Gadsden Properties, Inc. - Quarter Report: 2013 June (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 - Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨ 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 0-11365

PHOTOMEDEX, INC.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction

of incorporation or organization)

59-2058100

(I.R.S. Employer

Identification No.)

147 Keystone Drive, Montgomeryville, Pennsylvania 18936

(Address of principal executive offices, including zip code)

(215) 619-3600

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to such filing requirements for the past 90 days.

Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ý

Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ¨ No ý

The number of shares outstanding of the issuer's common stock as of August 9, 2013 was 20,722,939 shares.

PHOTOMEDEX, INC.

INDEX TO FORM 10-Q

Part I. Financial Information:			PAGE

	ITEM 1. Financial Statements:
	a.	Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	3

	b.	Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2013 and 2012 (unaudited)	4

	c.	Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2013 and 2012 (unaudited)	5

	d.	Condensed Consolidated Statement of Changes in Equity for the six months ended June 30, 2013 (unaudited)	6

	e.	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)	7

	f.	Notes to Condensed Consolidated Financial Statements (unaudited)	8

	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

	ITEM 3. Quantitative and Qualitative Disclosure about Market Risk		33

	ITEM 4. Controls and Procedures		33

Part II. Other Information:

	ITEM 1. Legal Proceedings		34

	ITEM 1A. Risk Factors		34

	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		34

	ITEM 3. Defaults Upon Senior Securities		34

	ITEM 4. Mine Safety Disclosures		34

	ITEM 5. Other Information		34

	ITEM 6. Exhibits		35

		Signatures	39

		Certifications	E-31.1

PART I – Financial Information

ITEM 1. Financial Statements

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	June 30, 2013			December 31, 2012
	(Unaudited)			(Restated)
ASSETS

Current assets:
Cash and cash equivalents	$	41,300		$	44,348
Short term bank deposit		21,185			18,000
Accounts receivable, net of allowance for doubtful accounts of $7,959 and $6,917, respectively		28,548			19,064
Inventories, net		22,741			22,467
Deferred tax asset		18,612			19,441
Prepaid expenses and other current assets		8,907			12,853
Total current assets		141,293			136,173

Property and equipment, net		8,857			6,759
Patents and licensed technologies, net		11,536			12,673
Other intangible assets		10,075			10,854
Goodwill		23,628			24,500
Deferred tax asset		18,883			20,186
Funds in respect of employee rights upon retirement and other assets		860			745
Total assets	$	215,132		$	211,890

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of notes payable		263		$	609
Current portion of long-term debt		-			10
Accounts payable		10,282			10,025
Accrued compensation and related expenses		2,941			2,494
Other accrued liabilities		14,539			22,099
Deferred revenues		6,478			5,259
Total current liabilities		34,503			40,496
Long-term liabilities:
Long-term note payable, net of current maturities		111			-
Deferred revenues		2,685			3,313
Other liabilities		78			166
Liability for employee rights upon retirement		688			588
Total liabilities		38,065			44,563

Stockholders’ equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2013 and December 31, 2012		-			-
Common stock, $.01 par value, 50,000,000 shares authorized; 20,722,939 and 21,043,947 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		207			210
Additional paid-in capital		128,183			130,954
Retained earnings		49,608			35,302
Accumulated other comprehensive (loss) income		(931	)		861
Total stockholders’ equity		177,067			167,327
Total liabilities and stockholders’ equity	$	215,132		$	211,890

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended June 30,
	2013			2012

Revenues	$	58,065		$	58,906

Cost of revenues		11,390			12,355

Gross profit		46,675			46,551

Operating expenses:
Engineering and product development		814			760
Selling and marketing		30,468			31,068
General and administrative		6,268			9,243
		37,550			41,071

Operating profit		9,125			5,480

Other income (loss):
Interest and other financing income (expense), net		(134	)		(401	)

Income before income tax expense		8,991			5,079

Income tax expense		(1,897	)		(866	)

Net income	$	7,094		$	4,213

Net income per share:
Basic	$	0.34		$	0.21
Diluted	$	0.34		$	0.20

Shares used in computing net income per share:
Basic		20,573,048			20,547,244
Diluted		21,033,349			21,034,814

Other comprehensive income (loss):
Foreign currency translation adjustments		21			(90	)

Comprehensive income	$	7,115		$	4,123

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	For the Six Months Ended June 30,
	2013			2012

Revenues	$	115,281		$	109,179

Cost of revenues		23,256			23,589

Gross profit		92,025			85,590

Operating expenses:
Engineering and product development		1,587			1,518
Selling and marketing		59,794			56,903
General and administrative		11,927			16,362
		73,308			74,783

Operating profit		18,717			10,807

Other income (loss):
Interest and other financing income (expense), net		(3	)		(631	)

Income before income tax expense		18,714			10,176

Income tax expense		(4,408	)		(1,106	)

Net income	$	14,306		$	9,070

Net income per share:
Basic	$	0.69		$	0.47
Diluted	$	0.68		$	0.45

Shares used in computing net income per share:
Basic		20,624,588			19,454,775
Diluted		21,084,889			19,942,345

Other comprehensive loss:
Foreign currency translation adjustments		(1,792	)		(95	)

Comprehensive income	$	12,514		$	8,975

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(In thousands, except share and per share amounts)

(Unaudited)



	Common Stock						Additional Paid-In			Retained		Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings		Income (loss)			Total
BALANCE, JANUARY 1, 2013		21,043,947		$	210		$	130,954		$	35,302	$	861		$	167,327
Stock-based compensation related to stock options and restricted stock		-			-			2,491			-		-			2,491
Stock options issued to consultants for services		-			-			93			-		-			93
Options exercised		3,750			-			23			-		-			23
Other comprehensive loss		-			-			-			-		(1,792	)		(1,792	)
Retirement of company stock		(324,758	)		(3	)		(5,378	)		-		-			(5,381	)
Net income for the six months ended June 30, 2013					-			-			14,306		-			14,306
BALANCE, JUNE 30, 2013		20,722,939		$	207		$	128,183		$	49,608	$	(931	)	$	177,067

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

(Unaudited)

	For the Six Months Ended June 30,
	2013			2012
Cash Flows From Operating Activities:
Net income	$	14,306		$	9,070
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,959			2,771
Provision for doubtful accounts		2,125			2,091
Deferred income taxes		1,982			(1,234	)
Stock-based compensation		2,584			3,288
Changes in operating assets and liabilities:
Accounts receivable		(11,773	)		(13,655	)
Inventories		(457	)		(1,923	)
Prepaid expenses and other assets		3,873			(8,139	)
Accounts payable		311			3,390
Accrued compensation and related expenses		473			(938	)
Other accrued liabilities		(7,555	)		4,756
Other liabilities		100			63
Deferred revenues		592			2,805
Net cash provided by operating activities		9,520			2,345

Cash Flows From Investing Activities:
Purchases of property and equipment		(474	)		(218	)
Lasers placed in service		(2,780	)		(949	)
Purchase of short term investments		(3,185	)		-
Increase in funds – employees retirement rights		(100	)		(63	)
Net cash used in investing activities		(6,539	)		(1,230	)

Cash Flows From Financing Activities:
Payments on notes payable		(418	)		(349	)
Repayments of long term debt		(14	)		(2,000	)
Issuance of warrants		-			98
Proceeds from issuance of common stock, net		-			37,514
Proceeds from option exercises		23			39
Repurchase of company stock		(5,381	)		-
Net cash (used in) provided by financing activities		(5,790	)		35,302
Effect of exchange rate changes on cash		(239	)		(80	)
Net (decrease) increase in cash and cash equivalents		(3,048	)		36,337
Cash and cash equivalents, beginning of period		44,348			16,549

Cash and cash equivalents, end of period	$	41,300		$	52,886

Supplemental information:
Cash paid for income taxes	$	4,381		$	10,922

Cash paid for interest	$	11		$	77

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 1

The Company:

Background

PhotoMedex, Inc. (and its subsidiaries) (the “Company”) is a Global Skin Health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. The Company provides proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis (a precursor to certain types of skin cancer) and photo damage. Its experience in the physician market provides the platform to expand its skin health solutions to spa markets, as well as traditional retail, online and infomercial outlets for home-use products.

On December 13, 2011, the Company closed the reverse merger with Radiancy, Inc. Immediately following the reverse merger, the pre-reverse merger shareholders of PhotoMedex, Inc. (“Pre-merged PhotoMedex”) collectively owned approximately 20% of the Company’s outstanding common stock, and the former Radiancy, Inc. stockholders owned approximately 80% of the Company’s outstanding common stock.

The merger was accounted for as a reverse acquisition with Radiancy treated for accounting purposes as the acquirer. As such, the financial statements of Radiancy, Inc. were treated as the historical financial statements of the Company, with the results of Pre-merged PhotoMedex, Inc. being included from December 14, 2011 and thereafter.

As a result of the acquisition, the Company implemented a business plan focused on three key components – a highly trained direct sales force to target Physician and Professional Segments; a multi-tiered marketing platform targeting the global consumer; and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept through regulatory, physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product-life-cycle evolution. The Company reorganized its business into three operating segments to better align its organization based upon the Company’s management structure, products and services offered, markets served and types of customers.

Basis of Presentation:

The accompanying condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012 (“fiscal 2012”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature.

The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013 or for any other interim period or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenues from product sales when the following four criteria have been met: (i) the product has been delivered and the Company has no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is reasonably assured. Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company ships most of its products FOB shipping point, although from time to time certain customers, for example governmental customers, will insist upon FOB destination. Among the factors the Company takes into account when determining the proper time at which to recognize revenue are when title to the goods transfers and when the risk of loss transfers. Shipments to distributors or physicians that do not fully satisfy the collection criteria are recognized when invoiced amounts are fully paid or fully assured.

For revenue arrangements with multiple deliverables within a single, contractually binding arrangement (usually sales of products with separately priced extended warranty), each element of the contract is accounted for as a separate unit of accounting when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

With respect to sales arrangements under which the buyer has a right to return the related product, revenue is recognized only if all the following are met: the price is fixed or determinable at the date of sale; the buyer has paid, or is obligated to pay and the obligation is not contingent on resale of the product; the buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product; the buyer has economic substance; the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and the amount of future returns can be reasonably estimated.

The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with ASC Topic 605-15 with respect to sales of product when a right of return exists. Reported revenues are shown net of the returns provision. Such allowance for sales returns is included in Other Accrued Liabilities. (See Note 7).

Deferred revenue includes amounts received with respect to extended warranty maintenance, repairs and other billable services and amounts not yet recognized as revenues. Revenues with respect to such activities are deferred and recognized on a straight-line basis over the duration of the warranty period, the service period or when service is provided, as applicable to each service.

The Company has two distribution channels for its phototherapy treatment equipment. The Company either (i) sells its lasers through a distributor or directly to a physician or (ii) places its lasers in a physician’s office (at no charge to the physician) and generally charges the physician a fee for an agreed upon number of treatments. In some cases, the Company and the customer stipulate to a quarterly or other periodic target of procedures to be performed, and accordingly revenue is recognized ratably over the period.

When the Company places a laser in a physician’s office, it generally recognizes service revenue based on the number of patient treatments performed, or purchased under a periodic commitment, by the physician. Amounts collected with respect to treatments to be performed through laser-access codes that are sold to physicians free of a periodic commitment, but not yet used, are deferred and recognized as a liability until the physician performs the treatment. Unused treatments remain an obligation of the Company because the treatments can only be performed on Company-owned equipment. Once the treatments are delivered to a patient, this obligation has been satisfied.

The Company defers substantially all revenue from sales of treatment codes ordered by and delivered to its customers within the last two weeks of the period in determining the amount of procedures performed by its physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period.

Functional Currency

The currency of the primary economic environment in which the operations of the Company and its subsidiaries are conducted is the US dollar ("$" or "dollars"), except Photo Therapeutics, Ltd. which is conducted in the Great Britain Pounds (GBP). Substantially all of the Group's revenues are derived in dollars or in other currencies linked to the dollar. Purchases of most materials and components are carried out in, or linked to the dollar. Thus, the functional (and reporting currency) of the Company and its subsidiaries (other than Photo Therapeutics, Ltd.) is the dollar.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Balances denominated in, or linked to, foreign currencies are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the statement of comprehensive income, the exchange rates applicable to the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses.

Assets and liabilities of a foreign subsidiary, whose functional currency is the local currency, are translated from its respective functional currency to U.S. dollars at the balance sheet date exchange rates. Income and expense items are translated at the average rates of exchange prevailing during the period. Translation adjustments of foreign subsidiary for which the local currency is the functional currency are reflected in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). Deferred taxes are not provided on translation adjustments as the earnings of the subsidiary are considered to be permanently reinvested.

Fair Value Measurements

The Company measures and discloses fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

•

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

	•		Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

	•		Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. The estimated fair values of notes payable and long-term debt which are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity approximate the carrying values. The fair value of the amounts funded in insurance policies in respect of employee liability for employee rights upon retirement is usually identical or close to their carrying value. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.

Derivative financial instruments are measured at fair value, on a recurring basis. The fair value of derivatives generally reflects the estimated amounts that the Group would receive or pay to terminate the contracts at the reporting dates, based on the prevailing currency prices and the relevant interest rates. Such measurement is classified within Level 2.

In addition to items that are measured at fair value on a recurring basis, there are also assets and liabilities that are measured at fair value on a nonrecurring basis. Assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets including goodwill. As such, we have determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Derivatives

The group applies the provisions of Accounting Standards Codification Topic 815, Derivatives and Hedging ("ASC Topic 815"). In accordance with ASC Topic 815, all the derivative financial instruments are recognized as either financial assets or financial liabilities on the balance sheet at fair value. The accounting for changes in the fair value of a derivative financial instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For derivative financial instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

From time to time the Company carries out transactions involving foreign exchange derivative financial instruments (mainly forward exchange contracts) which are designed to hedge the cash flows expected to be paid with respect to forecasted expenses of the Israeli subsidiary (Radiancy) denominated in Israeli local currency (NIS) which is different than its functional currency.

Such derivatives were not designated as hedging instruments, and accordingly they were recognized in the balance sheet at their fair value, with changes in the fair value carried to the Statement of Comprehensive Income and included in financing income (expenses), net.

At June 30, 2013, the balance of such derivative instruments amounted to approximately $267 in assets and approximately $52 and $206, were recognized as financing income in the Statement of Comprehensive Income for the three and six months ended June 30, 2013, respectively.

The nominal amounts of foreign currency derivatives as of June 30, 2013 consist of forward transactions for the exchange of $5,500 into NIS.

Accrued Warranty Costs

The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated cost of the future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2013 and 2012 is summarized as follows:

	June 30,
	2013			2012
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,440		$	1,661
Additions charged to warranty expense		691			919
Expiring warranties		(281	)		(218	)
Claims satisfied		(655	)		(658	)
Total		1,195			1,704
Less: current portion		(1,117	)		(1,378	)
Accrued long-term warranty	$	78		$	326

For extended warranty on the consumer products, see Revenue Recognition above.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Earnings Per Share

Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
		2013	2012		2013	2012
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		20,573,048	20,547,244		20,624,588	19,454,775
Dilutive effect of stock options and warrants		460,301	487,570		460,301	487,570
Diluted number of common and common stock equivalent shares outstanding		21,033,349	21,034,814		21,084,889	19,942,345

Diluted earnings per share for the three and six months ended June 30, 2013, exclude the impact of common stock options and warrants, totaling 2,200,350 shares, as the effect of their inclusion would be anti-dilutive.

Adoption of New Accounting Standards

Effective January 1, 2013, the Company adopted Accounting Standard Update No. 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU Topic 220") This ASU requires entities to provide information about significant amounts reclassified out of accumulated other comprehensive income. The standard became effective, prospectively, for interim and annual periods beginning after December 15, 2012. The adoption of the standard did not impact the Company's consolidated results of operations and financial condition.

Effective January 1, 2013, the Company adopted Accounting Standard Update No. 2011-11, Balance Sheet – Disclosure about Offsetting Assets and Liabilities ("ASU 2011-11"). ASU 2011-11 enhances disclosures about financial instruments and derivative instruments that are either offset in accordance with the Accounting Standards Codification or are subject to an enforceable master netting arrangement or similar agreement. The amended guidance became effective, in a retrospective manner to all comparative periods presented, for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of the standard did not have a material impact on the Company's consolidated results of operations and financial condition.

Recently Issued Accounting Standards

In July 2013 the FASB has issued Accounting Standard Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11").

The amendments in ASU 2013-11 state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

ASU 2013-11 applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. For public companies the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

The adoption of the amendments is not expected to have material impact on the Company's consolidated results of operations and financial condition.

In March 2013, the FASB issued Accounting Standards Update 2013-5, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-5").

ASU 2013-5 clarifies that, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU 2013-5 also clarifies that if the business combination achieved in stages relates to a previously held equity method investment (step-acquisition) that is a foreign entity, the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that previously held investment.

For public companies, the amendments in this Update will be effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption. The adoption of the standard is not expected to have a material impact on the Company's consolidated results of operations and financial condition.

Note 2

Inventories:

	June 30, 2013		December 31, 2012
	(unaudited)
Raw materials and work in progress	$	9,250	$	9,012
Finished goods		13,491		13,455
Total inventories	$	22,741	$	22,467

Work-in-process is immaterial, given the Company’s typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

Note 3

Property and Equipment:

	June 30, 2013			December 31, 2012
	(unaudited)
Lasers-in-service	$	10,029		$	7,301
Equipment, computer hardware and software		4,474			4,015
Furniture and fixtures		628			617
Leasehold improvements		399			396
		15,530			12,329
Accumulated depreciation and amortization		(6,673	)		(5,570	)
Property and equipment, net	$	8,857		$	6,759

Depreciation and related amortization expense was $1,343 and $1,155 for the six months ended June 30, 2013 and 2012, respectively.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 4

Patents and Licensed Technologies, net:

	June 30, 2013			December 31, 2012
	(unaudited)
Gross Amount beginning of period	$	15,411		$	15,124
Additions		38			181
Translation differences		(188	)		106
Gross Amount end of period		15,261			15,411

Accumulated amortization		(3,725	)		(2,738	)

Patents and licensed technologies, net	$	11,536		$	12,673

Related amortization expense was $1,020 and $1,015 for the six months ended June 30, 2013 and 2012, respectively.

Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:

Last six months of 2013	$	1,022
2014		2,043
2015		2,036
2016		1,965
2017		896
Thereafter		3,574
Total	$	11,536

Note 5

Goodwill and Other Intangible Assets:

Balance at January 1, 2013, as restated	$	24,500
Translation differences		(872	)
Balance at June 30, 2013	$	23,628

The Company has no impairment loss as of June 30, 2013.

Set forth below is a detailed listing of other definite-lived intangible assets:

	June 30, 2013									December 31, 2012
	(unaudited)
	Trademarks			Customer Relationships			Total			Trademarks			Customer Relationships			Total
Gross Amount beginning of period	$	5,744		$	6,372		$	12,116		$	5,700		$	6,300		$	12,000
Translation differences		(79	)		(127	)		(206	)		44			72			116
Gross Amount end of period		5,665			6,245			11,910			5,744			6,372			12,116

Accumulated amortization		(873	)		(962	)		(1,835	)		(598	)		(664	)		(1,262	)

Net Book Value	$	4,792		$	5,283		$	10,075		$	5,146		$	5,708		$	10,854

Related amortization expense was $600 and $600 for the periods ended June 30, 2013 and 2012, respectively. Customer Relationships embody the value to the Company of relationships that Pre-merged PhotoMedex had formed with its customers. Trademarks include the tradenames and various trademarks associated with Pre-merged PhotoMedex products (e.g. “XTRAC”, “Neova” “Omnilux” and “Lumiere”).

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Estimated amortization expense for the above amortizable intangible assets for the next five years is as follows:

Last six months of 2013	$	600
2014		1,200
2015		1,200
2016		1,200
2017		1,200
Thereafter		4,675
Total	$	10,075

Note 6

Accrued Compensation and related expenses:

	June 30, 2013		December 31, 2012
	(unaudited)
Accrued payroll and related taxes	$	947	$	1,010
Accrued vacation		373		262
Accrued commissions and bonus		1,621		1,222
Total accrued compensation and related expense	$	2,941	$	2,494

Note 7

Other Accrued Liabilities:

	June 30, 2013		December 31, 2012
	(unaudited)
Accrued warranty, current	$	1,117	$	1,274
Accrued taxes, net (2)		1,638		4,304
Accrued sales returns (1)		7,940		11,901
Other accrued liabilities		3,844		4,620
Total other accrued liabilities	$	14,539	$	22,099

(1)	The activity in the sales returns liability account was as follows:

	Six Months Ended June 30,
	2013			2012
	(unaudited)			(unaudited)
Balance at beginning of year	$	11,901		$	6,143
Additions that reduce net sales		17,156			22,224
Deductions from reserves		(21,117	)		(16,578	)
Balance at end of period	$	7,940		$	11,789

(2)	The December 31, 2012 balance is shown as restated

Note 8

Income Taxes:

The Company's effective tax rate is dependent upon the geographic distribution of its earnings or losses (mainly between US and Israel).

The difference between the Company's effective tax rates for the three and six month periods ended June 30, 2013 and the U.S. Federal statutory rate (34%) resulted primarily from Pre-merged PhotoMedex current operations which have generated losses, which reduced the overall corporate tax expense and which will have effect on current tax expense when the Company elects to file a U.S. consolidated income tax return. In addition, the Israeli and UK subsidiaries’ earnings are taxed at rates lower than the federal statutory rate (generally 20% to 24%, respectively).

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and can be ambiguous; the Company is, therefore, obliged to make many subjective assumptions and judgments regarding the application of such laws and regulations to its facts and circumstances. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to changes over time. Any changes in the Company's subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.

Note 9

Employee Stock Benefit Plans:

Post-Reverse Merger

Following the closing of the reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 17,285 shares were reserved for outstanding stock options.

In addition, following the closing of the reverse acquisition, the previous 2005 Equity Compensation Plan (“2005 Equity Plan”) of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 753,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 1,114,714 shares were reserved for outstanding options.

Stock option activity under all of the Company’s share-based compensation plans for the six months ended June 30, 2013 was as follows:

	Number of Options	Weighted Average Exercise Price
Outstanding, January 1, 2013	898,541	$16.65
Granted	259,625	16.59
Exercised	(3,750)	6.24
Cancelled	(17,166)	25.5
Outstanding, June 30, 2013	1,137,250	$16.62
Options exercisable at June 30, 2013	324,625	$17.72

At June 30, 2013, there was $10,903 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 3.5 years. The intrinsic value of options outstanding and exercisable at June 30, 2013 was not significant.

The Company calculates expected volatility for a share-based grants based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the six months ended June 30, 2013, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:

	Six Months Ended June 30, 2013
Risk-free interest rate	1.26%
Volatility	85.25%
Expected dividend yield	0%
Expected life	5.5 years
Estimated forfeiture rate	0%

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

With respect to grants of options, the risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.

On February 28, 2013, the Company granted an aggregate of 177,125 options to purchase common stock to a number of employees and consultants with a strike price of $15, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. Also on February 28, 2013, the Company granted an aggregate of 82,500 non-qualified options to purchase common stock to two executive employees with a strike price of $20, which was set to match the exercise price of the warrants issued in the reverse merger and was higher than the quoted market value of our stock at the date of grant. The aggregate fair value of the options granted was $2,590. The options vest over five years and expire ten years from the date of grant.

Total stock based compensation expense was $2,584 and $3,288 for the six months ended June 30, 2013 and 2012.

Note 10

Business Segments and Geographic Data:

The Company organized its business into three operating segments to better align its organization based upon the Company’s management structure, products and services offered, markets served and types of customers, as follows: The Consumer segment derives its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derives its revenues from the XTRAC procedures performed by dermatologists, the sales of skincare products, the sales of surgical disposables and accessories to hospitals and surgery centers and on the repair, maintenance and replacement parts on our various products. The Professional segment generates revenues from the sale of equipment, such as lasers, medical and esthetic light and heat-based products and LED products. Management reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.

Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Unallocated assets include cash and cash equivalents, prepaid expenses and deposits.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended June 30, 2013

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	48,673		$	7,376		$	2,016		$	58,065
Costs of revenues		7,174			3,014			1,202			11,390
Gross profit		41,499			4,362			814			46,675
Gross profit %		85.3	%		59.1	%		40.4	%		80.4	%

Allocated operating expenses:
Engineering and product development		279			317			218			814
Selling and marketing expenses		26,703			3,233			532			30,468

Unallocated operating expenses		-			-			-			6,268
		26,982			3,550			750			37,550
Income from operations		14,517			812			64			9,125

Interest and other financing income (expense), net		-			-			-			(134	)

Net income before taxes	$	14,517		$	812		$	64		$	8,991

Three Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	50,464		$	5,274		$	3,168		$	58,906
Costs of revenues		8,169			2,605			1,581			12,355
Gross profit		42,295			2,669			1,587			46,551
Gross profit %		83.8	%		50.6	%		50.1	%		79.0	%

Allocated operating expenses:
Engineering and product development		240			275			245			760
Selling and marketing expenses		27,544			2,421			1,103			31,068

Unallocated operating expenses		-			-			-			9,243
		27,784			2,696			1,348			41,071
Income (loss) from operations		14,511			(27	)		239			5,480

Interest and other financing income (expense), net		-			-			-			(401	)

Net income (loss) before taxes	$	14,511		$	( 27	)	$	239		$	5,079

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Six Months Ended June 30, 2013

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	97,733			13,331		$	4,217		$	115,281
Costs of revenues		14,691			5,945			2,620			23,256
Gross profit		83,042			7,386			1,597			92,025
Gross profit %		85.0	%		55.4	%		37.9	%		79.8	%

Allocated operating expenses:
Engineering and product development		497			641			449			1,587
Selling and marketing expenses		52,334			6,407			1,053			59,794

Unallocated operating expenses		-			-			-			11,927
		52,831			7,048			1,502			73,308
Income from operations		30,211			338			95			18,717

Interest and other financing income (expense), net		-			-			-			(3	)

Net income before taxes	$	30,211		$	338		$	95		$	18,714

Six Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	92,665		$	10,347		$	6,167		$	109,179
Costs of revenues		14,941			5,284			3,364			23,589
Gross profit		77,724			5,063			2,803			85,590
Gross profit %		83.9	%		48.9	%		45.4	%		78.4	%

Allocated operating expenses:
Engineering and product development		477			585			456			1,518
Selling and marketing expenses		49,693			4,950			2,260			56,903

Unallocated operating expenses		-			-			-			16,362
		50,170			5,535			2,716			74,783
Income from operations		27,554			(472	)		87			10,807

Interest and other financing income (expense), net		-			-			-			(631	)

Net income before taxes	$	27,554		$	( 472	)	$	87		$	10,176

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

For the three and six months ended June 30, 2013 and 2012, net revenues by geographic area were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
North America 1	$	42,033	$	43,948	$	86,932	$	82,636
Asia Pacific 2		9,440		8,466		15,202		13,773
Europe (including Israel)		5,861		6,245		11,494		11,453
South America		731		247		1,653		1,317
	$	58,065	$	58,906	$	115,281	$	109,179

1 United States	$	37,329	$	37,470	$	75,336	$	70,093
2 Japan	$	7,452	$	6,847	$	11,715	$	10,174

As of June 30, 2013 and December 31, 2012, long-lived assets by geographic area were as follows:

	June 30, 2013		December 31, 2012
	(unaudited)
North America	$	7,660	$	5,772
Asia Pacific		-		-
Europe (including Israel)		1,197		987
South America		-		-
	$	8,857	$	6,759

The Company discusses segmental details in its Management Discussion and Analysis found elsewhere in this Quarterly Report on Form 10-Q.

Note 11

Significant Customer Concentration:

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Customer A	11%	9%	11%	7%
Customer B	12%	11%	9%	8%

No other customer was more than 10% of total company revenues for the three and six months ended June 30, 2013 and 2012.

Note 12

Subsequent Event:

On July 17, 2013 PhotoMedex’ wholly-owned subsidiary, Radiancy, Inc., completed the acquisition of 100% of the shares of LK Technology Importaçăo E Exportaçăo LTDA (“LK”), a privately-held distributor in Brazil, and plans to begin marketing and selling its no!no!® products in Brazil as early as the third quarter of 2013 through its acquisition of LK. Total consideration of the transaction is $100 plus profits resulting from LK’s legacy activity during a transition period.

LK brings to PhotoMedex all required licenses, authorizations and permits to immediately begin its consumer business operating locally. LK was founded in 2003 and is based in Sao Paulo. LK has been operating for several years selling Radiancy’s professional line of products in Brazil. The local manager of LK will remain in his position.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of PhotoMedex, Inc., a Nevada corporation (referred to in this Report as “we,” “us,” “our,” “PhotoMedex,” or “registrant”) and other statements contained in this Report that are not historical facts. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described in Item 1A “Risk Factors” included elsewhere in this report and in our Annual Report on Form 10-K/A for the year ended December 31, 2012. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations and statements — see “Cautionary Note Regarding Forward-Looking Statements” that appears at the end of this discussion. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.

Introduction, Outlook and Overview of Business Operations

Our current strategic focus is built upon three key components –a highly trained direct sales force to target Physician and Professional Segments; a multi-tiered marketing platform targeting the global consumer and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept thru regulatory and physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product life-cycle evolution.

We believe that we are one of only a few aesthetic dermatology companies to have succeeded in taking professional technologies geared toward physicians and med spas and adapting them for the home-use market. Our professional- and consumer-use products are listed below, noting that this is not an exhaustive listing of our product portfolio but represents our current key areas of focus.

Key Technology Platforms

•	Thermicon® brand Heat Transfer Technology. In this technique, a patented thermodynamic wire gently singes and burns off the hair above the skin’s surface. It conducts heat pulses, which enable longer-lasting hair removal. This technology drives our home-use no!no! Hair Removal 8800™ device, which is designed to reduce hair growth. Product variations include devices designed for men and for sensitive, small areas such as the face, among other versions.
•	LHE® brand Technology. LHE® combines direct heat and a full-spectrum light source to give a greater treatment advantage for psoriasis and acne care, skin tightening, skin rejuvenation, wrinkle reduction, collagen renewal, vascular and pigmented lesion treatments, and hair removal. Using LHE®, the Mistral intelligent phototherapy medical device can treat a larger spot size than a laser with less discomfort. In addition, our research finds that LHE offers meaningful results for thin, light hair. The technology is also used in the no!no! Skin™, a handheld consumer product sold worldwide under the no!no!® brand. The no!no! Skin™ is a 510(k)-cleared product that has been clinically shown to reduce acne by 81% over 24 hours.
•	XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin conditions for which there are no cures. The machine delivers narrow ultraviolet B (“UVB”) light to affected areas of skin, leading to psoriasis remission in an average of 8 to 12 treatments and of vitiligo after 48 treatments. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. Nearly 65% of companies now offer reimbursement for vitiligo as well, a figure that is increasing.

•

NEOVA®. This line of topical formulations is designed to prevent premature skin aging due to UV-induced DNA damage. The therapy seeks to repair photo-damaged skin using a novel combination of two key ingredients: DNA repair enzymes and our Copper Peptide Complex®. The NEOVA line includes DNA Damage Control SILC SHEER SPF 45, an award-winning tinted sunscreen. The DNA repair enzymes of this sunscreen are clinically shown to reduce UV damage by 45% and increase UV protection by 300% in one hour.

•

Light-emitting Diode (LED) Technology. Our LED technology is used in both its Omnilux™ and Lumière™ Light Therapy systems. Omnilux is FDA cleared to treat wrinkles, acne, minor muscle pain and pigmented lesions, and is applicable to all skin types. Lumière is designed for use in non-medical applications and combines the LED light with a line of topical lotions to improve the appearance of fine lines, wrinkles, skin tone and blemishes, giving aesthetic professionals a complete non-invasive skin care solution.

Our revenue generation is categorized as Consumer, Physician-Recurring or Professional. Each segment benefits from the combination of our proprietary global consumer marketing engine with our direct sales force for U.S. physicians.

Consumer

The global consumer market is our largest business unit due to our success at bringing professional technologies into the home-use arena. Cumulatively, we have sold more than 4.3 million no!no!® products to consumers, the majority of whom have been in Japan and North America.

Even at this level of sales, we believe we have ample opportunity for further expansion, as Japan’s 2012 population was over 127 million people and North America’s was approximately 314 million people—far greater than the more than four million who have already purchased our products. In addition, we have recently launched our consumer marketing platform in Germany (population of approximately 83 million people) and about to launch in Brazil (population of approximately 192 million people) in the upcoming months. See Note 12, set forth in this quarterly filing.

Our consumer marketing platform is built upon a proprietary direct-to-consumer sales engine and creative marketing programs that drive brand awareness.

Sales Channels

Our multi-channel marketing and distribution model consists of television, online, print and radio direct-response advertising, as well as high-end retailers. We believe that this marketing and distribution model, through which each channel complements and supports the others, provides:

•	greater brand awareness across channels;
•	cost-effective consumer acquisition and education;
•	premium brand building; and
•	improved convenience for consumers.

Direct to Consumer. Our direct-to-consumer channel consists of sales generated through infomercials, websites and call centers. We utilize several forms of advertising to drive our direct-to-consumer sales and brand awareness, including print, online, television and radio.

Retailers and Home Shopping Channels. Our retailers and home shopping channels enable us to provide additional points of contact to educate consumers about our solutions, expand our presence beyond our direct to consumer activity and further strengthen and enhance our brand image.

Distributors. In some territories, we operate through exclusive distribution agreements with leading distribution companies that are dominant in their respective market and have the ability to promote our products through their existing retail and home shopping networks.

Markets

North America. Our consumer distribution segment in North America had sales of approximately $35 million and $38 million for the three months ended June 30, 2013 and 2012, respectively. Our consumer distribution segment in North America had sales of approximately $74 million and $71 million for the six months ended June 30, 2013 and 2012, respectively. We use a mix of direct-to-consumer advertising that includes infomercials, commercials, catalog, radio and internet-based marketing campaigns, coupled with select retail resellers, such as Neiman Marcus, Henri Bendel, Planet Beauty, Bed, Bath & Beyond and others; home shopping channels such as HSN; and online retailers such as Dermadoctor.com and Drugstore.com. We believe these channels complement each other, as consumers that have seen our direct-to-consumer advertising may purchase at our retailers, and those who have seen our solutions demonstrated at our retailers may purchase solutions through our websites or call centers.

International (excluding North America). In the international consumer segment, sales were approximately $13 million and $12 million for the three months ended June 30, 2013 and 2012, respectively. In the international consumer segment, sales were approximately $23 million and $21 million for the six months ended June 30, 2013 and 2012, respectively. We utilize various sales and marketing methods including direct-to-consumer, sales to retailers and home shopping channels. Our main international markets are Japan, United Kingdom, Argentina and Australia.

Physician Recurring

Physician recurring sales primarily include those generated from two of our product lines: (1) XTRAC® lasers, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (2) NEOVA® skin care, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. Both XTRAC and NEOVA represent recurring revenue streams with significant market opportunities. In addition, our expertise in direct-to-consumer advertising and innovative marketing programs is anticipated to drive greater brand awareness and adoption for both XTRAC and NEOVA products.

XTRAC®

The XTRAC business is considered a recurring revenue stream given its pay-per-use model, where the machines are provided to professionals who then pay us based on the number of treatments administered with the device.

NEOVA®

Sales of the NEOVA skin care products at present are driven by physicians, who act as spokespersons to their patients in support of the NEOVA line. We have historically marketed to physicians in the dermatology and plastic surgery field, but plan to supplement these efforts with a direct-to-consumer approach to lead patients into those practices. NEOVA addresses a sizeable global market for anti-aging skin care products.

Professional

Sales under the professional business segment are mainly generated from capital equipment, such as our Velocity and VTRAC equipment, our LHE® brand products and our Omnilux and Lumière Light Therapy systems.

We view this segment as an area of opportunity for us since the reverse acquisition with Radiancy, Inc., or Radiancy, completed on December 13, 2011. We now possess a greatly expanded product offering for the physician community. In addition, following the December 2011 reverse acquisition, we inherited from Pre-merged PhotoMedex a 48-person, experienced direct sales force that already reaches a network of approximately 3,000 physician locations in the U.S. We are now also distributing through this direct sales force the LHE-based professional products in addition to our other equipment to physicians, dermatologists, salons, spas, and other aesthetic practitioners. We view this fully trained sales staff as a significant opportunity. We view this fully trained sales staff as a resource in expanding the Professional segment of our revenues.

Sales and Marketing

As of June 30, 2013, our sales and marketing personnel consisted of 64 full-time positions.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates in the three and six months ended June 30, 2013. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2012.

Results of Operations (The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.)

Revenues

The following table presents revenues from our three business segments for the periods indicated below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Consumer	$	48,673	$	50,464	$	97,733	$	92,665
Physician Recurring		7,376		5,274		13,331		10,347
Professional		2,016		3,168		4,217		6,167

Total Revenues	$	58,065	$	58,906	$	115,281	$	109,179

Consumer Segment

The following table illustrates the key changes in the revenues of the Consumer segment, by sales channel, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Direct-to-consumer	$	30,320	$	33,696	$	62,042	$	65,212
Distributors		8,435		7,007		13,726		11,700
Retailers and home shopping channels		9,918		9,761		21,965		15,753

Total Consumer Revenues	$	48,673	$	50,464	$	97,733	$	92,665

For the three months ended June 30, 2013, consumer products revenues were $48,673 compared to $50,464 in the three months ended June 30, 2012. The decrease of 3.5% during the periods was mainly due to the following reasons:

•	Direct to Consumer. Revenues for the three months ended June 30, 2013 were $30,320 compared to $33,696 for the same period in 2012. The decrease of 10% was due in part from national news and weather events occurring during the quarter which diverted attention away from the television channels where our advertisements are placed and in part as a result of spending less on US media due to increases in the cost per media.
•	Retailers and Home Shopping Channels. Revenues for the three months ended June 30, 2013 were $9,918 compared to $9,761 for the same period in 2012. The revenues were consistent between the periods.
•	Distributors Channels. Revenues for the three months ended June 30, 2103 were $8,435 compared to $7,007 for the same period in 2012. The increase in revenues of 20% was due to increased marketing efforts by our partner in Japan as well as a new product introduction.

For the six months ended June 30, 2013, consumer products revenues were $97,733 compared to $92,665 in the three months ended June 30, 2012. The increase of 5.5% during the periods was mainly due to the following reasons:

•	Direct to Consumer. Revenues for the six months ended June 30, 2013 were $62,042 compared to $65,212 for the same period in 2012. The decrease of 5% was due in part from national news and weather events occurring during the period which diverted attention away from the television channels where our advertisements are placed and in part as a result of spending less on US media due to increases in the cost per media.
•	Retailers and Home Shopping Channels. Revenues for the six months ended June 30, 2013 were $21,965 compared to $15,753 for the same period in 2012. The increase of 39% was mainly due to our successful marketing programs to the various home shopping channel customers, mainly in the United States (“US”) and the UK and the additional retailers added to this channel.
•	Distributors Channels. Revenues for the six months ended June 30, 2103 were $13,726 compared to $11,700 for the same period in 2012. The increase in revenues of 17% was due to increased marketing efforts by our partner in Japan as well as a new product introduction.

The following table illustrates the key changes in the revenues of the Consumer segment, by markets, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
North America	$	35,042	$	38,141	$	74,267	$	71,138
International		13,631		12,323		23,466		21,527

Total Consumer Revenues	$	48,673	$	50,464	$	97,733	$	92,665

Physician Recurring Segment

The following table illustrates the key changes in the revenues of the Physician Recurring segment for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
XTRAC Treatments	$	4,024	$	1,977	$	6,593	$	3,656
Neova skincare		2,142		2,135		4,368		4,300
Surgical products		482		472		1,002		1,012
Other		728		690		1,368		1,379

Total Physician Recurring Revenues	$	7,376	$	5,274	$	13,331	$	10,347

XTRAC Treatments

Recognized treatment revenue for the three months ended June 30, 2013 was $4,024, which approximates 57,000 treatments, with prices between $65 to $85 per treatment, compared to recognized revenues of $1,977 or approximately 28,000 treatments for the three months ended June 30, 2012. Increases in procedures are dependent upon building market acceptance through marketing programs with our physician partners and their patients to show that the XTRAC procedures will be of clinical benefit and be generally reimbursed.

We defer substantially all sales of treatment codes ordered by and delivered to the customer within the last two weeks of the period in determining the amount of procedures performed by our physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period. For the three and six months ended June 30, 2013, we recognized net revenues of $580 and deferred net revenues of $10, respectively, under this approach compared to deferred net revenues of $72 and $217 for the three and six months ended June 30, 2012, respectively.

NEOVA skincare

For the three months ended June 30, 2013, revenues were $2,142 compared to $2,135 for the three months ended June 30, 2012. For the six months ended June 30, 2013, revenues were $4,368 compared to $4,300 for the six months ended June 30, 2012. These revenues are generated from the sale of various skin, hair, and wound care products to physicians in both the domestic and international markets.

Surgical products

For the three months ended June 30, 2013 and 2012, revenues were $482 and $472, respectively. For the six months ended June 30, 2013 and 2012, revenues were $1,002 and $1,012, respectively. These revenues are generated from the sale of various related laser fibers and laser disposables in both the domestic and international markets.

The following table illustrates the key changes in the revenues of the Physicians Recurring segment, by markets, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
North America	$	6,599	$	4,602	$	11,761	$	9,027
International		777		672		1,570		1,320

Total Physicians Recurring Revenues	$	7,376	$	5,274	$	13,331	$	10,347

Professional Segment

The following table illustrates the key changes in the revenues of the Professional segment for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Dermatology equipment	$	1,042	$	1,294	$	2,119	$	2,652
LHE equipment		624		1,418		1,402		2,409
Omnilux/Lumiere equipment		350		336		603		928
Surgical lasers		-		120		93		178

Total Professional Revenues	$	2,016	$	3,168	$	4,217	$	6,167

Dermatology equipment

For the three months ended June 30, 2013 and 2012, dermatology equipment revenues were $1,042 and $1,294, respectively. Included in the June 30, 2012 amount were domestic XTRAC laser sales of $326 on seven lasers sold. For the six months ended June 30, 2013 and 2012, dermatology equipment revenues were $2,119 and $2,652, respectively. Included in the June 30, 2012 amount were domestic XTRAC laser sales of $794 on 17 lasers sold. There were no domestic XTRAC laser sales for the three and six months ended June 30, 2013. We sell the laser directly to the customer for certain reasons, including the costs of logistical support and customer preference. Our preference is to consign lasers to customers which will thrive under the per-procedure model. Internationally,

we sold 31 systems for the three months ended June 30, 2013, 18 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser. The international sales of our XTRAC and VTRAC systems were $968 for the three months ended June 30, 2012. We sold 38 systems for the three months ended June 30, 2012, 27 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser. Internationally, we sold 64 systems for the six months ended June 30, 2013, 38 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser. The international sales of our XTRAC and VTRAC systems were $1,858 for the six months ended June 30, 2012. We sold 67 systems for the three months ended June 30, 2012, 44 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser.

LHE® brand products

For the three months ended June 30, 2013 and 2012, LHE® brand products revenues were $624 and $1,418, respectively. For the six months ended June 30, 2013 and 2012, LHE® brand products revenues were $1,402 and $2,409, respectively. LHE® brand products revenues include revenues derived from the sales of mainly Mistral™, Kona™, FSD™, SpaTouch Elite™ and accessories. These devices are sold to physicians, spas and beauty salons.

Omnilux/Lumiere equipment

For the three months ended June 30, 2013 and 2012, Omnilux/Lumiere equipment revenues were $350 and $336, respectively. For the six months ended June 30, 2013 and 2012, Omnilux/Lumiere equipment revenues were $603 and $928, respectively. These revenues are generated from the sale of LED devices. The Omnilux units are sold for medical applications and the Lumière is a sister technology to Omnilux with the same patent protection, but it is designed for use in non-medical applications, especially at salons and spas.

Surgical lasers

Surgical lasers revenues include revenues derived from the sales of surgical laser systems. For the three months ended June 30, 2012, surgical laser revenues were $120, representing three laser systems. There were no laser systems sold for during the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, surgical laser revenues were $93, representing three laser systems, and $178, representing four laser systems, respectively.

The following table illustrates the key changes in the revenues of the Professional segment, by markets, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
North America	$	465	$	870	$	985	$	2,137
International		1,551		2,298		3,232		4,030

Total Professional Revenues	$	2,016	$	3,168	$	4,217	$	6,167

Cost of Revenues: all segments

The following table illustrates cost of revenues from our three business segments for the periods listed below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Consumer	$	7,174	$	8,169	$	14,691	$	14,941
Physician Recurring		3,014		2,605		5,945		5,284
Professional		1,202		1,581		2,620		3,364

Total Cost of Revenues	$	11,390	$	12,355	$	23,256	$	23,589

Overall, cost of revenues has increased in the segments due to the related increases in revenues.

Gross Profit Analysis

Gross profit increased to $46,675 for the three months ended June 30, 2013 from $46,551 during the same period in 2012. As a percentage of revenues, the gross margin increased to 80.4% for the three months ended June 30, 2013 from 79.0% for the same period in 2012.

Gross profit increased to $92,025 for the six months ended June 30, 2013 from $85,590 during the same period in 2012. As a percentage of revenues, the gross margin increased to 79.8% for the six months ended June 30, 2013 from 78.4% for the same period in 2012.

The following table analyzes changes in our gross margin for the periods presented below:

Company Profit Analysis	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenues	$	58,065		$	58,906		$	115,281		$	109,179
Percent (decrease)/increase		(1.4	%)					5.6	%
Cost of revenues		11,390			12,355			23,256			23,589
Percent (decrease)/increase		(7.8	%)					1.4	%
Gross profit	$	46,675		$	46,551		$	92,025		$	85,590
Gross margin percentage		80.4	%		79.0	%		79.8	%		78.4	%

The primary reasons for the changes in gross profit and the gross margin percentage for the three and six months ended June 30, 2013, compared to the same periods in 2012, were due to a change in the sales mix mainly increases in home shopping channel and retailers within the Consumer segment. In addition the Physician Recurring segment had 40% and 29%, respectively, greater revenues than the prior year periods with a greater gross margin percentage driven by greater utilization of our installed base of XTRAC equipment.

The following table analyzes the gross profit for our Consumer segment for the periods presented below:

Consumer Segment	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenues	$	48,673		$	50,464		$	97,733		$	92,665
Percent (decrease)/increase		(3.5	%)					5.5	%
Cost of revenues		7,174			8,169			14,691			14,941
Percent decrease		(12.2	%)					(1.7	%)
Gross profit	$	41,499		$	42,295		$	83,042		$	77,724
Gross margin percentage		85.3	%		83.8	%		85.0	%		83.9	%

Gross profit for the three months ended June 30, 2013 was consistent with the comparable period in 2012. Gross profit for the six months ended June 30, 2013 increased by $5,318 from the comparable period in 2012. The key factor for this increase was due to the increase in the channels of consumer revenues. An additional factor for the increase in gross profit was a decrease in cost of revenues between the periods due to a change in product mix between the comparable periods.

The following table analyzes the gross profit for our Physician Recurring segment for the periods presented below:

Physician Recurring Segment	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenues	$	7,376		$	5,274		$	13,331		$	10,347
Percent increase		39.9	%					28.8	%
Cost of revenues		3,014			2,605			5,945			5,284
Percent increase		15.7	%					12.5	%
Gross profit	$	4,362		$	2,669		$	7,386		$	5,063
Gross margin percentage		59.1	%		50.6	%		55.4	%		48.9	%

Gross profit for the three and six months ended June 30, 2013 increased by $1,693 and $2,323, respectively, from the comparable periods in 2012. The primary reason for the increased gross profit and gross margin is the increase in XTRAC treatments on the existing installed laser base of equipment. Incremental treatments delivered on existing equipment incur negligible incremental costs.

The following table analyzes the gross profit for our Professional segment for the periods presented below:

Professional Segment	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenues	$	2,016		$	3,168		$	4,217		$	6,167
Percent decrease		(36.4	%)					(31.6	%)
Cost of revenues		1,202			1,581			2,620			3,364
Percent decrease		(24.0	%)					(22.1	%)
Gross profit	$	814		$	1,587		$	1,597		$	2,803
Gross margin percentage		40.4	%		50.1	%		37.9	%		45.4	%

Gross profit for the three and six months ended June 30, 2013 decreased by $773 and $1,206, respectively, from the comparable periods in 2012. The key factor for the decreases was the decreases in revenues for each product type.

Engineering and Product Development

Engineering and product development expenses for the three months ended June 30, 2013 increased to $814 from $760 for the three months ended June 30, 2012. Engineering and product development expenses for the six months ended June 30, 2013 increased to $1,587 from $1,518 for the three months ended June 30, 2012. The majority of this expense relates to the salaries of our worldwide engineering and product development team and are in line with the prior year.

Selling and Marketing Expenses

For the three months ended June 30, 2013, selling and marketing expenses decreased to $30,468 from $31,068 for the three months ended June 30, 2012. The decrease was primarily for the following reasons:

	•	We decreased no!no! Hair Removal direct to consumer marketing activities in North America due to an increase in the cost per media. This decrease was partially offset by an increase in media spend in the UK and Germany.
	•	Overall media buying and advertising expenses in the three months ended June 30, 2013 were 27.5% of total revenues compared to 25.7% of total revenues in the three months ended June 30, 2012.

For the six months ended June 30, 2013, selling and marketing expenses increased to $59,794 from $56,903 for the six months ended June 30, 2012. The increase was primarily for the following reasons:

	•	We increased no!no! Hair Removal direct to consumer activities in North America, the UK and Germany via infomercial, online campaigns, radio and print media, which resulted in an increase in advertising, media buying, and other related selling and marketing expenses.
	•	The increase in the percentage of selling and marketing expenses compared to total revenues was mainly due to an increase of the direct to consumer advertising and selling activities (media buying, advertisement, public relations, production of commercials and relevant marketing materials). Media buying and advertising expenses in the six months ended June 30, 2013 were 26.6% of total revenues compared to 25.9% of total revenues in the six months ended June 30, 2012.

General and Administrative Expenses

For the three months ended June 30, 2013, general and administrative expenses decreased to $6,268 from $9,243 for the three months ended June 30, 2012. For the six months ended June 30, 2013, general and administrative expenses decreased to $11,927 from $16,362 for the six months ended June 30, 2012. The decreases were due to the following reason:

•

There was a decrease of $3,801 and $5,595 for the three and six months ended June 30, 2013, respectively, in legal expense due to the completion of major litigation during 2012.

Interest and Other Financing Expense, Net

Net interest and other financing expense for the three months ended June 30, 2013 decreased to $134, as compared to $401 for the three months ended June 30, 2012. The decrease of $267 is mainly due to a decrease in interest expense of $215. Net interest and other financing expense for the six months ended June 30, 2013 decreased to $3, as compared to $631 for the six months ended June 30, 2012. The decrease of $628 is mainly due to a decrease in interest expense of $399. The interest expense related to the term note that was assumed in the reverse merger. The remaining change was due to currency fluctuation of the U.S. Dollar versus the New Israeli Shekel, the Euro, the GBP and the Australian Dollar. The functional currency of all members of the group is the U.S. Dollar, except for Photo Therapeutics, Ltd, which has a functional currency of GBP.

Taxes on Income, Net

For the three months ended June 30, 2013, the net taxes on income amounted to $1,897 as compared to $866 for the three months ended June 30, 2012. For the six months ended June 30, 2013, the net taxes on income amounted to $4,408 as compared to $1,106 for the six months ended June 30, 2012. Partially offsetting the tax expense for the six months ended June 30, 2012, we recorded a federal income tax receivable in 2012; the refund was received on February 28, 2013, due to the expected carryback of our 2011 net operating loss from Radiancy, Inc. for a refund of the 2010 federal taxes paid.

Net Income

The factors described above resulted in net income of $7,094 during the three months ended June 30, 2013, as compared to $4,213 during the three months ended June 30, 2012, an increase of 68%. The factors described above resulted in net income of $14,306 during the six months ended June 30, 2013, as compared to $9,070 during the six months ended June 30, 2012, an increase of 58%.

To supplement our consolidated financial statements presented elsewhere within this report, in accordance with GAAP, management provides certain non-GAAP measures of financial performance. These non-GAAP measures include non-GAAP adjusted income.

Management’s reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP measures. These non-GAAP measures are provided to enhance readers’ overall understanding of our current financial performance and to provide further information for comparative purposes.

Specifically, management believes the non-GAAP measures provide useful information to management and investors by isolating certain expenses, gains and losses that may not be indicative of our core operating results and business outlook. In addition, management believes non-GAAP measures enhance the comparability of results against prior periods. Reconciliation to the most directly comparable GAAP measure of all non-GAAP measures included in this report is as follows:

	For the Three Months ended June 30,
	2013		2012		Change

Net income	$	7,094	$	4,213	$	2,881

Adjustments:
Depreciation and amortization		1,517		1,389		128
Stock-based compensation expense		1,294		1,535		(241	)
Litigation expense		-		3,801		(3,801	)
Severance and related costs		-		166		(166	)
Interest expense, net		4		219		(215	)
Income tax expense		1,897		866		1,031
Non-GAAP adjusted income	$	11,806	$	12,189	$	(383	)

	For the Six Months ended June 30,
	2013		2012		Change

Net income	$	14,306	$	9,070	$	5,236

Adjustments:
Depreciation and amortization		2,959		2,721		238
Stock-based compensation expense		2,584		3,288		(704	)
Litigation expense		-		5,595		(5,595	)
Other investment financing costs		-		400		(400	)
Severance and related costs		-		254		(254	)
Interest expense, net		9		408		(399	)
Income tax expense		4,408		1,106		3,302
Non-GAAP adjusted income	$	24,266	$	22,842	$	1,424

Liquidity and Capital Resources

At June 30, 2013, our current ratio was 4.10 compared to 3.36 at December 31, 2012. As of June 30, 2013 we had $106,790 of working capital compared to $95,677 as of December 31, 2012. Cash and cash equivalents were $41,300 as of June 30, 2013, as compared to $44,348 as of December 31, 2012. In addition, we had $21,185 and $18,000 in short term bank deposits as of June 30, 2013 and December 31, 2012, respectively.

On April 27, 2012, we closed on a two-tranche registered offering in which we sold an aggregate of 3,023,432 shares of its common stock at an offering price of $13.23 per share. The sale resulted in net proceeds of approximately $37.8 million. The net proceeds will be used for general corporate purposes, including capital expenditures, continued product development, sales and marketing initiatives and working capital.

On August 18, 2012, the Board of Directors approved a stock repurchase program up to a maximum to $25 million. To date, we have repurchased 1,167,719 shares at an average price of $13.1 per share for a total of $16,125. In anticipation that by the 2013 anniversary date of this program, the Company will have fulfilled the $25 million limit under this program the Board of Directors has authorized an additional $30 million share re-purchase program of its common shares in the open market over the next twelve months, at such times and prices as determined appropriate by the Company's management in collaboration with the Board of Directors. The shares will be purchased with cash on hand.

We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through and beyond the third quarter of 2014.

Net cash and cash equivalents provided by operating activities was $9,521 for the six months ended June 30, 2013 compared to $2,345 for the six months ended June 30, 2012.

Net cash and cash equivalents used in investing activities was $6,539 for the six months ended June 30, 2013 compared to $1,230 for the six months ended June 30, 2013. This was primarily due to the increase in the placement of lasers into service for the six months ended June 30, 2013 and to the purchase of additional short term investments of $3,185.

When we retire a laser from service that is no longer useable, we write off the net book value of the laser, which is typically negligible. Over the last few years, such retirements of lasers from service have been immaterial.

Net cash and cash equivalents used by financing activities was $5,790 for the six months ended June 30, 2013 compared to cash provided by of $37,302 for the six months ended June 30, 2013. In the six months ended June 30, 2013, we had repurchased company stock for $5,381 and repayments of $418 for certain notes payable. In the six months ended June 30, 2012, we had proceeds from issuance of common stock, net of $37,515, which was partially offset by repayments of $2,000 on long-term debt and $351 for certain notes payable.

Commitments and Contingencies

There were no items that significantly impacted our commitments and contingencies as discussed in the notes to our 2012 annual financial statements included in our Annual Report on Form 10-K/A.

Off-Balance Sheet Arrangements

At June 30, 2013, we had no off-balance sheet arrangements.

Impact of Inflation

We have not operated in a highly inflationary period, and we do not believe that inflation has had a material effect on sales or expenses.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in our Annual Report on Form 10-K/A for the year ended December 31, 2012, and in this Quarterly Report on Form 10-Q in greater detail under Item 1A. “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

Foreign Exchange Risk

During the three and six months ended June 30, 2013, there were no material changes to our market risk disclosures as set forth in Part II Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report on Form 10-K/A that we filed for the year ended December 31, 2012.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of June 30, 2013. Based on that evaluation, management has concluded that, as of such date, our disclosure controls and procedures were effective.

Limitations on the Effectiveness of Controls.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

ITEM 1. Legal Proceedings

From time to time we are involved in legal proceedings arising in the ordinary course of business. We are involved in certain legal actions and claims which we believe, based on discussions with legal counsel, will likely be resolved without a material effect on our consolidated financial position, results of operations or liquidity.

ITEM 1A. Risk Factors

As of June 30, 2013, our risk factors have not changed materially from the risk factors previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31,2012.

ITEM 2. Unregistered sales of equity securities and use of proceeds

None.

ITEM 3. Defaults upon senior securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

2.1		Amended and Restated Agreement and Plan of Merger, dated as of October 31, 2011, by and among Radiancy, Inc., PhotoMedex, Inc. and PHMD Merger Sub, Inc., including the Form of Warrant. (23)
3.1		Amended and Restated Articles of Incorporation of PhotoMedex, Inc. a Nevada corporation, filed on December 12, 2011 with the Secretary of State for the State of Nevada. (23)
3.2		Bylaws of PhotoMedex, Inc. (a Nevada corporation), adopted December 28, 2010 (18)
4.1		Form of Warrant to Purchase Shares of Common Stock of PhotoMedex (19)
4.2		Term Loan and Security Agreement, dated as of March 19, 2010 between PhotoMedex, Inc. and Clutterbuck Funds LLC (26) (Exhibit 4.12 therein)
4.3		Term Note, dated March 19, 2010, between PhotoMedex, Inc. and Clutterbuck Funds, LLC (26) (Exhibit 4.13 therein)
4.4		Amendment No. 1 to Term Loan and Security Agreement, dated April 30, 2010 (27) (Exhibit 4.20 therein)
4.5		Amendment No. 2 to Term Loan and Security Agreement, dated March 28, 2011 (27) (Exhibit 4.21 therein)
10.1		Lease Agreement dated May 29, 1996, between Surgical Laser Technologies, Inc. and Nappen & Associates (Montgomeryville, Pennsylvania) (2)
10.2		Lease Renewal Agreement, dated January 18, 2001, between Surgical Laser Technologies, Inc. and Nappen & Associates (2)
10.3		Lease Agreement, dated July 10, 2006, PhotoMedex, Inc. and Nappen & Associates (3)
10.4		Standard Industrial/Commercial Multi-Tenant Lease - Net, dated July 30, 2008 (additional facility at Carlsbad, California) (15)
10.5		Standard Industrial/Commercial Multi-Tenant Lease Net, dated March 17, 2005 (Carlsbad, California) (5)
10.6		License and Development Agreement, dated May 22, 2002, between Surgical Laser Technologies, Inc. and Reliant Technologies, Inc. (2)
10.7		Settlement Agreement and Release, dated November 11, 2008, by and among Allergan, Inc., Murray A. Johnstone, MD, PhotoMedex, Inc. and ProCyte Corporation. (15)
10.8		Master Asset Purchase Agreement, dated September 7, 2004, between PhotoMedex, Inc. and Stern Laser, srl (6)
10.9		License Agreement, dated March 31, 2006, and effective April 1, 2006, between the Mount Sinai School of Medicine and PhotoMedex, Inc. (7)
10.10		2005 Equity Compensation Plan, approved December 28, 2005 (8)
10.11		Amended and Restated 2000 Non-Employee Director Stock Option Plan (1)
10.12		Amended and Restated 2000 Stock Option Plan (1)
10.13		1996 Stock Option Plan, assumed from ProCyte (9)
10.14		Amended and Restated Employment Agreement with Dennis M. McGrath, dated September 1, 2007 (12)
10.15		Amended and Restated Employment Agreement of Michael R. Stewart, dated September 1, 2007 (12)
10.16		Restricted Stock Purchase Agreement of Dennis M. McGrath, dated January 15, 2006 (5)
10.17		Consulting Agreement dated January 21, 1998 between the Company and R. Rox Anderson, M.D. (4)
10.18		Restricted Stock Purchase Agreement of Dennis M. McGrath, dated May 1, 2007 (10)
10.19		Restricted Stock Purchase Agreement of Michael R. Stewart, dated May 1, 2007 (10)
10.20		Restricted Stock Purchase Agreement of Michael R. Stewart, dated August 13, 2007 (11)
10.21		Amended and Restated 2000 Non-Employee Director Stock Option Plan, dated as of June 26, 2007 (24)
10.22		Amended and Restated 2005 Equity Compensation Plan, dated as of June 26, 2007, as amended on October 28, 2008 (14)
10.23		Form of Indemnification Agreement for directors and executive officers of PhotoMedex, Inc. (13)
10.24		Restricted Stock Purchase Agreement of Dennis M. McGrath, dated June 15, 2009 (16)
10.25		Restricted Stock Purchase Agreement of Michael R. Stewart, dated June 15, 2009 (16)
10.26		Co-Promotion Agreement, dated as of January 7, 2010, between PhotoMedex, Inc and Galderma Laboratories, L.P. (17)
10.27		Amended and Restated 2000 Non-Employee Director Stock Option Plan, dated as of August 3, 2010 (18)
10.28		Amended and Restated 2005 Equity Compensation Plan, dated as of August 3, 2010. (18)
10.29		Restricted Stock Agreement of Dennis M. McGrath, dated March 30, 2011 (18)
10.30		Restricted Stock Agreement of Michael R. Stewart, dated March 30, 2011 (18)

10.31		Restricted Stock Agreement of Christina L. Allgeier, dated March 30, 2011 (18)
10.32		Amended and Restated Employment agreement, entered into by and between PhotoMedex, Inc. and Dennis McGrath on July 4, 2011. (19)
10.33		Amended and Restated Restricted Stock Agreement, entered into as of August 11, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (20)
10.34		Restricted Stock Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.35		Non-Qualified Stock Option Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.40		Amended and Restated Employment Agreement entered into by and between PhotoMedex, Inc. and Dolev Rafaeli on August 9, 2011. (21)
10.41		Distribution Agreement by and between Radiancy, Inc. and Ya-Man Ltd., dated October 17, 2008. (21)
10.42		Distribution Agreement Extension by and between Radiancy, Inc. and Ya-Man Ltd., dated August 12, 2010. (21)
10.43		First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Dennis McGrath (22)
10.44		First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Michael R. Stewart (22)
10.45		Lease Renewal Agreement, dated February 22, 2012, PhotoMedex, Inc. and FR National Life LLC (28)
10.46		Lease Agreement dated September 1, 2010, by and between 30 Ramland Road, LLC and Radiancy, Inc. (Orangeburg). (25)
10.47		Unprotected Tenancy Agreement dated September 7, 2008 by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (Hod Hasharon) (25)
10.48		Annex to S.A.I. Radiancy Unprotected Tenancy Lease, dated as of January 20, 2008, by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (25)
10.49		Exclusive License Agreement for Methods of Treating Diseased Tissue, dated April 1, 2012, by and between the Regents of the University of California and PhotoMedex, Inc. (25)
10.50		Non-Qualified Stock Option Agreement dated March 18, 2012 between PhotoMedex, Inc. and Dolev Rafaeli (25)
10.51		Non-Qualified Stock Option Agreement dated March 18, 2012 between PhotoMedex, Inc. and Dennis McGrath (25)
10.52		Warrant issued March 1, 2012 to Crystal Research Associates LLC. (29)
10.53		Lease Agreement dated August 24, 2012, by and between 30 Ramland Road, LLC and Radiancy, Inc. (Orangeburg). (30)
10.54		Non-Qualified Stock Option Agreement dated February 28, 2013 between PhotoMedex, Inc. and Dolev Rafaeli (31)
10.55		Non-Qualified Stock Option Agreement dated February 28, 2013 between PhotoMedex, Inc. and Dennis McGrath (31)
10.56		Quota Purchase and Sale Agreement dated May 7, 2013 by and Among Radiancy, Inc., Leo Klinger and Intervening Parties (32)
10.57		Lease Agreement dated June 3, 2013 by and between Maestro Properties Limited and Photo Therapeutics, Ltd. (UK) (32)
31.1		Rule 13a-14(a) Certificate of Chief Executive Officer
31.2		Rule 13a-14(a) Certificate of Chief Financial Officer
32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†		XBRL Instance Document
101.SCH†		XBRL Taxonomy Schema
101.CAL†		XBRL Taxonomy Calculation Linkbase
101.DEF†		XBRL Taxonomy Definition Linkbase
101.LAB†		XBRL Taxonomy Label Linkbase
101.PRE†		XBRL Taxonomy Presentation Linkbase

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

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

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

(4)	Filed as part of our Registration Statement on Form S-1/A, on August 5, 1999.

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

(6)	Filed as part of our Current Report on Form 8-K, on September 13, 2004.

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

(8)	Filed as part of our Definitive Proxy Statement on Schedule 14A, on November 15, 2005.

(9)	Filed as part of our Registration Statement on Form S-8, on April 13, 2005.

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

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

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

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

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

(15)	Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2008.

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

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

(18)	Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.

(19)	Filed as part of our Current Report on Form 8-K on July 8, 2011.

(20)	Filed as part of our Registration Statement on Form S-4, on August 12, 2011.

(21)	Filed as part of our Registration Statement on Form S-4/A, on October 5, 2011.

(22)	Filed as part of our Registration Statement on Form S-4/A, on November 2, 2011.

(23)	Filed as part of our Current Report on Form 8-K on December 16, 2011.

(24)	Filed as part of our Current Report on Form 8-K on July 2, 2007.

(25)	Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2011.

(26)	Filed as part of our Current Report on form 8-K on March 23, 2010.

(27)	Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.

(28)	Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

(29)	Filed as part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

(30)	Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.

(31)	Filed as part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

(32)	Filed with this Form 10-Q.

*	The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
†	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise not subject to liability under those sections. This exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates this exhibit by reference.

SIGNATURES

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

	PHOTOMEDEX, INC.

Date August 9, 2013	By:	/s/ Dolev Rafaeli
		Name Dolev Rafaeli
		Title Chief Executive Officer

Date August 9, 2013	By:	/s/ Dennis M. McGrath
		Name Dennis M. McGrath
		Title President & Chief Financial Officer