry and
dermatology, and salon and spa services together under a single brand, giving
clients access to top service providers, unique treatments and predictable
results in a state of the art environment. The Company has developed a skin
care line of products called Cosmedicine which is being distributed through
Sephora USA, Inc. stores and the Companys own facilities. The Company is the
owner of the Cosmedicine trademark. The Company co-brands its trade name with
the trade names of the salons and spas that it has acquired. The Companys
salons and spas share certain corporate resources such as senior management and
administrative services. As of April 1, 2006, the Company had 527 employees.

The
consolidated financial statements presented herein pertain to the Company and
its subsidiaries (including KAAI) on a consolidated basis. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The
accompanying condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statement presentation and should be read in conjunction
with KAAIs audited consolidated financial statements and related footnotes
thereto for the fiscal year ended June 30, 2005 included in the Companys
Current Report on Form 8-K/A filed with the Commission on February 27, 2006.

The
condensed consolidated balance sheet of the Company as of June 30, 2005 was
derived from audited consolidated financial statements, as adjusted for the
capital transaction with TrueYou.Com, as described below under Share Exchange
Agreement. The consolidated financial statements presented in this quarterly
report are unaudited but include all adjustments that are of a normal and
recurring nature that management considers necessary for the fair statement of
the results for the interim periods. The Companys results of operations for
the three and nine month periods ended April 1, 2006 are not necessarily
indicative of the results to be expected for the year ended June 30, 2006 or
future periods.

Restatement
of Interim Condensed Consolidated Financial Statements

During
the quarter ended April 1, 2006, the Company became aware of certain
transactions that should have been recorded in earlier quarters during the
current fiscal year. After review of the transactions, management has decided
to make adjustments to record these transactions in the proper period. The
following table shows the effects of these transactions had they been recorded
in the proper periods.

5

---



|                                                 
|-------------------------------------------------
|Consolidated Balance Sheet as of October 1, 2005:

|                                                     |  |               |         |            |   |               |    |   |         |  
|---------------------------------------------------- |  | ------------- | ------- | ---------- | - | ------------- | -- | - | ------- | -
|In thousands,
  except share and per share
  amounts |  | As
  Reported |         | Adjustment |   | As
  Restated |   
|                                                     |  |               |         |            |   |               |   
|                                                    
|Assets:                                              |  |               |         |            |   |               |   
|Property and
  equipment, net                        |  | $             | 7,048   |            | $ | (406          | )1 | $ | 6,642   |  
|Other Assets                                         |  |               | 447     |            |   | (80           | )2 |   | 367     |  
|Total Assets:                                        |  |               | 45,924  |            |   | (486          | )  |   | 45,438  |  
|                                                     |  |               |         |            |   |               |    |   |         |  
|Liabilities and shareholders deficit:               |  |               |         |            |   |               |    |   |         |  
|Accounts Payable                                     |  |               | 5,335   |            |   | 448           | 3  |   | 5,783   |  
|Accrued expenses
  and other current                 |  |               |         |            |   |               |    |   |         |  
|liabilities                                          |  |               | 9,669   |            |   | (16           | )4 |   | 9,653   |  
|Deferred Revenue                                     |  |               | 8,919   |            |   | (57           | )5 |   | 8,862   |  
|Total
  Liabilities                                  |  |               | 61,465  |            |   | 375           | 6  |   | 61,840  |  
|                                                     |  |               |         |            |   |               |    |   |         |  
|Shareholders deficit:                                |  |               |         |            |   |               |    |   |         |  
|                                                     |  |               |         |            |   |               |    |   |         |  
|Accumulated
  deficit                                |  |               | (47,009 | )          |   | (861          | )7 |   | (47,870 | )
|                                                     |  |               |         |            |   |               |    |   |         |  
|Total
  shareholders deficit                        |  |               | (15,540 | )          |   | (861          | )  |   | (16,401 | )
|                                                     |  |               |         |            |   |               |    |   |         |  
|Total
  liabilities and shareholders deficit        |  | $             | 45,924  |            | $ | (486          | )8 | $ | 45,438  |  
|                                                     |  |               |         |            |   |               |    |   |         |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|1 Earlier in the year, the cost
  associated with developing the Companys Advanced Practice Delivery System
  (APDS) was capitalized incorrectly. Since such costs may not be capitalized
  until technological feasibility has been reached, and technological
  feasibility has not been reached, the Company has made an adjustment to
  record the development costs as operating expense. The Company also evaluated
  previously capitalized consultant costs associated with the development and
  enhancement of internally used software in the quarter and decided that some
  of the cost had been improperly capitalized as they were operating expenses.
  The total of these adjustments was $409, which was offset by $3 interest
  expense capitalized under SFAS 34.

2 The
Company identified that a payment for a security deposit was duplicated and
carried as an asset. The Company recorded this entry to write off the asset.

3 The
Company identified unreconciled differences to its accounts payable balances as
of the quarter end October 1, 2005 and has expensed all unreconciled items
identified.

4 The
Company evaluated its accrual balances and identified several over accruals in
the amount $131 and an under accrual of interest expense related to the TICC
debt in the amount $100. In addition, the Company analyzed deferred rent
obligations and determined that an additional expense in the amount $15 related
to two of its operating facilities needed to be recognized for the period
October 1, 2005.

5 The
Company has begun reconciling our gift card liability on a monthly basis during
our current period. As a result of the latest reconciliation, the Company
realized that our first quarter should have had recognized additional gift card
income.

6 The
Companys net effect of total liabilities increased $375 due to the increase in
the restated accounts payable in the amount $448, a decrease in the restated
accrued expenses and other current liabilities in the amount of $16 and the
decrease in the restated deferred revenue in the amount $57.

7 The
Companys accumulated deficit increased $861 due to its increase in restated
SG&A expenses of $764 and the increase in restated interest expense of $97.
See footnotes to the restatement table on page 7 (Consolidated Statement of
Operations for the three months ended October 1, 2005)

8
Total liabilities and shareholders deficit decreased $486 based on the
Companys restated assets, liabilities and accumulated deficit.

-6-

---



Consolidated Statement of Operations for the three
months ended October 1, 2005:

|                                                                |  |               |            |            |   |               |     |   |            |  
|--------------------------------------------------------------- |  | ------------- | ---------- | ---------- | - | ------------- | --- | - | ---------- | -
|In thousands,
  except share and per share amounts              |  | As
  Reported |            | Adjustment |   | As
  Restated |    
|                                                                |  |               |            |            |   |               |    
|                                                                |  |               |            |            |  
|Selling, general and administrative expenses                    |  | $             | 7,208      |            | $ | 764           | 9   | $ | 7,972      |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|Total operating expenses                                        |  |               | 8,317      |            |   | 764           |     |   | 9,081      |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|Operating loss                                                  |  |               | (4,728     | )          |   | (764          | )   |   | (5,492     | )
|Interest
  expense, net                                         |  |               | 1,004      |            |   | 97            | 10  |   | 1,101      |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|Loss before income tax provision                                |  |               | (5,732     | )          |   | (861          | )   |   | (6,593     | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Net loss                                                        |  |               | (5,732     | )          |   | (861          | )   |   | (6,593     | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Net loss applicable to common shareholders                      |  | $             | (6,195     | )          | $ | (861          | )11 | $ | (7,056     | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Basic and diluted loss per common share:                        |  | $             | (0.41      | )          |   |               |     | $ | (0.47      | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Weighted average common shares outstanding, basic
  and diluted |  |               | 14,995,513 |            |   |              |     |   | 14,995,513 |  
|                                                                |  |               |            |            |   |               |     |   |            |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|9 The Companys SG&A
  expenses and operating expenses increased $764 due to the write-off of incorrectly
  capitalized development costs of $409 (see note 1), the write-off of the
  duplicate recording of a security deposit of $80, the additional rent expense
  of $15 and the write-off of the unreconciled accounts payable differences of
  $448. These are offset by the write-off of the over accruals of $131 and the
  increase in other income related to the gift card retirements of $57. See
  footnotes to the restatement table on page 6 (Consolidated Balance Sheet as
  of October 1, 2005).

10 In
compliance with SFAS 34, the Company determined that $3 of interest expense
should be capitalized as part of the cost of construction. This is offset by
the reclassification of $100 of interest expense incorrectly recorded to
SG&A expenses (see note 4).

11
The Companys net loss applicable to common shareholders increased $861 due to
its increase in restated SG&A expenses of $764 and the net increase in
restated interest expense of $97.

-7-

---



Consolidated Balance Sheet as of December 31, 2005:

|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|-------------------------------------------------- |  | ------------- | ------- | ---------------------------- | - | ----------------------- | - | ------------- | -------- | --- | - | -------- | -
|In thousands, except
  share and per share amounts |  | As
  Reported |         | Adjustment
  (A)
  10/1/2005 |   | Adjustment
  12/31/2005 |   | As
  Restated |         
|                                                   |  |               |         |                              |   |                         |   |               |         
|Assets:                                            |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Accounts
  Receivable, net                         |  | $             | 1,387   |                              | $ |                        |   | $             | (351     | )12 | $ | 1,036    |  
|Property and
  equipment, net                      |  |               | 8,385   |                              |   | (406                    | ) |               | (416     | )13 |   | 7,563    |  
|Other assets                                       |  |               | 505     |                              |   | (80                     | ) |               |         |     |   | 425      |  
|Total assets                                       |  |               | 52,950  |                              |   | (486                    | ) |               | (767     | )   |   | 51,697   |  
|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Liabilities and shareholders deficit:             |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Accounts payable                                   |  |               | 3,475   |                              |   | 448                     |   |               |         |     |   | 3,923    |  
|Accrued expenses
  and other current liabilities   |  |               | 9,120   |                              |   | (16                     | ) |               | 16       | 14  |   | 9,120    |  
|Deferred Revenue                                   |  |               | 9,336   |                              |   | (57                     | ) |               | (67      | )15 |   | 9,212    |  
|Convertible
  Securities                           |  |               | 64,882  |                              |   |                        |   |               | 137,749  | 16  |   | 202,631  |  
|Total
  liabilities                                |  |               | 106,188 |                              |   | 375                     |   |               | 137,698  |     |   | 244,261  |  
|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Shareholders deficit:                             |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Accumulated
  deficit                              |  |               | (57,541 | )                            |   | (861                    | ) |               | (138,465 | )   |   | (196,867 | )
|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Total
  shareholders deficit                      |  |               | (53,238 | )                            |   | (861                    | ) |               | (138,465 | )   |   | (192,564 | )
|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  
|Total
  liabilities and shareholders deficit      |  | $             | 52,950  |                              | $ | (486                    | ) | $             | (767     | )   | $ | 51,697   |  
|                                                   |  |               |         |                              |   |                         |   |               |          |     |   |          |  

(A) Details to the adjustments contained in this
column can be found in the footnotes to the Restated Consolidated Balance Sheet
as of October 1, 2005 appearing earlier in the document.

|                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                   
|12 The Company received payments
  for credit card receivable balances during the three months ended December
  31, 2005 and recorded them as income instead of as a reduction of accounts
  receivable. As a result, the Company recorded an entry to write off the
  accounts receivable balance.

13
Earlier in the year, the cost associated with developing the Companys Advanced
Practice Delivery System (APDS) was capitalized incorrectly. Since such costs
may not be capitalized until technological feasibility has been reached, and
technological feasibility has not been reached, the Company has made an
adjustment to record the development costs as operating expense. The Company
also evaluated previously capitalized consultant costs associated with the
development and enhancement of internally used software in the quarter and
decided that some of the cost had been improperly capitalized as they were
operating expenses. Legal expenses associated with patents the Company intended
to file were capitalized in prior periods. While a significant portion of those
expenses were properly capitalized, some of the expense was associated with
review of suppliers patents and, accordingly, are reclassified as an operating
expense. The aggregate of these adjustments was $441 which was offset by $25 of
interest expense capitalized under SFAS 34.

14
The Company analyzed deferred rent obligations and determined that an
additional expense in the amount $16 related to two of its operating facilities
needed to be recognized for period ending December 31, 2005.

15
The Company has begun reconciling gift card liability monthly during the
current period. As a result of the latest reconciliation, the Company realized
that the second quarter should have had recognized additional gift card income.

16
The Company originally valued the convertible securities at $65 million as of
December 20, 2005, the date of the Share Exchange Agreement, based on the
transaction value of the Share Exchange Agreement. The Company has subsequently
determined that a better measure of fair value is based on the share trading
value of the publicly traded securities of Trueyou.com Inc. (TUYU.PK) and as a
result, the Company has remeasured its convertible securities as of December
31, 2005. The number of common shares into which the convertible securities are
convertible was 506,576,690 as of December 31, 2005 and the per share trading
value as of December 31, 2005 was in the amount $0.40, which has resulted in an
estimated fair value of the convertible securities to be approximately $203
million. The Company recorded an unrealized loss of approximately $138 million
for the three months ended December 31, 2005

-8-

---



Consolidated Statement of Operations for the three
months ended December 31, 2005:

|                                                                |  |               |            |            |   |               |     |   |            |  
|--------------------------------------------------------------- |  | ------------- | ---------- | ---------- | - | ------------- | --- | - | ---------- | -
|In thousands,
  except share and per share amounts              |  | As
  Reported |            | Adjustment |   | As
  Restated |    
|                                                                |  |               |            |            |   |               |    
|                                                                |  |               |            |            |   |               |     |   |            |  
|Selling, general and administrative expenses                    |  | $             | 9,693      |            | $ | 741           | 17  | $ | 10,434     |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|Total operating expenses                                        |  |               | 10,852     |            |   | 741           |     |   | 11,593     |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|                                                                |  |               |            |            |   |               |     |   |            |  
|Operating loss                                                  |  |               | (7,343     | )          |   | (741          | )   |   | (8,084     | )
|Interest
  expense, net                                         |  |               | 1,995      |            |   | (25           | )18 |   | 1,970      |  
|Unrealized loss
  on measurement of convertible securities      |  |               |           |            |   | (137,749      | )19 |   | (137,749   | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Loss before income tax provision                                |  |               | (9,338     | )          |   | (138,465      | )   |   | (147,803   | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Net loss                                                        |  |               | (9,338     | )          |   | (138,465      | )   |   | (147,803   | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Net loss applicable to common shareholders                      |  | $             | (9,237     | )          | $ | (138,465      | )20 | $ | (147,702   | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Basic and diluted loss per common share:                        |  | $             | (0.62      | )          |   |               |     | $ | (9.85      | )
|                                                                |  |               |            |            |   |               |     |   |            |  
|Weighted average common shares outstanding, basic
  and diluted |  |               | 14,995,513 |            |   |              |     |   | 14,995,513 |  
|                                                                |  |               |            |            |   |               |     |   |            |  

|                                                                                                                                                                                                                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                 
|17 The Companys SG&A
  expenses and operating loss increased $741 due to the write-off of $351 of
  credit card receivables, the write-off of incorrectly capitalized development
  costs of $441 (see note 13), the additional rent expense of $16 netted
  against the increase in other income related to the gift card retirements of
  $67.

18 In
compliance with SFAS 34, the Company determined that $25 of interest expense
should be capitalized as part of the cost of construction.

19
The Company originally valued the convertible securities at $65 million as of
December 20, 2005, the date of the Share Exchange Agreement, based on the
transaction value of the Share Exchange Agreement. The Company has subsequently
determined that a better measure of fair value is based on the share trading
value of the publicly traded securities of Trueyou.com Inc. (TUYU.PK) and as a
result, the Company has remeasured its convertible securities as of December
31, 2005. The number of common shares into which the convertible securities are
convertible was 506,576,690 as of December 31, 2005 and the per share trading
value as of December 31, 2005 was in the amount $0.40, which has resulted in an
estimated fair value of the convertible securities to be approximately $203
million. The Company recorded an unrealized loss of approximately $138 million
for the three months ended December 31, 2005

20
The Companys net loss applicable to common shareholders increase $139.3
million due to our increase in restated SG&A expenses of $741, the decrease
in restated interest expense of $25 and the $137.7 million in additional
liability for the remeasurement of convertible securities.

-9-

---



Consolidated
Statement of Operations for the six months ended December 31, 2005:

|                                                                |  |               |            |            |   |               |      |   |            |  
|--------------------------------------------------------------- |  | ------------- | ---------- | ---------- | - | ------------- | ---- | - | ---------- | -
|In thousands, except share and per share amounts                |  | As
  Reported |            | Adjustment |   | As
  Restated |     
|                                                                |  |               |            |            |   |               |     
|                                                                |  |               |            |            |   |               |     
|Selling, general and
  administrative expenses                  |  | $             | 16,798     |            | $ | 1,505         | 21   | $ | 18,303     |  
|                                                                |  |               |            |            |   |               |      |   |            |  
|Total operating expenses                                        |  |               | 19,066     |            |   | 1,505         |      |   | 20,571     |  
|                                                                |  |               |            |            |   |               |      |   |            |  
|                                                                |  |               |            |            |   |               |      |   |            |  
|Operating loss                                                  |  |               | (11,968    | )          |   | (1,505        | )    |   | (13,473    | )
|Interest expense, net                                           |  |               | 2,999      |            |   | 72            | 22   |   | 3,071      |  
|Unrealized loss on
  measurement of convertible securities      |  |               |           |            |   | (137,749      | ) 23 |   | (137,749   | )
|                                                                |  |               |            |            |   |               |      |   |            |  
|Loss before income tax
  provision                              |  |               | (14,967    | )          |   | (139,326      | )    |   | (154,293   | )
|                                                                |  |               |            |            |   |               |      |   |            |  
|Net loss                                                        |  |               | (14,967    | )          |   | (139,326      | )    |   | (154,293   | )
|                                                                |  |               |            |            |   |               |      |   |            |  
|Net loss applicable to
  common shareholders                    |  | $             | (15,329    | )          | $ | (139,326      | ) 24 | $ | (154,655   | )
|                                                                |  |               |            |            |   |               |      |   |            |  
|Basic and diluted loss per
  common share:                      |  | $             | (1.02      | )          | $ |               |      | $ | (10.31     | )
|                                                                |  |               |            |            |   |               |      |   |            |  
|Weighted average common
  shares outstanding, basic and diluted |  |               | 14,995,513 |            |   |              |      |   | 14,995,513 |  
|                                                                |  |               |            |            |   |               |      |   |            |  

---

21 The
Companys six month SG&A expenses and operating loss increased $1,505 due
to the total SG&A restatement in the amount of $764 for the period ending
October 1, 2005 and the total SG&A restatement in the amount $741 for
period ending December 31, 2005.


22 In compliance with SFAS 34, the Company
determined that $3 and $25 of interest expense for the periods October 1, 2005
and December 31, 2005, respectively, should be capitalized as part of the cost
of construction.  This was offset by the
reclassification of $100 of interest expense incorrectly recorded to SG&A
expenses during the three months ended October 1, 2005 (see note 4).

23 The Company originally reclassified $65
million to convertible securities ending December 20, 2005, the date of the
Share Exchange Agreement, based on the transaction value of the Share Exchange
Agreement.   The Company has
subsequently determined a better measure of fair value based on the share
trading value of the securities and as a result, the Company has remeasured its
convertible securities as of its quarter ended December 31, 2005 in the amount
$.40 per share trading value which has resulted in an unrealized loss on
measurement of convertible securities in the amount $137.7 million.

24 The Companys net loss applicable to common
shareholders increased $139.3 million due to our increase in restated SG&A
expenses of $1,505, increase in restated interest expense of $72 and the $137.7
million in additional liability for the remeasurement of convertible
securities.

-10-

---



The
aggregate amount of these adjustments is $.09 million and $138 million for the
quarter ended October 1, 2005 and December 31, 2005, respectively.

Share Exchange Agreement:

On
December 20, 2005, the Company entered into a Share Exchange Agreement (the
Share Exchange Agreement) with KAAI and securityholders of KAAI (the KAAI
Securityholders) pursuant to which KAAI Securityholders received newly issued
preferred securities of TrueYou in exchange for their securities of KAAI.

The
share exchange of a private operating company, KAAI, into a non-operating
public shell corporation, TrueYou.Com, with nominal net assets or liabilities
resulted in the shareholders of KAAI having actual operating control of the
combined company after the transaction, and the shareholders of TrueYou.Com,
Inc. continuing only as passive investors.

The
transaction is considered to be a capital transaction in substance, rather than
a business combination.  That is, the
transaction is equivalent to the issuance of stock by the private company for
the net monetary assets of the shell corporation, accompanied by a
recapitalization.

Accordingly,
the outstanding shares of KAAI have been restated in the balance sheet and the
statement of stockholders deficit to give effect to the Share Exchange
Agreement.  The restated shares have
been used in the computation for loss per share. The historical balance sheet
as of June 30, 2005 is that of KAAI.

KAAI
was formed under the name Advanced Aesthetics, Inc. in 2003 by principals of
Kidd & Company, LLC (KCO), a Greenwich, Connecticut based principal
investment firm. On January 9, 2006, Advanced Aesthetics, Inc. changed its name
to Klinger Advanced Aesthetics, Inc.

Revenue Recognition:

The
Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104
(Revenue Recognition), at the time the customer either receives services or
takes possession of merchandise and pays for such service or merchandise with
cash, check, gift card or a credit card.

When
the Company receives payment from customers before the services have been
performed or the customer has taken possession of the merchandise, which
principally relates to the sale of gift cards, the amount received is recorded
as deferred revenue in the Companys consolidated balance sheet.  The liability remains on the balance sheet
until the earlier of redemption, escheatment or 36 months.  It is the Companys and its predecessors
historical experience that the likelihood of redemption after 36 months is
remote.  After 36 months, 80% of the
remaining liability is relieved and recorded as other income.  After 48 months, any remaining 10% of the
liability is relieved and recorded as other income.  After 60 months, the last 10% of the remaining liability is
relieved and recorded as other income.

Cost of Revenue:

Cost
of sales for services include salaries associated with employees that are
directly related to providing various services to clients.  These services include hair cuts, hair
coloring, facials, medical procedures, waxing, massages, pedicures and
manicures.  In addition, the cost of
products utilized as part of the service is also included in cost of revenues.  Product costs are determined by utilizing
the cost that the product was acquired for from various vendors and
manufacturers on a first-in first-out (FIFO) basis.

-11-

---



Significant
changes in product costs, product pricing, revenue mix, shrinkage and vendor
allowances and rebates could have a material impact on our gross margin.

Cosmedicine:

The
Company developed an over-the-counter medical grade skin care line of products
called Cosmedicine, for which Johns Hopkins Medicine, acting through The Johns
Hopkins Health System Corporation and The Johns Hopkins University (Johns
Hopkins) consulted on the design and information analysis of independent tests
performed on the products.   In return for
its consulting services, Johns Hopkins Medicine receives fees from KAAI.
The Company launched the products in February 2006 for exclusive retail
distribution at Sephora stores, KAAI locations and on our respective
websites.  For the nine months ended
April 1, 2006, the Company had $2.4 million in Cosmedicine sales, which
accounts for approximately 9% of total revenue and $0.7 million in accounts
receivable for the sale of Cosmedicine products, which accounts for
approximately 72% of its accounts receivable balance.  There were no Cosmedicine sales for the comparable 2005
period.

Accounts Receivable:

The
Companys accounts receivables includes in-transit credit card payments made by
its customers, and Cosmedicine products purchased by Sephora that are being
sold in their stores.

Allowances for Doubtful Accounts Receivable:

The
Company maintains allowances for doubtful accounts to cover uncollectible
accounts receivable, and evaluates its accounts receivable to determine if they
will ultimately be collected. This evaluation includes significant judgments
and estimates, including an analysis of receivables aging and a
customer-by-customer review for large accounts. If, for example, the financial
condition of the Companys customers deteriorates resulting in an impairment of
their ability to pay, additional allowances may be required.  As of April 1, 2006, the Company has
approximately $35,000 in allowance for doubtful accounts.

Provisions for Inventory Obsolescence:

The
Company records provisions for estimated obsolescence and shrinkage of
inventory. The Companys estimates consider the cost of inventory, forecasted
demand, the estimated market value, the shelf life of the inventory and our
historical experience. If there are changes to these estimates, additional
provisions for inventory obsolescence may be necessary.

Property & Equipment:

Property
and equipment are carried at cost, less accumulated depreciation and
amortization.  Property, equipment and
improvements to leased premises are depreciated using the straight-line method
over the estimated useful lives of the assets or when applicable, the term of
the lease, whichever is shorter.
Estimated useful lives generally range from 5 to 15 years for leasehold
improvements and 3 to 7 years for fixtures and equipment.  Repair and maintenance expenses, which do
not improve or extend the life of the respective assets, are charged directly
to expense as incurred.  The Company
capitalizes all property and equipment purchases in excess of $1,000.  The assets and related depreciation and
amortization accounts are adjusted for property retirements and disposals with
the resulting gain or loss included in the Companys Consolidated Statements of
Operations.  Fully depreciated assets
remain in the accounts until retired from service.

John Hopkins:

-12-

---



In
December 2004 KAAI entered into a Services and Licensing Agreement with Johns
Hopkins Medicine (Johns Hopkins), acting through Johns Hopkins Health System
Corporation, and the Johns Hopkins University (the John Hopkins
Agreement).  Under the Agreement, Johns
Hopkins agreed to provide the following services to us: (i) investigate current
methods for skin care parameter testing at the point of sale; (ii) where
existing protocols and equipment for skin care parameter testing do not exist
or are not acceptable to Johns Hopkins, develop acceptable methods to measure
the condition of clients skin; (iii) create a new testing methodology to
validate skin care product efficacy; (iv) oversee the ongoing testing of skin
care products using the Johns Hopkins testing standards; and (v) oversee the
testing of 15 of our skin care products using the agreed upon testing
standards.  This agreement was subject
to the satisfaction of certain conditions, which we had to satisfy by October
31, 2005.  The conditions include: (i)
written agreement by Johns Hopkins and KAAI on: (A) the parameters for research
and academic freedom as opposed to work for hire as noted in the agreement; (B)
the amount of royalty fees,  guaranteed  annual fees and equity as noted the
agreement; (C) the buyout or additional stock to be  provided  Johns Hopkins at
the end of the term of the agreement; and (D) an appropriate scope of coverage
for product and/or contractual liability insurance to be maintained by KAAI;
(ii) final approval by internal Johns Hopkins committees  for
the Permitted Statement (as defined in the agreement); and (iii)  documentation of the matters described in
the (i) and (ii) by an amendment to the agreement.  Our conditions have been extended due to negotiations on use of
the John Hopkins name.  On November 10,
2005, the period by which we are required to satisfy the conditions was
extended to December 31, 2005.  On
January 3, 2006, the parties extended such period until March 31, 2006.  In March 2006, the parties extended such
period to June 30, 2006.  On June 21,
2006, the period by which we are required to satisfy the conditions was extended
to September 30, 2006.  The term of the
agreement is 5 years after the satisfaction of the conditions.

We
have a multi-pronged alliance with John Hopkins, widely acknowledged to be
among the most respected medical institutions in the US.  John Hopkins has agreed to review and assess
our process for verifying the safety and clinical quality of our practitioners,
protocols and facilities; it also provides oversight of our Medical Advisory
Board and provides oversight of the scientific testing of our Cosmedicine
product line.  John Hopkins approved the
use of the John Hopkins Medicine name as part of the marketing of our
facilities, intellectual property, collateral materials and Cosmedicine
products and we are in the process of finalizing a formal agreement with
respect to the forgoing.

Johns
Hopkins Medicines role with the Company is to provide aesthetic-improvement
clients with information regarding performance and safety claims. The
relationship is designed to provide consulting services on aspects of our
medical services business, and on the safety and performance of our skin care
product line. The Companys goal is to help establish consistent, safe delivery
of medical aesthetic services in its centers, to create objective testing of
the effects of our skin care products, and to focus on measurable elements of
skin health.

Johns
Hopkins has approved the use of the Johns Hopkins Medicine name on the
Companys Cosmedicine packaging.  The
specific approved language on the packaging is: Johns Hopkins Medicine
consulted on the design and information analysis of tests performed on
Cosmedicine products.  In return for its
consulting services, Johns Hopkins Medicine receives fees from KAAI.

The
Company has recorded, pursuant to its agreement with John Hopkins for review
and assessment services, amortization of $241,000 and $72,000 for the three
months ended April 1, 2006 and March 31, 2005, respectively and $722,000 and
$216,000 for the nine months ending April 1, 2006 and March 31, 2005,
respectively.  The Company also recorded
non-cash interest expense of $63,000 and $15,011 for the three months ended
April 1, 2006 and March 31, 2005, respectively and $197,000 and $48,000 for the
nine months ending April 1, 2006 and March 31, 2005, respectively. The Johns
Hopkins Agreement is carried on the balance sheet at the present value of all
future payments to Johns Hopkins and amortized over the term of the
agreement.  The carrying value of this
asset was $4.0 million as of April 1, 2006.
The amount is reported as a component of Intangible Assets.

-13-

---



As
of April 1, 2006, John Hopkins held a minority interest in KAAI constituting
shares of Series E Preferred Stock.  The
Series E Preferred Stock represented John Hopkins equity interest in
KAAI.  On May 4, 2006, Johns Hopkins
voluntarily forfeited all of its equity interest in KAAI shares of Series E
Preferred Stock.  The forfeited shares
constituted all issued and outstanding shares of Series E Preferred Stock and
as a result, as of May 4, 2006, no shares of Series E Preferred Stock of KAAI
are issued and outstanding. As a result of the forfeited shares, the Company
plans on canceling these shares at the end if its fiscal year, ending June 30,
2006.

Goodwill:

Goodwill
is tested for impairment annually or more frequently in accordance with the
provisions of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.  Fair
values are estimated based on the Companys best estimate of the expected
present value of future cash flows and compared with the corresponding carrying
value of the reporting unit, including goodwill.  The Company considers its facilities to be reporting units when
it tests for goodwill impairment because that is where the Company believes
goodwill resides.  The Company tested
for goodwill at June 30, 2005 and determined that the estimated fair value of
the reporting units exceeded their carrying amounts, indicating no impairment
of goodwill.  A similar review will be
conducted annually in June, or more frequently if indicators of potential
impairment exist.

The
Companys impairment review process is based on a discounted future cash flow
approach that uses estimates of revenues for the reporting units, driven by
assumed growth rates, estimated future gross margin and expense rates, as well
as acquisition integration and maturation, and appropriate discount rates.
These estimates are consistent with the plans and estimates that are used to
manage the underlying businesses. Charges for impairment of goodwill for a reporting
unit may be incurred in the future if the reporting unit fails to achieve its
assumed revenue growth rates or assumed gross margin, or if interest rates
increase significantly.

Loss Per Share:

Basic
loss per share is calculated by dividing net loss by the weighted average
number of shares of common stock outstanding during the period.  Diluted EPS is calculated by dividing net
loss by the weighted average number of shares of common stock outstanding for
the period, adjusted to reflect the dilutive impact of potential shares of
common stock outstanding during the period.

Each
security is evaluated to determine if the security or note is dilutive or
anti-dilutive.  If the security is to be
deemed anti-dilutive, it is excluded from the computation for diluted loss per
common share.  A total of 25,404,083 and
2,671,135 equivalent shares related to convertible securities were considered
anti-dilutive, due to the Company having a net loss applicable to common
shareholders for the nine months ended April 1, 2006 and March 31, 2005,
respectively and were therefore excluded from the loss per common share
calculation.  Stock options and warrants
with exercise prices greater than the average market value of the Companys
Common Stock are also excluded from the computation of dilutive loss per common
share.

2.  STOCK BASED COMPENSATION PLAN

In December
2004, the FASB issued SFAS No. 123(R), Share Based Payment. This statement
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods and services. It focuses primarily
on accounting for transactions in which an entity obtains employee services in
share-based payment transactions (employee stock options). The statement requires

-14-

---



the
measurement of the cost of employee services received in exchange for an award
of equity instruments (such as employee stock options) at fair value on the
grant date. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the award (the
requisite service period).  The Company
adopted FAS 123R, Share-Based payment, applying the modified retrospective
method.

All
existing stock options have been issued under the subsidiary (KAAI) 2003 stock
option plan.  Management is currently
drafting a new stock option plan for the Company that will be presented to the
board of directors of the Company and shareholders for approval in the first
quarter of fiscal year 2007.  Once the new
stock option plan is approved, the Company will start the process of exchanging
KAAI options for options of the Company under the new stock incentive
plan.

The
Company recognized approximately $37,000 and $52,000 for the three months ended
April 1, 2006 and March 31, 2005, respectively and approximately $146,000 and
$131,000 for the nine months ended April 1, 2006 and March 31, 2005,
respectively, for stock options granted.
In addition, as of April 1, 2006, there was approximately $516,000 in
unrecognized stock based compensation expense related to non-vested stock
options which is expected to be recorded in future periods.

A
summary of the KAAIs share option activity and related information during the
period ended April 1, 2006 is as follows.

|                              |  |  |            |   |                    |   |      |  | 
|----------------------------- |  |  | ---------- | - | ------------------ | - | ---- |  | 
|                              |  |  |            |   | Weighted
  Average |  
|Options outstanding           |  |  | Shares     |   | Exercise Price     |  
|                              |  |  |            |   |                    |  
|Outstanding,
  June 30, 2005  |  |  | 3,354,150  |   |                    | $ | 4.00 |  | 
|Granted                       |  |  |           |   |                    |   |     |  | 
|Cancelled                     |  |  | (1,215,150 | ) |                    |   | 4.00 |  | 
|Exercised                     |  |  |           |   |                    |   |     |  | 
|Outstanding,
  April 01, 2006 |  |  | 2,139,000  |   |                    | $ | 4.00 |  | 

|                             |  |                                            |           |                                                        |  |                                 |  |                                  |      |                        |  |         |  |   |      | 
|---------------------------- |  | ------------------------------------------ | --------- | ------------------------------------------------------ |  | ------------------------------- |  | -------------------------------- | ---- | ---------------------- |  | ------- |  | - | ---- | 
|                             |  | Options outstanding                        |           | Options exercisable                                    | 
|                             |  |                                            |           |                                                        | 
|Range of
  exercise prices   |  | Number of options outstanding as of 4/1/06 |           | Weighted average remaining contractual life (in years) |  | Weighted average exercise price |  | Number exercisable as of 4/01/06 |      | Weighted average price | 
|                             |  |                                            |           |                                                        |  |                                 |  |                                  |      |                        | 
|                             |  |                                            |           |                                                        |  |                                 |  |                                  |      |                        |  |         |  |   |      | 
|Stock options issued @ $4.00 |  |                                            | 2,139,000 |                                                        |  | 8.25                            |  | $                                | 4.00 |                        |  | 953,875 |  | $ | 4.00 | 

3.  ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES

The table
below consists of the Companys accrued expenses and other current liabilities
as of April, 1 2006 and June 30, 2005.

-15-

---



|                                                       |  |              |        |              |   |       | 
|------------------------------------------------------ |  | ------------ | ------ | ------------ | - | ----- | 
|(Amounts in thousands)                                 |  | April 1,2006 |        | June 30,2005 |  
|                                                       |  |              |        |              |  
|                                                       |  |              |        |              |   |       | 
|Accrued Interest                                       |  | $            | 2,614  |              | $ | 3,654 | 
|Accrued Dividends                                      |  |              | 2,118  |              |   | 1,853 | 
|Accrued Management Fees                                |  |              | 1,714  |              |   | 1,305 | 
|Due to John Hopkins 
  License fees                   |  |              | 1,500  |              |   |      | 
|                                                      
|Payroll, Benefits and Other                            |  |              | 2,884  |              |   | 3,103 | 
|                                                       |  |              |        |              |   |       | 
|Total Accrued Expenses and
  Other Current Liabilities |  | $            | 10,830 |              | $ | 9,915 | 
|                                                       |  |              |        |              |   |       | 

4. LONG TERM
DEBT AND LIABILITIES:

The
table below consists of the Companys long term debt and liabilities as of
April 1, 2006 and June 30, 2005.

|                                                 |  |               |  |                 |  |              |         |              |   |        |  | 
|------------------------------------------------ |  | ------------- |  | --------------- |  | ------------ | ------- | ------------ | - | ------ |  | 
|(Amounts in thousands)                           |  | MaturityDates |  | Interest Rate % |  | April 1,2006 |         | June 30,2005 |  
|                                                 |  |               |  |                 |  |              |         |              |  
|                                                 |  |               |  |                 |  |              |         |              |   |        | 
|Senior debt                                      |  | 3/31/2009     |  | 12%             |  | $            |        |              | $ | 8,836  | 
|Senior subordinated debt,
  net of debt discount |  | 11/4/2010     |  | 10%             |  |              |        |              |   | 12,066 | 
|Other long term debt                             |  |               |  |                 |  |              |         |              |   |        | 
|Seller notes payable                             |  | Varies        |  | 5%-15%          |  |              | 1,000   |              |   | 7,061  | 
|Other long term liabilities                      |  |               |  |                 |  |              |         |              |   |        | 
|Long term licensing
  obligation                 |  | 12/1/2008     |  | 6%              |  |              | 2,515   |              |   | 4,555  | 
|Capital lease obligations                        |  | Varies        |  | 6%              |  |              | 130     |              |   | 225    | 
|Deferred liability                               |  |               |  |                 |  |              |         |              |   |        | 
|Sephora                                          |  | 12/31/2010    |  | N/A             |  |              | 5,000   |              |   | 5,000  | 
|Convertible Securities                           |  | N/A           |  | N/A             |  |              | 349,631 |              |   | 11,684 | 
|                                                 |  |               |  |                 |  |              |         |              |   |        | 
|Long term debt                                   |  |               |  |                 |  | $            | 358,276 |              | $ | 49,427 | 
|                                                 |  |               |  |                 |  |              |         |              |   |        | 

The
Companys Senior Debt, represents our commitment to Technology Investment
Capital Corporation (TICC), in the amount $9 million and $8.8 million as of
April 1, 2006 and June 30, 2005, respectively.
On June 30, 2006, the Company obtained a covenant compliance waiver and
amendment under the senior debt agreement with TICC.  The Company obtained a waiver for the Consolidated Senior Debt to
Consolidated EBITDA ratio covenant test for all periods through March 31st,
2007.  In addition, the Company obtained
amended covenants for the Unit EBITDAR, Unit Fixed Coverage Ratio and minimum cash
required covenant tests.

As
such, management believes that the new waiver and amendments will allow the
company to remain in compliance with all covenant tests under the senior debt
agreement for the next four quarters from April 1, 2006.  This assessment is based upon a review of
managements financial projections as compared to each covenant test.

The
Company intends to repay the senior subordinated debt with proceeds from a
financing it expects to complete in the near term.  As a result, the senior subordinated debt was reclassed to
current liabilities as of April 1, 2006.

5. SHARE
EXCHANGE AGREEMENT:

On
December 20, 2005, the Company entered into the Share Exchange Agreement (the
Share Exchange Agreement) with KAAI and KAAI securityholders, pursuant to
which KAAI Securityholders received newly issued preferred securities of the
Company in exchange for their securities of KAAI.

-16-

---



The
transaction is considered to be a capital transaction in substance, rather than
a business combination.  That is, the
transaction is equivalent to the issuance of stock by the private company for
the net monetary assets of the shell corporation, accompanied by a
recapitalization.

Accordingly,
the outstanding shares of KAAI have been restated on the balance sheet and the
statement of stockholders deficit to give effect to the Share Exchange
Agreement as of June 30, 2005.  The
restated shares have been used in the computation for loss per share to
preserve comparability of those figures. The historical financial statements
prior to the December 20, 2005 Share Exchange Agreement are those of KAAI.

The
following table shows the effect of reclassifying the Common Stock and
Preferred Stock as if the Share Exchange Agreement took place on June 30, 2005:

|                                                                                                |  |   |        | 
|----------------------------------------------------------------------------------------------- |  | - | ------ | 
|(Amounts in thousands)                                                                          |  |   |        | 
|                                                                                                |  |   |        | 
|KAAI Common Stock                                                                               |  | $ | 93     | 
|KAAI Series A Preferred
  Stock                                                                 |  |   | 2,130  | 
|KAAI Series B Preferred
  Stock                                                                 |  |   | 965    | 
|KAAI Series C Preferred
  Stock                                                                 |  |   | 350    | 
|KAAI Series D Preferred
  Stock                                                                 |  |   | 8,146  | 
|                                                                                                |  |   |        | 
|                                                                                                |  |   |        | 
|Amount reclassified to convertible securities in the liabilities
  section of the balance sheet |  | $ | 11,684 | 
|                                                                                                |  |   |        | 

A
note payable of $5,905 (long term portion $5,161, short term $744), classified
under seller notes payable, along with accrued interest thereon of $1,598, was
converted into KAAIs common stock, which was subsequently exchanged for Series
B Preferred Stock of the Company.  In
addition, the senior subordinated note payable for $12,066 along with accrued
debt discount thereon of $1,234, was converted into KAAIs common stock and
subsequently exchanged for Series B Preferred Stock, par value 0.001 per share
of the Company (the Series B Preferred Stock).

As
of December 20, 2005, under the terms of the Share Exchange Agreement, shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock of KAAI, the outstanding senior subordinated debt,
other long term debt, accrued interest on the other long term debt and certain
accrued dividends, which immediately prior to the consummation of the Share
Exchange Agreement were converted into KAAIs Common Stock, were exchanged for
Series B Preferred Stock of the Company.
The outstanding shares of Series G Preferred Stock and Series H
Preferred Stock of KAAI were exchanged for Series C Preferred Stock, par value
$0.001 per share of the Company (the Series C Preferred Stock).

-17-

---



The
following table reflects the amounts of KAAI securities that were converted
into common stock of KAAI and subsequently exchanged for securities of the
Company under the Share Exchange Agreement:

|                                                                               |  |   |        | 
|------------------------------------------------------------------------------ |  | - | ------ | 
|(Amounts in thousands)                                                         |  |   |        | 
|                                                                               |  |   |        | 
|Securities exchanged for
  Series B Convertible Preferred Stock of the Company |  |   |        | 
|Note payable, Kidd & Company                                                   |  | $ | 5,905  | 
|Accrued Interest on note payable                                               |  |   | 1,598  | 
|Senior subordinated debt (gross)                                               |  |   | 13,300 | 
|KAAI common stock                                                              |  |   | 93     | 
|KAAI series A convertible preferred
stock                                      |  |   | 2,130  | 
|KAAI series B convertible preferred
stock                                      |  |   | 965    | 
|KAAI series C convertible preferred
stock                                      |  |   | 350    | 
|KAAI series D convertible preferred
stock                                      |  |   | 8,146  | 
|Accrued preferred dividends on KAAI preferred
stock                            |  |   | 464    | 
|                                                                               |  |   |        | 
|Subtotal of securities
  exchanged for Series B Preferred Stock of the Company |  | $ | 32,951 | 
|                                                                               |  |   |        | 
|                                                                               |  |   |        | 
|Securities exchanged for
  Series C Preferred Stock of the Company             |  |   |        | 
|KAAI series G redeemable convertible preferred
stock                           |  | $ | 9,702  | 
|KAAI series H redeemable convertible preferred
stock                           |  |   | 4,538  | 
|                                                                               |  |   |        | 
|Total securities exchanged
  for Series C Preferred Stock of the Company       |  | $ | 14,240 | 
|                                                                               |  |   |        | 

On
December 22, 2005, affiliates of North Sound Capital, LLC and Velesco Capital
Management, LP invested $15.3 million in exchange for 1,530 newly issued shares
of our Series D Convertible Preferred Stock, par value $0.001 per share (the
Series D Preferred Stock and together with the Series B Preferred Stock and
the Series C Preferred Stock, the Preferred Stock).  Issuance costs associated with the round of financing amounted to
approximately $0.4 million.  The Company
also issued warrants to purchase 2,395 shares of Series B Preferred Stock with
the Series D Preferred stock, which were valued using the Black-Scholes option
pricing model using the following assumptions:
risk-free rate of return  4.36%; term  5 years; volatility  30%;
dividend yield  0.0%.  The value
ascribed to the warrant was $5.4 million.
As a result of the value being allocated to the warrants, a beneficial
conversion feature resulted on the Series D Preferred Stock.  The total beneficial conversion feature was
approximately $30 million but was recorded only to the extent of the carrying
value of the Preferred Stock, in the amount $9.9 million.  The value ascribed to the warrant in the
amount $5.4 million was accreted as a dividend and recorded immediately as an
increase in additional paid in capital and an increase in accumulated deficit.

The
shares of Series B Preferred Stock will automatically convert into Common Stock
after the Company amends its Certificate of Incorporation in order to increase
the number of shares of Common Stock it is authorized to issue.  Subject to certain restrictions, the shares
of Series C Preferred Stock and Series D Preferred Stock will automatically
convert into Common Stock upon the consummation of an underwritten public
offering with gross proceeds to us of not less than $30 million.

Since
the Company does not have sufficient number of authorized shares of Common
Stock to allow for the conversion of the Preferred Stock into Common Stock or
the exercise of warrants for Series B Preferred Stock that may ultimately be
converted into Common Stock, in accordance with EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, the Company has reclassified these instruments to
liabilities.

-18-

---



The
following table shows the effect of reclassifying the Preferred Stock and
warrants:

|                                                                                                                |  |   |        | 
|--------------------------------------------------------------------------------------------------------------- |  | - | ------ | 
|(Amounts in thousands)                                                                                          |  |   |        | 
|                                                                                                                |  |   |        | 
|Series B Preferred Stock
  of the Company                                                                       |  | $ | 32,951 | 
|Series C Preferred Stock
  of the Company                                                                       |  |   | 14,240 | 
|Series D Preferred Stock
  of the Company (as restated)                                                         |  |   | 9,939  | 
|                                                                                                                |  |   |        | 
|                                                                                                                |  |   |        | 
|Warrants to purchase Series B Preferred Stock issued to the holders
  of Series B Preferred Stock               |  |   | 935    | 
|Warrants to purchase Series B Preferred Stock issued to the holders
  of Series C Preferred Stock               |  |   | 1,535  | 
|Warrants to purchase Series B Preferred Stock issued to the holders
  of Series D Preferred Stock (as restated) |  |   | 5,361  | 
|                                                                                                                |  |   |        | 
|                                                                                                                |  |   |        | 
|Amount reclassified to convertible securities in
the liabilities
  section of the balance sheet                 |  | $ | 64,961 | 
|                                                                                                                |  |   |        | 
|                                                                                                                |  |   |        | 

6. CONVERTIBLE
SECURITIES

Under
EITF 00-19, the Company is required to remeasure the convertible securities at
each reporting period end based on fair value.   The Company determines the fair value of the convertible
securities based on the number of shares common stock into which they are
convertible and the current fair value of the common stock on the remeasurement
date.   Fair value of the common stock
is determined based on actual amounts paid for a share of common stock in a
transaction closest to the remeasurement date.
The fair values of the common stock as of December 31, 2005 and April 1,
2006 were $0.40 and $0.69, respectively.
The number of common shares into which the convertible securities are
convertible was 506,576,690 as of December 31, 2005 and April 1, 2006.   As of December 31, 2005, the Company
calculated the fair value of the convertible securities to be approximately
$203 million and has recorded $138 million as an unrealized loss for the three
and six month periods ended December 31, 2005 (see  note on Restatement of Interim Condensed Consolidated Financial
Statements).  As of April 1, 2006, the
Company remeasured the convertible securities based on an estimated fair value
of approximately $350 million and recorded an unrealized loss of approximately
$147 million and $285 million for the three months and nine months ended April
1, 2006, respectively.

-19-

---



7. CONTRACTUAL
OBLIGATIONS AND COMMITMENTS

The
Company leases facilities under non-cancelable operating leases.  Future minimum lease payments under existing
operating leases are as follows (in thousands):

|                       |  |   |        |  | 
|---------------------- |  | - | ------ |  | 
|Year Ending June 30,   |  |   |        | 
|                       |  |   |        |  | 
|2006 (Balance of year) |  | $ | 945    | 
|2007                   |  |   | 3,989  | 
|2008                   |  |   | 3,852  | 
|2009                   |  |   | 3,229  | 
|2010                   |  |   | 3,259  | 
|2011 and thereafter    |  |   | 14,642 | 
|                       |  |   |        | 
|                       |  | $ | 29,916 | 
|                       |  |   |        | 

The
Company is obligated under various investor agreements for registration right
penalties associated with the timely filing of our Form S-1 registration
statement.  The Company is subject to
registration right penalties with all holders of Series C Preferred Stock and
Series D Preferred Stock.  For the
Series C Preferred Stock holders, the penalty is 1% per month of the principal
investment amount after May 9th, 2006.
For the Series D Preferred Stock holders, the Company is obligated under
two different registration right penalties.
The first penalty states that if the Company fails to increase the
number of authorized shares by May 1, 2006, the Company will incur a one time
penalty of 3% of the principal investment amount and 1.5% per month
thereafter.  The second penalty states
that if the Company fails to have the registration statement declared effective
by June 6, 2006, the Company will incur a one time 3% penalty of the principal
investment amount and 1.5% per month thereafter.

The
Company is currently re-negotiating these registration right penalties with
each investor to have these penalties either waived or converted to
equity.  In the event that the Company
fails to successfully renegotiate these registration right penalties, the
penalty payments may have a significant adverse impact to the cash flow and liquidity
of the Company.

8. SUBSEQUENT
EVENTS

Consulting Agreement:

On
April 4, 2006, KAAI entered into a Consulting Agreement (the Consulting
Agreement) with Mark Potter and Atlantis Laboratories, Inc. (the
Formulators). The Formulators have developed, formulated and produced skin
care products for KAAIs Cosmedicine product line. Under the Consulting
Agreement, the Formulators agreed to use their best efforts to provide all
services necessary to (i) expand the number of product types in KAAIs
over-the-counter Cosmedicine line, (ii) formulate and develop an enhanced
version of (a) Cosmedicine, (b) a foundation cosmetic line, (c) a hair care
product line and (d) a cosmetics line, and (ii) have such products produced and
shipped by Atlantis for sale at KAAIs spa and salon facilities and other
outlets. The Formulators agreed to supply KAAI with all of the foregoing
products it requires and which KAAI orders in accordance with the Consulting
Agreement.

The
Consulting Agreement also contains a non-competition clause that provides,
among other things, that (i) the formulas developed by the Formulators for KAAI
are proprietary and may not be used by the Formulators for any purpose other
than on behalf of KAAI and may not be utilized in products sold to anyone other
than KAAI and (ii) except for limited exceptions, the Formulators will not
directly or

-20-

---



indirectly
acquire or own any interest in any entity engaged in the business conducted by
KAAI. In addition, Mr. Potter agreed to spend a majority of his formulation time
on behalf of KAAI for the first 12 months of the Consulting Agreement. After
KAAI begins purchasing in excess of $5,000,000 annually in products, Mr. Potter
is required to devote at least 90% of his formulation time to KAAI product
development requirements. Mr. Potter is to be paid an annual consulting fee of
$207,000 in equal monthly installments of $17,250. In addition, KAAI will grant
Mr. Potter an option to purchase 150,000 shares of common stock of KAAI at an
exercise price of $2.50 per share, vesting over a period of four years.

The
initial term of the Consulting Agreement is five years and automatically
renewed for an additional five years at the end of each five year term, unless
earlier terminated as provided in the agreement filed as an exhibit in the
Companys Form 8-K dated April 21, 2006.

Formula Agreement:

In
connection with the Consulting Agreement, on April 12, 2006, KAAI entered into
a Formula Agreement (the Formula Agreement) with the Formulators and JPMorgan
Chase Bank, N.A., as Escrow Agent (the Escrow Agent). Pursuant to the Formula
Agreement, the Formulators agreed that all existing and future formula,
manufacturing procedures and specifications, along with specific details of all
raw material suppliers and specifications for the raw materials relating to the
products to be purchased by KAAI from the Formulators are to be deposited with
the Escrow Agent. In the event of certain specified events and/or
contingencies, the Escrow Agent is required to deliver such formulas,
manufacturing procedures and specifications to KAAI.

Construction Loan Agreement:

Pursuant
to the Consulting Agreement, KAAI agreed to loan up to a total of $1,100,000 to
Mr. Mark Potter for the purchase of land in Conroe, Texas (Property) and
construction of a laboratory and manufacturing facility to manufacture and
supply the Cosmedicine line of products. On April 17, 2006, KAAI made a loan of
$392,200 to the Formulators for the purchase of the Property evidenced by a
Promissory Note (the Promissory Note). Under the Promissory Note, the
principal sum of $392,200 with interest at the rate of 6-1/2% per annum is
payable in 120 monthly installments of principal and interest in the amount of
$4,453 each with the first installment due on May 1, 2006. The Formulators
obligations under the Promissory Note are secured by a Deed of Trust, and
Assignment of Rents and Security Agreement, dated April 4, 2006.

In
connection with the foregoing, KAAI also entered into a Construction Loan
Agreement dated April 4, 2006 with the Formulators (the Construction Loan
Agreement) pursuant to which the Formulators executed a $650,000 Construction
Loan Promissory Note (Construction Loan Promissory Note) to KAAI for the
development of a laboratory and manufacturing facility to be operated by
Atlantis Laboratories, Inc. on the Property. Under the terms of the
Construction Loan Agreement, KAAI is to make advances to the Formulators under
the Construction Loan Promissory Note from time to time in connection with the
construction on the Property. The amount of each advance will be determined by
KAAI. The unpaid principal balance on the Construction Loan Promissory Note
bears interest at a rate of 6-1/2% per annum. Monthly installments of interest
only on the outstanding principal balance will be due commencing on the first
day of the month following the initial advance and continuing on the first day
of each subsequent month up to and including April 1, 2007. Commencing May 1,
2007, and continuing through April 1, 2016, installment payments of principal
and interest will be due in such amount as will be sufficient to pay in 108
equal payments all principal and accrued interest.

The
Formulators obligations under the Construction Loan Promissory Note are
secured by a Construction Deed of Trust, Security Agreement, Assignment of
Leases and Rents, and Fixture Filing dated April 4, 2006 between Mr. Potter and
the Trustee, for the benefit of KAAI covering the Property.

-21-

---



We have agreed
to assign the Construction Loan Agreement, Promissory Note, Construction Loan
Promissory Note, Deed of Trust and Construction Deed of Trust to Technology
Investment Capital Corp. (TICC) as additional collateral to secure KAAIs
obligations under the Note and Warrant Purchase Agreement with TICC dated March
31, 2004, as amended.

Bridge Financing:

On
May 9, 2006, we entered into a Loan Agreement with some of our existing
shareholders, pursuant to which the Lenders loaned the Company $4,838,710 to be
used by the Company for capital expenditures and general working capital.
Pursuant to a Subordination Agreement dated May 9, 2006 with the Lenders and
TICC, the Loan is subordinated to the Companys existing senior indebtedness to
TICC under the Note and Warrant Purchase Agreement, dated March 31, 2004, as
amended.

Laurus Financing:

On
June 30, 2006 we sold to Laurus Master Fund, Ltd. (Laurus) a Secured Term
Note in the aggregate principal amount of $25,000,000 (the Note) and issued
to Laurus series A warrants, series B warrants and series C warrants to
purchase up to 37,351,824 shares, 6,839,394 shares and 6,693,875 shares,
respectively, of our common stock.

We
placed $21,556,000 (the Funding Amount) into a restricted account that will
only be release to us if the following conditions (the Funding Amount
Conditions) are satisfied by July 11, 2006:

|  |                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We and our
  subsidiaries deliver to Laurus evidence that $5,200,000 in additional junior
  capital has been raised.                                                                             
|  |                                                                                                                                                                                                  
| | We and our
  subsidiaries deliver (or cause to be delivered) a subordination agreement(s)
  executed by each of us and any of our lenders reasonably acceptable to
  Laurus.                     
|  |                                                                                                                                                                                                  
| | Laurus
  receives an executed payoff letter from Technology Investments Capital
  Corporation, our existing senior lender, in form and substance satisfactory
  to Laurus in its sole discretion.

We
also placed $2,500,000 (the Interest Amount) in a restricted account to be
utilized to prefund interest for the first year of the Note.  The balance of the $25,000,000 is to be used
for Lauruss closing payment of $900,000, Lauruss due diligence and
structuring expenses of $40,000 and escrow agent fees of $4,000.  If the Funding Amount Conditions are not met
by July 11, 2006, the Funding Amount and the Interest Amount will revert to
Laurus.

-22-

---



The
Note matures on June 30, 2010 and interest accrues at a rate per annum equal to
the prime rate, plus two percent (2%) per annum, payable monthly, in arrears,
commencing on August 1, 2006.
Commencing on August 1, 2007, we will make monthly payments to Laurus in
an amount equal to $416,666.67 together with any accrued and unpaid interest on
such portion of the outstanding principal amount plus any and all other unpaid amounts
which are then owing under the Note.
Our payment obligations are guaranteed by certain of our subsidiaries
and are secured by all of our and such subsidiaries assets.

The
warrants have a 10-year term and an exercise price equal to $0.01 per share, or
in certain circumstances, may be exercised on a cashless basis.  If, prior to the fourteenth month
anniversary of June 30, 2006, (i) our obligations under the Note have been
reduced to $12,500,000 or less, then the series B warrants will automatically
be cancelled and terminated; and (ii) our obligations under the Note have been
reduced to zero, then the series C warrants will automatically be cancelled and
terminated.  We are obligated to file a
registration statement with the Securities and Exchange Commission covering the
resale of the shares underlying the warrants.

We
have also agreed to use our best efforts amend our certificate of incorporation
to increase the number of authorized shares of our common stock to such number as
shall be sufficient to permit the exercise in full of the warrants (the Share
Amount).  If Laurus notifies us at any
time prior to the effective date of such amendment that it desires to exercise
the warrants prior to such effective date, we will promptly issue, in exchange
for the warrants, substitute warrants exercisable to purchase that number of
shares of our series B convertible preferred stock that are, upon authorization
of the Share Amount, immediately convertible into the number of shares of our
common stock that would then have been issuable upon exercise of the warrants
in full if our certificate of incorporation had then provided for sufficient
authorized shares of our common stock to satisfy such exercise, and otherwise
containing substantially the same terms and provisions as the warrants.

On
July 3, 2006, we borrowed $1,000,000 from William J. Kidd, a shareholder of the
Company, through an affiliated company, and $150,000 from Andrew D. Lipman, a
shareholder, Director and Officer of the Company.  These amounts were borrowed in anticipation of and are intended
to be part of the $5,200,000 of junior capital which is currently being raised
by the Company with Subordinated Lenders in connection with the Laurus
transaction described above.  The
foregoing loans will be payable and will otherwise be on the terms and
conditions of the $5,200,000 junior capital financing to be executed in
connection with the release of funds under the Laurus agreement described
above.

Liquidity:

The accompanying financial statements have been
prepared on the going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.  Since its inception, the
Company has experienced operating losses and negative cash flow from
operations.  As of April 1, 2006, the
Company has a cumulative deficit of $350.8 million and a working capital
deficiency of $23.6 million, as compared to June 30, 2005, the Company had a
cumulative deficit of $39.7 million and a working capital deficiency of $20.3
million.  These factors raise
substantial doubt about the Companys ability to continue as a going concern.
The Companys ability to continue as a going concern is ultimately dependent on
its ability to increase sales and reduce expenses to a level that will allow it
to operate profitably and sustain positive operating cash flows, and the
Companys ability to successfully raise additional capital.

There
is no assurance that the recent bridge financing will be sufficient to fund
operations until sales and profitability improves to the point that the Company
is able to operate from internally generated

-23-

---



cash flows.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.  Management plans include raising additional
capital, and executing the expansion plans per the business plan.  However, there can be no assurance that
these sources will provide sufficient cash inflows to enable the Company to
achieve its operational objectives.

-24-

---



|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial Condition and Results
of Operations

You
should read the following discussion in conjunction with the attached unaudited
condensed consolidated financial statements and notes thereto and with the
Klinger Advanced Aesthetics, Inc. (KAAI) audited financial statements and
notes thereto for the fiscal year ended June 30, 2005 (as restated) included in
our Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on February 21, 2006.

Unless
otherwise indicated: references to TrueYou refer to Trueyou.com Inc.;
references to KAAI refer to Klinger Advanced Aesthetics, Inc. and its
consolidated subsidiaries; references to the
we, our, and us refer to TrueYou.Com Inc. and its consolidated
subsidiaries (including KAAI); and the terms fiscal quarter and three
months in this Quarterly Report on Form 10-Q refer to the quarter ended April
1, 2006.

Forward-Looking Statements

Certain
of the statements set forth in this Form 10-Q constitutes Forward Looking
Statements.  Forward-looking statements
include, without limitation, any statement that may predict, forecast,
indicate, or imply future results, performance or achievements, and may contain
the words estimate, project, intend, forecast, anticipate,
plan,
planning, expect, believe, will, will likely, should,
could,
would, may or words or expressions of similar meaning.  Therefore, readers are cautioned that there
also can be no assurance that the forward-looking statements included in this
Form 10-Q will prove to be accurate and results may differ materially.  In light of the significant uncertainties
inherent to the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation or warranty by us
or any other person that our objectives and plans will be achieved in any
specified time frame, if at all.  Thus,
we cannot guarantee future results, levels of activity, performance or
achievements.  Moreover, except to the
extent required by applicable laws or rules, we do not undertake any obligation
to update any forward-looking statements or to announce revisions to any of the
forward-looking statements after the date of this Form 10-Q.

Overview

We
offer both medical and non-medical KAAI Signature Services and products to
customers under one delivery system and we are bringing cosmetic surgery,
cosmetic dentistry and dermatology, and salon and spa services together under a
single brand, giving clients access to top service providers, unique treatments
and predictable results in a state of the art environment.  We co-brand our trade name with the trade
names of the salons and spas that we acquired.
Our salons and spas share certain corporate resources such as senior
management and administrative services.
We had 527 employees on April 1, 2006.

KAAI
commenced business operations on June 29, 2003 when it acquired Dischino
Corporation.  Dischino Corporation
operated an established beauty salon and spa in West Palm Beach, Florida.  In December 2003, KAAI acquired three
additional facilities in the State of Florida.
The first facility was a spa located in Palm Beach Gardens, the second
and third facilities were spas located in Boca Raton.  In April 2004, KAAI expanded operations by acquiring assets of
the Georgette Klinger Corporation which owned and operated nine salons
throughout the United States that offer spa and salon services.

Our
locations include two fully integrated properties located in West Palm Beach,
Florida and Palm Beach Gardens, Florida. Of our twelve locations, two are fully
integrated properties, eight are in the planning stages for conversion into
fully integrated properties, or what we call the KAAI Model, and two are
being converted to a new format which will offer cosmetic dermatology, spa and
salon services, and retail products in a luxurious upscale setting.  These two facilities will occupy a smaller
square footage

-25-

---



than many of
our other facilities.  These locations
are located in key markets with a national operating presence. Our additional
locations are:

| |   |                                  
| | - | ---------------------------------
| |  | Manhattan,
  New York,           
| |   |                                  
| |  | Manhasset
  Long Island, New York
| |   |                                  
| |  | Beverly
  Hills, California      
| |   |                                  
| |  | Costa Mesa, California           
| |   |                                  
| |  | Boca Raton,
  Florida            
| |   |                                  
| |  | Palm Beach,
  Florida            
| |   |                                  
| |  | Washington,
  DC                 
| |   |                                  
| |  | Dallas,
  Texas                  
| |   |                                  
| |  | Chicago,
  Illinois and          
| |   |                                  
| |  | Short Hills,
  New Jersey        

We
consider West Palm Beach and Palm Beach Gardens, Florida locations to be our
flagship facilities.  These
fully-integrated facilities feature cosmetic dermatology, skin care, cosmetic
surgery consultations, hair care, spa and salon services, and retail products
on site, and cosmetic surgery and dentistry via off-site affiliated
providers.  All of our medical
treatments and providers (both on and off-site) are reviewed and approved by
our Medical Advisory Board.  Our Medical
Advisory Board is advised by Johns Hopkins Medicine (John Hopkins), acting
through The John Hopkins Health System Corporation and The Johns Hopkins
University.  Johns Hopkins Medicine
provides clinical and safety oversight for our medical services. We have rights
to use the Johns Hopkins Medicine name in this regard and approved language is
used in our facilities and diagnostic software.  We believe that our clients are able
to better understand their aesthetic service and product needs via the use of
our SkinState diagnostic tools which objectively record facial aesthetic
metrics such as hydration (moisture) level, sebum (oil) level, pore size, UV
damage, and other facial aesthetic metrics.

In
addition, we help clients navigate through an array of beauty enhancement
options through our Aesthetics Concierge program which is currently available
in our flagship locations.  The
Aesthetics Concierge guides interested clients through a comprehensive analysis
of the clients current aesthetic characteristics and goals.  The Aesthetics Concierge also provides
information and decision support on all of our treatments, services and
products.  We believe the Aesthetics
Concierge function to be an integral component of consumer education about
aesthetic services and products and that it translates into client interest in
additional products and services that we offer.

We
have developed an over-the-counter medical grade skin care line of products
called Cosmedicine, for which clinical testing, design and data analysis were
overseen by Johns Hopkins.  We launched
the products in February 2006 for exclusive retail distribution at Sephora
stores, KAAI locations and on our respective websites.  All Cosmedicine products are being developed
and formulated for us by Atlantis Laboratories.  Atlantis Laboratories is an independent developer and manufacturer
of bulk skin care products.  We believe
that going forward; revenues generated from sales of our Cosmedicine products
will be a significant percentage of our aggregate revenues.

In
addition, we are developing an Advanced Practice Delivery System (APDS), a
practice management system for medical offices that perform aesthetic
procedures.  APDS is being designed to
provide a series of unique tools that we believe will improve the quality,
safety and predictability of aesthetic services performed in a medical
setting.  APDS will have a series of
functions, each of which will be guided by standardized protocols to optimize
standardization.  We expect to license
APDS to cosmetic medical practitioners in the United States and abroad.

-26-

---



Our
financial statements have been prepared on the going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.  Since
KAAIs inception, it has experienced large operating losses and negative cash
flow from operations.  As of June 30,
2005, we had an accumulated net deficit of $39.7 million and a working capital
deficit of $20.3 million.  For the nine
months ended April 1, 2006, we had an accumulated net deficit of $351 million
and a working capital deficit $24.7 million.
Included in our net deficit is the remeasurement of convertible
securities which resulted in an additional liability in the amount $285
million.  These factors raise
substantial doubt about our ability to continue as a going concern.  Also, as a result of our losses, the opinion
of our Independent Registered Public Accountants on our audited financial
statements for fiscal years 2005, 2004 and 2003 has included an explanatory
paragraph relating to going concern.
A going concern explanatory paragraph indicates that our auditors have
substantial doubt about our ability to continue as a going concern for at least
a reasonable period of time.  Our
ability to continue as a going concern ultimately depends on our ability to
increase sales and reduce expenses to a level that will allow us to operate
profitably and sustain positive operating cash flows.

Current Trends and Outlook

With
our launch of Cosmedicine at exclusive retail distribution at Sephora stores,
KAAI locations and on our respective websites, we believe that revenues
generated from sales of our Cosmedicine products will be a significant
percentage of our aggregate revenues going forward. We have had slower growth
due to some facilities experiencing losses.
We believe the reasons behind this trend include our facility in Boca
Raton that has not fully recovered from hurricane damage that was sustained in
October, 2005. This includes significant employee turnover at this facility as
a result of the damage sustained. The Company believes that the facility will
recover early in the summer of 2006.  In
addition, we have also closed our Beverly Hills facility for renovations and
expect to reopen it in July 2006.

Revenue Sources

We
currently derive revenue from the following sources:

Spa
and Salon Services. Our salon offerings include services such as hair styling, coloring,
texturizing, treatments, extensions, make-up artistry and
manicure/pedicures.  Our spa services
include treatments such as facials, body treatments (exfoliation, wraps,
cellulite treatments), waxing and massage therapy.

Medical
Services. Our
medical services are grouped into the following categories:

| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Dermatology
Services  Our dermatology offerings include injection services (Botox and
Restylane), facials, sclerotherapy (vein treatments), peels,
microdermabrasion, permanent make-up, laser resurfacing and laser hair
removal.                                                                                                                                
|
| | Cosmetic
Dentistry Services  Our two integrated flagship locations offer consumers
access to cosmetic dentistry services, including tooth whitening and veneers.                                                                                                                                                                                                  
|
| | Cosmetic
Surgery Services  Our integrated flagship locations offer consumers access
to cosmetic surgery services, including liposuction, breast enhancement,
breast reduction, eye, brow, breast, body and face lifts, nose contouring,
tummy tucks and cheek/chin implants.
In addition, the Company also performs such services in an off-site
medical facility.

To
generate our revenues for our medical segment, we enter into medical
practitioner fee contracts with our medical practitioners where they receive a
percentage of the revenue generated from the performance of their
services.  Depending upon the medical
provider and the type of service that is

-27-

---



delivered, the
percentage varies from 30-70% for dermatology revenues and from 50-70%for
cosmetic surgery revenues.  We also
contract with Ambulatory Service Centers to provide the facility and supporting
staff that our Cosmetic Surgeons utilize to perform their services.  Typically, these arrangements are based upon
a per hour charge for the uses of the facility.

In
all cases, our medical practitioners are contracted as consultants and not as
employees.  In addition, we do not
generate any revenues from referring individuals to medical providers.

A
majority of our medical revenue is derived from our Florida facilities.  As such, we have spent considerable legal
and consulting costs to ensure that we comply with all state and federal
regulations with which we must comply, especially as it relates to Floridas
state regulations.

Retail
Products.  Our
locations offer a variety of retail products including products for hair care,
skin care, and make-up.  Hair care product
offerings include such brands as Goldwell, Wella, Primary Scent, Kerastase, and
Bumble & Bumble.  Skin care product
offerings include such brands as DDF, Obagi, IS Clinical, Neova, MD Skincare,
Skinceuticals, and Strivectin.  Make-up
product offerings include such brands as Pauls Dorf, Glominerals, Vincent
Longo, and Darphin.  Additionally many
of our locations offer private label skin care brands, Georgette Klinger and
Anushka.  We have developed an
over-the-counter medical grade skin care line of products called Cosmedicine,
for which John Hopkins Medicine consulted on the design and information
analysis of tests performed on Cosmedicine products.

Other.  We derive e-commerce revenue primarily
through the sale of private label skin care products via the internet. For the
nine months ended April 1, 2006 and March 31, 2005, e-commerce revenue was
approximately $0.4 million, respectively.

We
manage our business by evaluating net revenue, gross margin, and
liquidity.  We encounter a variety of
challenges that may affect our business.
These factors include weather, including hurricanes which have adversely
impacted our facilities in Florida, and our dependence on individuals to
provide services to our clients who leave the Company and take clients with
them.  Further, we are dependent on a
third party, Atlantis Laboratories, for the development and supply of bulk
product for our Cosmedicine product line which we launched in February 2006.

We
utilize several financial and operational metrics to evaluate the health and
strength of our business.  We utilize
metrics such as revenue growth, gross margin percentage, payroll efficiency
percentage, EBIDTA and free cash flow to assess the general health of our
operations, including segmenting these metrics by facility and by business
segment. In addition, we utilize specific performance metrics by business
segment to assess performance by business segment.  For example within our retail business segment, we track retail
revenue as a percentage of our service revenue by facility to assess the
performance of our retail segment.  We
benchmark each facility against all facilities to determine opportunities for
improvement and develop action plans relative to the performance of these
metrics.  In addition we utilize working
capital and liquidity ratios to assess our future cash needs and current cash
position.

Beginning
in fiscal year 2006 (which started on July 1, 2005), we are following the
standard fiscal year of the retail industry, which is a 52 or 53 week period
ending on the Saturday closest to June 30 of the following year.

Critical Accounting Estimates

Accounting
estimates and assumptions discussed in this section are those that we consider
to be the most critical to an understanding of our financial statements because
they inherently involve significant

-28-

---



judgments and
uncertainties.  For all of these
estimates, we caution that future events rarely develop exactly as forecast,
and the best estimates routinely require adjustment.

Revenue
Recognition:
Revenue is recognized for services rendered or product sold at the time
when the service is performed or the item sold.  When a gift card is purchased for a future service or product,
the value of the card is recorded as a liability.  The liability remains on the balance sheet until the earlier of
redemption, escheatment or 36 months.
It is ours and our predecessors historical experience that the
likelihood of redemption after 36 months is remote.  After 36 months, 80% of the remaining liability is relieved and
recorded as other income.  After 48
months, any remaining 10% of the liability is relieved and recorded as other
income.  After 60 months, the last 10%
of the remaining liability is relieved and recorded as other income.

Accounting
for Acquisitions and Intangible Assets:  We have accounted for our acquisitions under
the purchase method of accounting for business combinations.  Under the purchase method of accounting, the
cost, including transaction costs, are allocated to the underlying net assets,
based on their respective estimated fair values.  The excess of the purchase price over the estimated fair values
of the net assets acquired, including allocated intangible assets, is recorded
as goodwill.

The
judgments made in determining the estimated fair value and expected useful
lives assigned to each class of assets and liabilities acquired can
significantly affect net income.  To the
extent a longer-lived asset is ascribed greater value under the purchase method
than a shorter-lived asset; net income in a given period may be higher.

Impairment
of Long-Lived Assets:We
review long-lived assets to be held and used whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.  In addition, we review
goodwill for impairment at least on an annual basis.  Measurement of an impairment loss is based on the fair value of
the asset compared to its carrying value.

Inventories: Inventories consist principally of
hair care
and skin care products held either for retail sale or for use in salon, spa and
medical services.  Inventories are
stated at the lower of cost or market on a first-in, first-out basis.  Further, on a quarterly basis, we estimate
losses from shrinkage due to lost or stolen inventory based on historical
experience and reduce the inventory value by that estimate.

Provisions
for Inventory Obsolescence:We
record provisions for estimated obsolescence and shrinkage of inventory. Our
estimates consider the cost of inventory, forecasted demand, the estimated
market value, the shelf life of the inventory and our historical experience. If
there are changes to these estimates, additional provisions for inventory
obsolescence may be necessary.

Gift
Cards: We
review the aging of our gift card liability quarterly in relation to our
historical redemption rates.  We
recognize revenue for those cards we determine will not be redeemed to the
extent that they are not subject to escheatment laws.

Stock
Based Compensation:
We estimate the cost of stock based compensation using the Black-Scholes
Option Pricing Model.  Inherent in that
model are assumptions including the volatility of our Common Stock and the
length of time which we expect an option to remain outstanding.

Deferred
Income Taxes:
We review our provision for income taxes at least quarterly and make a
determination as to the likelihood of our ability to use the income tax benefit
of our net operating losses.  We then
make a determination as to an appropriate allowance to reduce the value of this
asset.

Convertible
Securities: We
remeasured our convertible securities in compliance with EITF 00-19, based on
the fair value of our Common Stock into which they are convertible.  The fair value of the

-29-

---



Common Stock
is based in the price paid for a share of the stock closest to the measurement
date. As of April 1, 2006 the price paid for our Common Stock in the most
recent transaction was $0.69. Changes in the price paid for a share of our
Common Stock can have a significant impact on the amount recorded for the
convertible securities. For example, the movement up or down in the price of
our Common Stock by $0.10 will cause the balance of convertible securities to
fluctuate by approximately $5 million. As of June 30, 2006, the current traded
value of our share of Common Stock is $0.39.

Results of Operations

The
following table sets forth our income statement data as a percentage of net
sales for the periods indicated below:

|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|-------------------------------------------------- |  | ----------------- | -------- | - |  | ------ | ---------------- | - | ------- | - |  | --------------- | -- | - | -------- | - | ---------------- | ------ | -- | - | ------ | - |  | --- | --
|                                                   |  | Nine months ended |          |   |  |        | Quarter ended    |  
|                                                   |  |                   |          |   |  |        |                  |  
|In thousands, except share
  and per share amounts |  | April 1,
  2006   |          |   |  |        | March 31,
  2005 |   |         |   |  | April 1,
  2006 |    |   |          |   | March 31,
  2005 |        |    |   |       
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |       
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Revenues                                           |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Service                                            |  | $                 | 18,446   |   |  | 71     | %                | $ | 19,198  |   |  | 77              | %  | $ | 6,492    |   |                  | 62     | %  | $ | 7,008  |   |  | 80  | % 
|Retail                                             |  |                   | 7,355    |   |  | 29     | %                |   | 5,641   |   |  | 23              | %  |   | 3,991    |   |                  | 38     | %  |   | 1,794  |   |  | 20  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Total Revenue                                      |  |                   | 25,801   |   |  | 100    | %                |   | 24,839  |   |  | 100             | %  |   | 10,483   |   |                  | 100    | %  |   | 8,802  |   |  | 100 | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Cost of Revenue                                    |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Service                                            |  | $                 | 10,805   |   |  | 42     | %                | $ | 10,312  |   |  | 42              | %  | $ | 3,945    |   |                  | 38     | %  | $ | 3,422  |   |  | 39  | % 
|Retail                                             |  |                   | 2,593    |   |  | 10     | %                |   | 2,236   |   |  | 9               | %  |   | 1,233    |   |                  | 11     | %  |   | 761    |   |  | 9   | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Total Cost of Revenue:                             |  |                   | 13,398   |   |  | 52     | %                |   | 12,548  |   |  | 51              | %  |   | 5,178    |   |                  | 49     | %  |   | 4,183  |   |  | 48  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Gross Margin                                       |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Service                                            |  | $                 | 7,641    |   |  | 30     | %                | $ | 8,886   |   |  | 36              | %  | $ | 2,547    |   |                  | 24     | %  | $ | 3,586  |   |  | 41  | % 
|Retail                                             |  |                   | 4,762    |   |  | 18     | %                |   | 3,405   |   |  | 13              | %  |   | 2,758    |   |                  | 27     | %  |   | 1,033  |   |  | 11  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Total Gross Margin                                 |  |                   | 12,403   |   |  | 48     | %                |   | 12,291  |   |  | 49              | %  |   | 5,305    |   |                  | 51     | %  |   | 4,619  |   |  | 52  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Selling, general and administrative expenses       |  |                   | 29,468   |   |  | 114    | %                |   | 21,055  |   |  | 85              | %  |   | 10,985   |   |                  | 105    | %  |   | 6,800  |   |  | 77  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Depreciation and amortization                      |  |                   | 3,141    |   |  | 12     | %                |   | 2,771   |   |  | 11              | %  |   | 873      |   |                  | 8      | %  |   | 953    |   |  | 11  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Total operating Expenses                           |  |                   | 32,609   |   |  | 126    | %                |   | 23,826  |   |  | 96              | %  |   | 11,858   |   |                  | 113    | %  |   | 7,753  |   |  | 88  | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|                                                   | 
|Operating loss                                     |  |                   | (20,206  | ) |  | (78    | )%               |   | (11,535 | ) |  | (46             | )% |   | (6,553   | ) |                  | (63    | )% |   | (3,134 | ) |  | (36 | )%
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Interest expense, net                              |  |                   | 3,391    |   |  | 13     | %                |   | 2,974   |   |  | 12              | %  |   | 348      |   |                  | 3      | %  |   | 1,064  |   |  | 12  | % 
|Unrealized loss on convertible securities          |  |                   | 284,749  |   |  | 2,125  | %                |   |        |   |  |                 |    |   | 147,000  |   |                  | 2,839  | %  |   |       |   |  |     |   
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|                                                   | 
|Net loss                                           |  |                   | (308,346 | ) |  | 1,195  | %                |   | (14,509 | ) |  | (58             | )% |   | (153,901 | ) |                  | 1,468  | %  |   | (4,198 | ) |  | (48 | )%
|Dividends on preferred stock                       |  |                   | 769      |   |  | (3     | )%               |   | 1,023   |   |  | 4               | %  |   | 407      |   |                  | (4     | )% |   | 376    |   |  | 4   | % 
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   
|Net loss applicable to common shareholders         |  | $                 | (309,115 | ) |  | (1,198 | )%               | $ | (15,532 | ) |  | (63             | )% | $ | (154,308 | ) |                  | (1,472 | )% | $ | (4,574 | ) |  | (52 | )%
|                                                   |  |                   |          |   |  |        |                  |   |         |   |  |                 |    |   |          |   |                  |        |    |   |        |   |  |     |   

-30-

---



Three months ended
April 1, 2006 compared to three months ended March 31, 2005

Revenue

Total
revenue for the quarter ended April 1, 2006 was $10.5 million compared to $8.8
million for the quarter ended March 31, 2005. Retail revenue, comprised of the
sale of retail products and wholesale products totaling $4.0 million increased
significantly in the quarter compared to last year due to the launch of our
Cosmedicine product line in both the Sephora locations nationwide as well as
our facilities. Service revenue comprised of our Spa and Salon services and
medical services totaling $6.5 million for quarter ended April 1, 2006, decreased
in the quarter compared to last year due to remodeling activities in some of
the facilities. Our sources of revenue include spa and salon services, retail
products sold in our facilities, wholesale products, including our branded
product Cosmedicine sold to Sephora locations, and medical services such as
dermatology, dentistry and cosmetic surgery. The results of such sources for
the three months ended April 1, 2006 and March 31, 2005 are as follows:

|                       |  |                    |        |  |  |     |                  |  |   |       |  |  |  |     |  
|---------------------- |  | ------------------ | ------ |  |  | --- | ---------------- |  | - | ----- |  |  |  | --- | -
|                       |  | Three Months Ended |        |  |  |    
|                       |  |                    |        |  |  |    
|In thousands           |  | April 1,
  2006    |        |  |  |     | March 31,
  2005 |  |   |       | 
|                       |  |                    |        |  |  |     |                  |  |   |       | 
|                       |  |                    |        |  |  |     |                  |  |   |       |  |  | 
|Revenues               |  |                    |        |  |  |     |                  |  |   |       |  |  | 
|Spa and Salon Services |  | $                  | 5,910  |  |  | 56  | %                |  | $ | 6,203 |  |  |  | 70  | %
|Retail Products        |  |                    | 1,610  |  |  | 15  | %                |  |   | 1,794 |  |  |  | 20  | %
|Wholesale Products     |  |                    | 2,381  |  |  | 23  | %                |  |   |      |  |  |  |    |  
|Medical Services       |  |                    | 582    |  |  | 6   | %                |  |   | 805   |  |  |  | 10  | %
|                       |  |                    |        |  |  |     |                  |  |   |       |  |  |  |     |  
|Total Revenue          |  | $                  | 10,483 |  |  | 100 | %                |  | $ | 8,802 |  |  |  | 100 | %
|                       |  |                    |        |  |  |     |                  |  |   |       |  |  |  |     |  

Cost of Revenue

Cost
of revenue for the quarter ended April 1, 2006 was $5.2 million compared to
$4.2 million for the quarter ended March 31, 2005. The majority of the increase
was due to the direct costs of our Cosmedicine product sold to Sephora.
Additionally, we have incurred an increased commission expense. The commission
compensation plans currently structured in our nine original Georgette Klinger
facilities were increased to levels similar with our other facilities at the
end of the last years quarter ended March 31, 2005.

Gross
margin was 51% for the quarter ended April 1, 2006 compared to 52% for the
quarter ended March 31, 2005. We experienced higher margins on our retail sales
based on the sales of Cosmedicine and a decrease in service gross margin caused
by higher commission structures.

Selling, General and Administrative Expenses

For
the quarter ended April 1, 2006, selling, general and administrative expenses
(SG&A) increased to $11.0 million from $6.8million for the quarter
ended March 31, 2005. This increase is primarily due to significantly higher
professional expenses, including employing an outsourced accounting services
firm. In addition, our legal, information technology, and inventory management
services expenses also increased. Moreover, the increase is due to fees
incurred in public relations and market awareness with the launch of and
expenses that were incurred in connection with the development of our
Cosmedicine product line. This increase is also attributed to the addition of
several senior management level officers.

Included
in SG&A expenses for the quarter ended April 1, 2006 are professional fees
in the amount $3.0 million, which consist of $1.0 million in accounting fees,
including outsourced accounting services, $1.1 million in consulting fees,
including financial, operational and product consulting, $0.8 million in legal
fees and $0.1 million in other fees.

-31-

---



Additional
SG&A expenses for the quarter ended April 1, 2006 were $8.0 million. Below
is a table representing our SG&A expenses in detail as represented in the
condensed consolidated statement of operations. SG&A expenses represented
105% of total revenue for the quarter ended April 1, 2006 compared to 77% for
the quarter ended March 31, 2005. While this expense is very high as a
percentage of sales, we believe this level of spending is necessary to develop
and implement our business plan.

For
the quarters ended April 1, 2006 and March 31, 2005 respectively, SG&A
expenses were comprised of the following:

|                          |  |      |      |      |   |     | 
|------------------------- |  | ---- | ---- | ---- | - | --- | 
|(Amounts in millions)     |  | 2006 |      | 2005 |  
|                          |  |      |      |      |   |     | 
|Payroll                   |  | $    | 3.4  |      | $ | 2.5 | 
|Occupancy                 |  |      | 1.5  |      |   | 1.3 | 
|Insurance                 |  |      | 0.8  |      |   | 0.7 | 
|Equipment Leasing         |  |      | 0.1  |      |   | 0.1 | 
|Travel and Entertainment  |  |      | 0.5  |      |   | 0.3 | 
|Professional Fees         |  |      | 3.0  |      |   | 0.7 | 
|Office Expenses           |  |      | 0.1  |      |   | 0.1 | 
|Advertising and Marketing |  |      | 0.4  |      |   | 0.2 | 
|Severance                 |  |      | 0.4  |      |   |    | 
|Credit Cards Fees         |  |      | 0.1  |      |   | 0.2 | 
|Taxes & Licenses          |  |      | 0.1  |      |   |    | 
|Telephone                 |  |      | 0.1  |      |   | 0.1 | 
|Training and Education    |  |      | 0.3  |      |   |    | 
|Management Fees           |  |      |     |      |   | 0.5 | 
|Other                     |  |      | 0.2  |      |   | 0.1 | 
|                          |  |      |      |      |   |     | 
|Total                     |  | $    | 11.0 |      | $ | 6.8 | 
|                          |  |      |      |      |   |     | 

Depreciation and amortization expense

For
the quarter ended April 1, 2006 and March 31, 2005 depreciation and
amortization expense was $0.9 million and $1.0 million, respectively.

Operating Loss

Our
operating loss was $6.6 million and $3.1 million for the quarters ended April
1, 2006 and March 31, 2005, respectively. As stated above under Selling,
General and Administrative Expenses, the operating loss increased
primarily due to significantly higher SG&A expenses.

Interest expense, net

Interest
expense, net was $0.3 million and $1.1 million for the quarters ended April 1,
2006, and March 31, 2005, respectively, a decrease of $0.8 million. The
decrease is primarily attributed to the reduction of debt that was converted to
convertible securities in December 2005.

-32-

---



Dividends Accrued on Preferred Stock

Dividends
accrued on Preferred Stock were $0.4 million for the quarter ended April 1,
2006 compared to $0.4 million for the quarter ended March 31, 2005.

Unrealized loss on Convertible Securities

Under EITF
00-19, we are required to remeasure the convertible securities at each
reporting period end based on fair value. The Company originally reclassified
$65 million to convertible securities as of December 20, 2005, the date of the
Share Exchange Agreement, based on the transaction value of the Share Exchange
Agreement. The Company has subsequently determined that a better measure of
fair value is based on the share trading value of the publicly traded
securities of Trueyou.com Inc. (TUYU.PK) and as a result, the Company has
remeasured its convertible securities as of December 31, 2005 and April 1,
2006. The number of common shares into which the convertible securities are
convertible was 506,576,690 as of December 31, 2005 and April 1, 2006. The per
share trading value as of December 31, 2005 was in the amount $0.40, which has
resulted in an estimated fair value of the convertible securities to be
approximately $203 million. The per share trading value as of April 1, 2006 was
in the amount $0.69, which has resulted in an estimated fair value of the
convertible securities to be approximately $350 million. The Company recorded
an unrealized loss of approximately $147 million for the three months ended
April 1, 2006.

Net Loss Applicable to Common Stockholders

Our
net loss applicable to common stockholders for the quarter ended April 1, 2006
was $154.3 million compared to $4.6 million for the quarter ended March 31,
2005. Included is $6.5 million operating loss, and $147 million unrealized loss
on convertible securities.

In addition,
our increase in net loss applicable to common stockholders was due to our
SG&A expenses increasing 62% for quarter ended April 1, 2006 compared to
March 31, 2005.

Nine
months ended April 1, 2006 compared to nine months ended March 31, 2005

Revenue

Revenue
for the nine months ended April 1, 2006 was $25.8 million compared to $24.8
million for the nine months ended March 31, 2005. The increase was primarily
due to an increase in retail sales, comprising of the sale of our retail
products and wholesale products, totaling $7.4 million for the nine months
ended April 1, 2006, from the launch of our Cosmedicine product line in salons
and facilities and Sephora Stores. Service revenue, comprised of spa and salon
services and medical services totaling $18.4 million for the nine months ending
April 1, 2005, decreased due to the remodeling and damages sustained in the
Florida locations from the major hurricane which hit in October 2005. We have
also experienced significant employee turnover in the Boca Raton, FL facility
due to damage sustained by the hurricane at this facility. Our sources of
revenue include spa and salon services, retail products sold in our facilities,
wholesale products, including our branded product Cosmedicine sold to Sephora
locations, and medical services such as dermatology, dentistry and cosmetic
surgery. The results of such sources for the nine months ended April 1, 2006
and March 31, 2005 are as follows:

-33-

---



|                       |  |                   |        |  |  |     |                  |   |        |  |  |     |  
|---------------------- |  | ----------------- | ------ |  |  | --- | ---------------- | - | ------ |  |  | --- | -
|                       |  | Nine Months Ended |        |  |  |    
|                       |  |                   |        |  |  |    
|In thousands           |  | April 1,
  2006   |        |  |  |     | March 31,
  2005 |   |        |  | 
|                       |  |                   |        |  |  |     |                  |   |        |  | 
|                       |  |                   |        |  |  |     |                  |   |        |  |  |     |  
|Revenues               |  |                   |        |  |  |     |                  |   |        |  |  |     |  
|Spa and Salon Services |  | $                 | 16,514 |  |  | 64  | %                | $ | 17,246 |  |  | 69  | %
|Retail Products        |  |                   | 4,974  |  |  | 20  | %                |   | 5,641  |  |  | 23  | %
|Wholesale Products     |  |                   | 2,381  |  |  | 9   | %                |   |       |  |  |    |  
|Medical Services       |  |                   | 1,932  |  |  | 7   | %                |   | 1,952  |  |  | 8   | %
|                       |  |                   |        |  |  |     |                  |   |        |  |  |     |  
|Total Revenue          |  | $                 | 25,801 |  |  | 100 | %                | $ | 24,839 |  |  | 100 | %
|                       |  |                   |        |  |  |     |                  |   |        |  |  |     |  

Cost of Revenue

Cost
of revenue increased to $13.4 million for the nine months ended April 1, 2006
from $12.5 million for the nine months ended March 31, 2005. The largest
portion of the increase was the direct costs of Cosmedicine product sold to
Sephora. The balance was due to increase commission expense. The commission
compensation plans in place in the 9 original Georgette Klinger facilities were
raised to levels similar with the balance of our facilities at the end of the
last years 3rd quarter.

Gross Margin

Gross
margin was 48% for the nine months ended April 1, 2006 compared to 49% for the
nine months ended March 31, 2005. The decline in gross margins was due to
higher commission structures which were partially offset by the launch of our
Cosmedicine product line.

Selling General and Administrative Expenses

Selling,
general and administrative expenses (SG&A) was $29.5 million for the nine
months ended April 1, 2006 compared to $21.1 million for the nine months ended
March 31, 2005. The increase was primarily due to the addition of several
senior management level officers and expenses that were incurred in connection
with the development of a new product line called Cosmedicine which was
launched in February 2006. Further, we incurred higher professional expenses
for accounting, legal, information technology inventory management services and
public relations activities.

Included
in SG&A expenses for the nine months ended April 1, 2006 are professional
fees in the amount $7.0 million, which consist of approximately $2.3 million in
accounting fees, including outsourced accounting services, $3.0 million in
consulting fees, including financial, operational and product consulting, and
$1.7 million in legal fees.

Additional
SG&A expenses for the nine months ended April 1, 2006 were $22.5 million.
Below is a table representing our SG&A expenses in detail represented in
the condensed consolidated statement of operations. SG&A expenses
represented 114% of total revenue for the nine months ended April 1, 2006
compared to 85% for the nine months ended March 31, 2005. While this expense is
very high as a percentage of sales, we believe this level of spending is
necessary to develop and implement our business plan.

For
the nine months ended April 1, 2006 and March 31, 2005 respectively, SG&A
expenses were comprised of the following:

-34-

---



|                          |  |      |      |      |   |      | 
|------------------------- |  | ---- | ---- | ---- | - | ---- | 
|(Amounts in millions)     |  | 2006 |      | 2005 |  
|                          |  |      |      |      |   |      | 
|Payroll                   |  | $    | 9.2  |      | $ | 7.6  | 
|Occupancy                 |  |      | 4.1  |      |   | 3.9  | 
|Insurance                 |  |      | 1.9  |      |   | 2.4  | 
|Equipment Leasing         |  |      | 0.2  |      |   | 0.3  | 
|Travel and Entertainment  |  |      | 1.2  |      |   | 0.6  | 
|Professional Fees         |  |      | 7.0  |      |   | 2.0  | 
|Office Expenses           |  |      | 0.4  |      |   | 0.5  | 
|Advertising and Marketing |  |      | 1.5  |      |   | 1.1  | 
|Severance                 |  |      | 0.4  |      |   |     | 
|Cleaning Expenses         |  |      | 0.2  |      |   | 0.2  | 
|Credit Cards Fees         |  |      | 0.4  |      |   | 0.5  | 
|Taxes & Licenses          |  |      | 0.2  |      |   |     | 
|Telephone                 |  |      | 0.3  |      |   | 0.3  | 
|Training and Education    |  |      | 0.5  |      |   |     | 
|Management Fees           |  |      | 0.4  |      |   | 1.6  | 
|Other                     |  |      | 1.6  |      |   |     | 
|                          |  |      |      |      |   |      | 
|Total                     |  | $    | 29.5 |      | $ | 21.0 | 
|                          |  |      |      |      |   |      | 

Depreciation and
Amortization

Depreciation
and amortization was $3.1 million for the nine months ended April 1, 2006
compared to $2.8 million for the nine months ended March 31, 2005. This
increase is due primarily to increased amortization expense in fiscal 2005
associated with the Johns Hopkins trademark agreement.

Operating Loss

Our
operating loss was $20.2 million for the nine months ended April 1, 2006
compared to $11.5 million for the nine months ended March 31, 2005. The
increase in the operating loss is primarily due to the increase in SG&A expense
for the nine months ended April 1, 2006 compared to the nine months ended March
31, 2005.

Interest Expense

Interest
expense was $3.3 million for the nine months ended April 1, 2006 compared to
$3.0 million for the nine months ended March 31, 2005. The increase was
primarily due to the accelerated amortization of the debt discount on senior
subordinated debt, which was converted into KAAIs common stock and
subsequently exchanged for Series B Preferred Stock, of $1.0 million coupled
with imputed interest expense on the Johns Hopkins agreement.

Net Loss

Our
net loss increased to $308.3 million from $14.5 million for the nine month
periods ended April 1, 2006 and March 31, 2005, respectively. This
increase in our net loss resulted from revaluing our convertible securities
which resulted in an unrealized loss of approximately $285 million for nine
months

-35-

---



ended April 1,
2006. Also included is the increase of $20.0 million in operating loss and the
increase of 40% for SG&A expenses.

Dividends Accrued on Preferred Stock

Dividends
accrued on preferred stock were $0.8 million for the nine months ended April 1,
2006 as compared to $1 million for the nine months ended March 31, 2005. The
decrease was due to the forfeiture of dividends accrued on preferred stock
which was converted into KAAIs common stock and subsequently exchanged for our
Series B Preferred Stock.

Unrealized loss on convertible securities

The Company
originally valued the convertible securities at $65 million as of December 20,
2005, the date of the Share Exchange Agreement, based on the transaction value
of the Share Exchange Agreement. The Company has subsequently determined that a
better measure of fair value is based on the share trading value of the
publicly traded securities of Trueyou.com Inc. (TUYU.PK) and as a result, the
Company has remeasured its convertible securities as of December 31, 2005 and
April 1, 2006. The number of common shares into which the convertible
securities are convertible was 506,576,690 as of December 31, 2005 and April 1,
2006. The per share trading value as of December 31, 2005 was in the amount
$0.40, which has resulted in an estimated fair value of the convertible
securities to be approximately $203 million. The per share trading value as of
April 1, 2006 was in the amount $0.69, which has resulted in an estimated fair
value of the convertible securities to be approximately $350 million. The
Company recorded an unrealized loss of approximately $147 million for the three
months ended April 1, 2006. For the nine months ended April 1, 2006, we added
our December unrealized loss of $138 million to our additional liability in the
amount $147 million to record an unrealized loss of approximately $285 million.

Net Loss Applicable to Common Stockholders

Our
net loss applicable to common stockholders for the nine months ended April 1,
2006 was $309 million compared to $15.5 million for the nine months ended March
31, 2005. Included is $20 million operating loss, $3 million interest expense
and $285 million unrealized loss on convertible securities.

In
addition, SG&A expenses increased 40% for nine months ended April 1, 2006
compared to March 31, 2005.

Seasonality

Our
operations have historically been seasonal, with higher revenues generally
generated in the first half of our fiscal year (July through December) as a
result of increased demand for our services and products during the holiday
season from the end of November through the end of December. Furthermore, we
have historically discounted our products during the month of August, which has
further skewed revenues into the first half of the fiscal year.

Financial Condition, Liquidity and Capital
Resources

Net
cash used in operating activities was $19.6 million and $7.8 million for the
nine month periods ended April 1, 2006 and March 31, 2005, respectively. This
deterioration of cash flows resulted primarily from an increase in our net loss
of $308 million for the nine months ended April 1, 2006. Included is $20
million operating loss, $3 million interest expense and $285 million unrealized
loss on our remeasurement of convertible securities. We were able to partially
mitigate the cash used in operating activities by paying vendors on longer
terms. Vendors are now on terms that cannot be further extended.

-36-

---



Net
cash used in investing activities was $4.1 million and $2.7 million for the
nine month periods ended April 1, 2006 and March 31, 2005, respectively. The
increase is primarily due to facility renovations, information technology and
accounting systems for our facilities.

Cash
flows provided by financing activities were $27.0 million and $6.2 million for
the nine month periods ended April 1, 2006 and March 31, 2005, respectively.
For the nine months ended April 1, 2006, cash flows from financing activities
were primarily the result of the issuance of our Series D Preferred Stock in
the amount of $15.0 million gross, $10.1 million gross from the issuance of
KAAI Series G Preferred Stock and $4.8 million gross from issuance of KAAI
Series F Preferred Stock.

On
February 21, 2006, we entered into an Amendment and Consent (the Amendment and
Consent) with Technology Investment Capital Corp. (TICC), which provided for
amendments to the following financial covenants to which we are subject through
the end of fiscal year 2007, pursuant to the Note and Warrant Purchase
Agreement dated March 31, 2004, as amended (the Purchase Agreement): Minimum
Consolidated EBITDA, Consolidated Total Debt to Consolidated EBITDA,
Consolidated Senior Debt Ratio, Minimum Unit EBITDAR, Minimum Unit Fixed Charge
Ratio, and Minimum Unrestricted Cash Balance. The new covenants are
substantially lower than the covenants set forth in our prior agreement with
TICC and as such we believe they are achievable. Accordingly, on February 21,
2006 we agreed with TICC to new covenants which management has reviewed and
believe to be achievable. In consideration for the new covenants, we increased
our escrow account for TICC interest payments by $1.0 million to cover interest
through the end of fiscal year 2007. As of April 1, 2006 approximately $1.9
million has been deposited in the TICC escrow account.

In
addition, on June 30, 2006, the Company obtained a covenant compliance waiver
and amendment under the senior debt agreement with TICC. The Company obtained a
waiver for the Consolidated Senior Debt to Consolidated EBITDA ratio covenant
test for all periods April 1, 2006 through March 31st, 2007. In addition, the
Company obtained amended covenants for the Unit EBITDAR, Unit Fixed Coverage
Ratio and minimum cash required covenant tests.

Future Liquidity and Capital Needs

On
May 9, 2006 we entered into a Loan Agreement with some of our existing
shareholders, (Lenders), pursuant to which the Lenders loaned the Company
$4,838,710 to be used by us for capital expenditures and general working
capital. Pursuant to a Subordination Agreement dated May 9, 2006 with the
Lenders and TICC, the Loan is subordinated to our existing senior indebtedness
to TICC under the Purchase Agreement.

Our
principal future uses of funds are for debt service, working capital
requirements, and capital spending to execute our strategy. It is expected that
our net losses will continue at least through the end of fiscal year 2007. In
addition, subject to our ability to raise additional capital, we expect to
spend approximately $6 million during the period commencing with the last
quarter of fiscal year 2006 through the end of fiscal year 2007 to refurbish
our facilities, develop an information technology infrastructure, and develop
our proprietary diagnostics products.

At
the current level of operations, we expected that we would need to raise
additional funds by the end of fiscal year 2006. On June 30, 2006 we sold to
Laurus Master Fund, Ltd. a Secured Term Note in the aggregate principal amount
of $25,000,000.         We placed
$21,556,000 into a restricted account that will only be release to us if the
following conditions are satisfied by July 11, 2006:

 We
and our subsidiaries deliver to Laurus evidence that $5,200,000 in additional
junior capital has been raised.

-37-

---



 We
and our subsidiaries deliver (or cause to be delivered) a subordination
agreement(s) executed by each of us and any of our lenders reasonably
acceptable to Laurus.

 Laurus
receives an executed payoff letter from Technology Investments Capital
Corporation, our existing senior lender, in form and substance satisfactory to
Laurus in its sole discretion.

We
also placed $2,500,000 in a restricted account to be utilized to prefund
interest for the first year of the Note. The balance of the $25,000,000 is to
be used for Lauruss closing payment of $900,000, Lauruss due diligence and
structuring expenses of $40,000 and escrow agent fees of $4,000. If the Funding
Amount Conditions are not met by July 11, 2006, the Funding Amount and the
Interest Amount will revert to Laurus. In addition, this capital will be
utilized for the purposes: (i) to fund our operating losses until the end of
fiscal year 2007; (ii) for the abovementioned capital spending purposes; and
(iii) the repayment of our TICC debt. Our failure to meet the conditions of the
note would adversely affect our prospects, business, operating results
and financial condition. In such case, we would be forced to reduce our
expenses and our planned expansion and we would be required to substantially
curtail our operations. We would also not be in a position to pursue
opportunities which present themselves and would seek additional funding
from our existing shareholders.

Our
Senior Debt, represents our TICC commitment in the amount $9 million as of
April 1, 2006. We expect to repay this debt with additional financing expected
by July 2006. Therefore, we have reclassified this debt from a long-term
liability to a short-term liability on its Condensed Consolidated Balance
Sheet.

There
is no assurance that the recent financing will be sufficient to fund operations
until sales and profitability improve to the point that we are to operate from
internally generated cash flows. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from our possible inability to continue as a going concern.

-38-

---



|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosure About Market Risk.
|        |                                                           
|None.  
|        |                                                           
|Item 4. | Controls and Procedures.                                  

Our
management, with the participation of our principal executive officer and
principal financial officer, have evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are not effective for the
reasons specified below.

Restatement of Financial Statements:

During
the quarter ended April 1, 2006, we became aware of certain transactions that
should have been recorded in earlier quarters during the current fiscal year.
After review of the transactions, management has decided to make adjustments to
record these transactions in the proper period. [see Restatement of Interim
Condensed Consolidated Financial Statement contained within Note 1 to the
Condensed Consolidated Financial Statements].

On
February 13, 2006, our Board of Directors, upon the recommendation of our
management, concluded that the financial statements of KAAI for the fiscal year
ended June 30, 2005 (the 2005 Audited Financial Statements) should no longer
be relied upon and should be restated. Our Boards conclusion was based on a
finding by our management of an error in accounting causing an under accrual of
accrued expenses relating to management fees and to accrued bonuses payable.

In
addition, as a result of the errors that led to the conclusion that our 2005
Audited Financial Statements cannot be relied upon, our management concluded
that our unaudited financial statements for the quarter ended October 1, 2005
(the Subsequent Quarter Financial Statements and together with the 2005
Audited Financial Statements, the Financial Statements) should no longer be
relied upon and should be restated. On February 20, 2006, our Board of Directors
met and discussed the foregoing with management and our independent registered
public accounting firm, Amper, Politziner & Mattia, P.C. Our Board of
Directors concurred with the recommendation of management.

As
a result of the above, the consolidated balance sheets as of June 30, 2005 and
October 1, 2005 and the related consolidated statements of operations, cash
flows and stockholders equity have been restated to correct these changes.

Management Letter from our Independent
Registered Public Accountants:

Independently,
on January 12, 2006, we received a letter from our independent registered
public accountants, Amper, Politziner, and Mattia, P.C., indicating that KAAI
had material weaknesses in the design and operation of its internal control
over financial reporting with respect to the process of preparing and reviewing
annual and interim financial statements, and related timely account analysis
and reconciliations. Weaknesses identified resulted from inadequate resources
in the financial reporting area and lack of appropriate technical training of
such resources relating to the preparation of financial statements and
disclosures and the accounting for significant transactions.

In
order to remediate these weaknesses, we have retained another accounting firm
in which members of that firms accounting staff will work under the
supervision of our Chief Financial Officer. Additional resources from the
accounting firm may be retained on an as needed basis. Also, the Company

-39-

---



has retained
an information technology firm to upgrade operating, financial and accounting
systems which is expected to further improve the control environment. In
addition, On April 26, 2006, we appointed a new Chief Financial officer. The
above remedial actions have not been in place long enough to have been tested
and will be assessed for their adequacy on a continuous basis.

Except
as described above, there have not been any changes in our internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) since the beginning of the quarter ended
December 31, 2005 that have materially affected, or are reasonable likely to
materially affect, our internal control over financial reporting.

-40-

---



|         |                                                      
|-------- | -----------------------------------------------------
|PART II. | OTHER INFORMATION                                    
|         |                                                      
|Item 4.  | Submission of Matters to a vote of
  Securityholders.

On
March 22, 2006, the Companys Board of Directors approved and recommended that
the stockholders of the Company approve an amendment to our Certificate of
Incorporation (the Certificate of Amendment) to (i) change the Companys name
from TrueYou.Com Inc. to Klinger Advanced Aesthetics, Inc., (ii) increase the
number of authorized shares of Common Stock that we are authorized to issue
from 20,000,000 to 60,000,000, and (iii) implement a reverse stock split
whereby each twenty-five (25) shares of our issued and outstanding Common Stock
will be combined into one (1) share of Common Stock.

On
March 23, 2006 the Certificate of Amendment was approved by: (A) the holders of
a majority of the Companys outstanding stock entitled to vote with respect to
an amendment of the Companys certificate of incorporation, (B) the holders of
more than 50% of the outstanding shares of Series C Preferred Stock, in
accordance with the Certificate of Designation of the Series C Preferred Stock;
and (C) the holders of more than 75% of the outstanding shares of Series D
Preferred Stock, in accordance with the Certificate of Designation of the
Series D Preferred Stock. On March 23, 2006 we filed with the Commission a
preliminary Information Statement on Schedule 14C (the Information Statement)
in connection with the proposed Amendment. On May 2, 2006, we received comments
from the Commission with respect to the Information Statement. We are currently
reviewing the Commissions comments and will revise the Information Statement
in response to such comments. Upon completion of the Commissions review, we
will file a definitive Information Statement and mail it to our shareholders in
accordance with the Exchange Act. The Certificate of Amendment may not be filed
until at least 20 calendar days after the definitive Information Statement is
mailed to the stockholders of the Company. Following the expiration of such
20-day period, the Company will file the Certificate of Amendment with the
Delaware Secretary of State, which will become effective on the date of such
filing.

|        |                                                                                                                                                                                                                                                                                                                  
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 5. | Other Information                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                  
|        | On June 21, 2006, the Company entered into
  an Extension Letter with The John Hopkins System Corporation and The John
  Hopkins University, pursuant to which the period by which the Company is
  required to satisfy certain conditions under the John Hopkins Agreement was
  extended to September 20, 2006.
|        |                                                                                                                                                                                                                                                                                                                  
|Item 6. | Exhibits                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                  
|(a)     | The
  following exhibits are filed herewith:                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                  

-41-

---



|                 |  |             |                                                                                                                                                                                                  
|---------------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
  Number |  | Description
|                 |  |            
|                 |  |             |                                                                                                                                                                                                  
|10.1             |  |             | Extension Letter dated June 21, 2006 regarding Services and Licensing
        Agreement from the Company to the Johns Hopkins Health System Corporation
        and the Johns Hopkins University.
|                 |  |             |                                                                                                                                                                                                  
|31.1             |  |             | Rule
  13a-14(a)/15d-14(a) Certification of Principal Executive Officer.                                                                                                                         
|                 |  |             |                                                                                                                                                                                                  
|31.2             |  |             | Rule
  13a-14(a)/15d-14(a) Certification of Principal Financial Officer.                                                                                                                         
|                 |  |             |                                                                                                                                                                                                  
|32.1             |  |             | Section 1350
  Certification of Principal Executive Officer.                                                                                                                                     
|                 |  |             |                                                                                                                                                                                                  
|32.2             |  |             | Section 1350
  Certification of Principal Financial Officer.                                                                                                                                     

-42-

---



SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

|                    |  |                  |                                                                      
|------------------- |  | ---------------- | ---------------------------------------------------------------------
|                    |  | TRUEYOU.COM INC.
|                    |  |                 
|Date: July 12, 2006 |  | By:              | /s/ Matthew Burris                                                   
|                    |  |                  |                                                                      
|                    |  |                  | Matthew Burris
       Chief Financial Officer/Chief Operating Officer

-43-

---



EXHIBIT INDEX

|                       |  |                                                                                                                                                                                                  
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
        Number |  | Description                                                                                                                                                                                      
|                       |  |                                                                                                                                                                                                  
|                       |  |                                                                                                                                                                                                  
|10.1                   |  | Extension Letter dated June 21, 2006 regarding
        Services and Licensing Agreement from the Company to the Johns Hopkins
        Health System Corporation and the Johns Hopkins University.
|                       |  |                                                                                                                                                                                                  
|31.1                   |  | Rule 13a-14(a)/15d-14(a) Certification of
        Principal Executive Officer.                                                                                                                   
|                       |  |                                                                                                                                                                                                  
|31.2                   |  | Rule 13a-14(a)/15d-14(a) Certification of
        Principal Financial Officer.                                                                                                                   
|                       |  |                                                                                                                                                                                                  
|32.1                   |  | Section 1350 Certification of Principal Executive
        Officer.                                                                                                                               
|                       |  |                                                                                                                                                                                                  
|32.2                   |  | Section 1350 Certification of Principal Financial
        Officer.                                                                                                                               

-44-

---