Gadsden Properties, Inc. - Quarter Report: 2014 March (Form 10-Q)

form_10q.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 March 31, 2014

¨ 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.)

100 Lakeside Drive, Suite 100, Horsham, Pennsylvania 19044

(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 May 12, 2014 was 18,908,245 shares.

PHOTOMEDEX, INC.

INDEX TO FORM 10-Q

Part I. Financial Information:			PAGE

	ITEM 1. Financial Statements:
	a.	Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	3

	b.	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 (unaudited)	4

	c.	Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2014 (unaudited)	5

	d.	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)	6

	e.	Notes to Condensed Consolidated Financial Statements (unaudited)	7

	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

	ITEM 3. Quantitative and Qualitative Disclosure about Market Risk		35

	ITEM 4. Controls and Procedures		35

Part II. Other Information:

	ITEM 1. Legal Proceedings		36

	ITEM 1A. Risk Factors		37

	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		38

	ITEM 3. Defaults Upon Senior Securities		38

	ITEM 4. Mine Safety Disclosures		38

	ITEM 5. Other Information		38

	ITEM 6. Exhibits		38

		Signatures	42

		Certifications	E-31.1

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PART I – Financial Information

ITEM 1. Financial Statements

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	March 31, 2014		December 31, 2013
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	29,724	$	45,388
Short term bank deposit		18,348		14,113
Accounts receivable, net of allowance for doubtful accounts of $10,751 and $10,734, respectively		22,077		27,218
Inventories, net		27,008		27,547
Deferred tax asset		12,955		13,041
Prepaid expenses and other current assets		12,833		12,597
Total current assets		122,945		139,904

Property and equipment, net		11,458		10,489
Patents and licensed technologies, net		10,389		10,832
Other intangible assets		9,421		9,701
Goodwill		25,067		24,930
Deferred tax asset		23,290		24,039
Funds in respect of employee rights upon retirement and other assets		1,078		1,034
Total assets	$	203,648	$	220,929

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of notes payable	$	628	$	838
Short-term debt		5,000		10,000
Accounts payable		8,964		14,785
Accrued compensation and related expenses		2,592		3,230
Other accrued liabilities		15,662		22,032
Deferred revenues		5,696		5,961
Total current liabilities		38,542		56,846
Long-term liabilities:
Long-term note payable, net of current maturities		68		82
Deferred revenues		2,307		2,758
Other liabilities		253		61
Liability for employee rights upon retirement		863		821
Total liabilities		42,033		60,568

Commitments and Contingencies (Note 11)

Stockholders’ equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2014 and December 31, 2013		-		-
Common stock, $.01 par value, 50,000,000 shares authorized; 18,903,245 shares issued and outstanding at March 31, 2014 and December 31, 2013		189		189
Additional paid-in capital		106,216		104,954
Retained earnings		53,334		53,679
Accumulated other comprehensive income		1,876		1,539
Total stockholders’ equity		161,615		160,361
Total liabilities and stockholders’ equity	$	203,648	$	220,929

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

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended March 31,
	2014			2013

Revenues	$	50,075		$	57,216

Cost of revenues		10,345			11,866

Gross profit		39,730			45,350

Operating expenses:
Engineering and product development		795			773
Selling and marketing		31,625			29,326
General and administrative		7,587			5,659
		40,007			35,758

Operating (loss) profit		(277	)		9,592

Other income (loss):
Interest and other financing income (expense), net		(147	)		131

(Loss) Income before income tax expense		(424	)		9,723

Income tax benefit (expense)		79			(2,511	)

Net (loss) income	$	(345	)	$	7,212

Net income (loss) per share:
Basic	$	( 0.02	)	$	0.35
Diluted	$	( 0.02	)	$	0.34

Shares used in computing net income (loss) per share:
Basic		18,719,419			20,678,023
Diluted		18,719,419			21,147,583

Other comprehensive income (loss):
Foreign currency translation adjustments		337			(1,813	)

Comprehensive (loss) income	$	(8	)	$	5,399

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

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(In thousands, except share and per share amounts)

(Unaudited)



	Common Stock				Additional Paid-In		Retained			Accumulated Other Comprehensive
	Shares		Amount		Capital		Earnings			Income		Total
BALANCE, JANUARY 1, 2014		18,903,245	$	189	$	104,954	$	53,679		$	1,539	$	160,361
Stock-based compensation related to stock options and restricted stock		-		-		1,192		-			-		1,192
Stock options issued to consultants for services		-		-		70		-			-		70
Other comprehensive income		-		-		-		-			337		337
Net loss for the three months ended March 31, 2014				-		-		(345	)		-		(345	)
BALANCE, MARCH 31, 2014		18,903,245	$	189	$	106,216	$	53,334		$	1,876	$	161,615

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

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended March 31,
	2014			2013
Cash Flows From Operating Activities:
Net (loss) income	$	(345	)	$	7,212
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,636			1,443
Provision for doubtful accounts		813			1,046
Deferred income taxes		857			523
Stock-based compensation		1,262			1,290
Gains on disposal of property and equipment		(10	)		-
Changes in operating assets and liabilities:
Accounts receivable		4,367			(6,403	)
Inventories		571			794
Prepaid expenses and other assets		(280	)		4,013
Accounts payable		(5,837	)		(2,707	)
Accrued compensation and related expenses		(641	)		30
Other accrued liabilities		(6,383	)		(5,372	)
Other liabilities		42			58
Deferred revenues		(538	)		1,137
Net cash (used in) provided by operating activities		(4,486	)		3,064

Cash Flows From Investing Activities:
Purchases of property and equipment		(85	)		(211	)
Investment in short term bank deposits		(4,235	)		-
Lasers placed in service		(1,717	)		(1,220	)
Proceeds from sales of property and equipment		20			-
Increase in funds – employees retirement rights		(42	)		(58	)
Net cash used in investing activities		(6,059	)		(1,489	)

Cash Flows From Financing Activities:
Payments on notes payable		(224	)		(203	)
Repayments of short term debt, net		(5,000	)		(10	)
Proceeds from option exercises		-			13
Net cash used in financing activities		(5,224	)		(200	)
Effect of exchange rate changes on cash		105			(214	)
Net (decrease) increase in cash and cash equivalents		(15,664	)		1,161
Cash and cash equivalents, beginning of period		45,388			44,348

Cash and cash equivalents, end of period	$	29,724		$	45,509

Supplemental information:
Cash paid for income taxes	$	405		$	3,941

Cash paid for interest	$	47		$	7

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

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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.

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 revised business plan focused on three key components – skilled direct sales force to target Physician and Professional Segments expertise in global consumer marketing; 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.

On July 1, 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 based in Sao Paulo, and has begun to market and sell its no!no!® products in Brazil in the third quarter through its acquisition of LK. (See Note 2, Acquisition).

On March 3, 2014, PhotoMedex’ wholly-owned subsidiary, Radiancy, Inc., formed a wholly-owned subsidiary in Hong Kong, Radiancy (HK) Limited, through which the Company plans to directly market certain products and services to patients and consumers in selected markets in that country.

On March 5, 2014, PhotoMedex formed a wholly-owned subsidiary in India, PhotoMedex India Private Limited, through which the Company plans to directly market certain products and services to patients and consumers in selected markets in that country.

On May 12, 2014, PhotoMedex completed the acquisition of 100% of the shares of LCA-Vision Inc. (“LCA”), a publicly–traded Delaware corporation. LCA is a provider of fixed-site laser vision corrections services at its Lasik Plus® vision centers. Through this acquisition, the Company intends to add an additional operating segment to its organization. The Company plans to begin to directly market certain of its existing products from these centers. The results of operations of LCA will be included from May 12, 2014 and thereafter into the PhotoMedex consolidated financial statements. (See Note 14, Subsequent Events).

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 for the fiscal year ended December 31, 2013 (“fiscal 2013”). 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 months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 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.

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 (i) when title to the goods transfers and (ii) 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 conditions 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 8).

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

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 performed, this obligation has been satisfied.

The Company defers substantially all revenue from sales of treatment codes ordered by and performed 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 for the operations of Photo Therapeutics, Ltd. which are conducted in the Great Britain Pounds (GBP) and LK Technologies which are conducted in Brazilian Real (BRL). 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. and LK Technologies) is the dollar.

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 foreign subsidiaries, whose functional currency is their local currency, are translated from their 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 year. Translation adjustments are reflected in the consolidated balance sheets as a component of accumulated other comprehensive income. Deferred taxes are not provided on translation adjustments as the earnings of the subsidiaries 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:

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

	•	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 and short term bank deposits are based on its demand value, which is equal to its carrying value. The estimated fair values of notes payable which are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity approximate the carrying values. 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. The fair value of contingent consideration in connection with the acquisition of LK (see Note 2) is based on management estimate of the entity prices of remaining inventories of LK at acquisition date (level 3 measurement).

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.

Derivatives

The group applies the provisions of Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. 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.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

At March 31, 2014, the balance of such derivative instruments amounted to approximately $175 in assets and approximately $90 were recognized as financing income in the Statement of Comprehensive Income during the quarter ended that date.

The nominal amounts of foreign currency derivatives as of March 31, 2014 consist of forward transactions for the exchange of $4,250 into NIS as of March 31, 2014.

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 three months ended March 31, 2014 and 2013 is summarized as follows:

	March 31,
	2014			2013
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,151		$	1,440
Additions charged to warranty expense		256			337
Expiring warranties		(69	)		(152	)
Claims satisfied		(247	)		(314	)
Total		1,091			1,311
Less: current portion		(1,021	)		(1,190	)
Accrued extended warranty	$	70		$	121

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

Earnings Per Share

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

	For the Three Months Ended March 31,
	2014		2013
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		18,719,419		20,678,023
Dilutive effect of stock options and warrants		-		469,560
Diluted number of common and common stock equivalent shares outstanding		18,719,419		21,147,583

Diluted earnings per share for the three months ended March 31, 2014, exclude the impact of common stock options and warrants, totaling 2,444,016 shares, as the effect of their inclusion would be anti-dilutive. Diluted earnings per share for the three months ended March 31, 2013, excluded the impact of common stock options and warrants, totaling 1,081,226 shares, as the effect of their inclusion would be anti-dilutive.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Adoption of New Accounting Standards

Effective January 1, 2013, the Company adopted 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 presented net of 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 became effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments were applied prospectively to all unrecognized tax benefits that existed at the effective date.

The adoption of the standard did not have a material impact on the Company's consolidated results of operations and financial condition.

Effective January 1, 2013, the Company adopted Accounting Standards Update 2013-5, Foreign Currency Matters (Topic 830) 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 became effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. In accordance with the transition requirements, the amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted.

The adoption of the standard did not have a material impact on the Company's consolidated results of operations and financial condition.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 2

Acquisition:

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 remains in his position.

The total consideration was $181, consisting of $100 consideration and $81 (a contingent consideration component) liability for an estimated amount to be due for the profit to be earned on the remaining inventory at acquisition date. Such contingent amount is expected to be paid during the year 2014.

The fair value of the assets acquired and liabilities assumed were based on management estimates. Based on the initial purchase price allocation, the following table summarizes the fair value amounts of the assets acquired and liabilities assumed at the date of the acquisition:

Cash and cash equivalents	$	125
Accounts receivable		1
Inventories		20
Prepaid expenses and other current assets		2
Total assets acquired at fair value		148

Accounts payable		(75	)
Accrued compensation and related expenses		(2	)
Other accrued liabilities		(11	)
Total liabilities assumed		(88	)

Net assets acquired	$	60

The purchase price exceeded the fair value of the net assets acquired by $121, which was recorded as goodwill.

The consolidated results of operations do not include any revenues or expenses related to the LK business on or prior to July 1, 2013, the consummation date of the acquisition. The amounts of revenue and earnings of LK since the acquisition date through December 31, 2013 included in the consolidated statement of comprehensive income were immaterial. Assuming the acquisition of LK had occurred on January 1, 2013, the impact on the Company’s results for the quarter ended March 31, 2013 would have been immaterial. However this determination does not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2013, nor to be indicative of future results of operations.

- 13 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 3

Inventories:

	March 31, 2014		December 31, 2013
	(unaudited)
Raw materials and work in progress	$	11,326	$	12,631
Finished goods		15,682		14,916
Total inventories	$	27,008	$	27,547

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

Note 4

Property and Equipment:

	March 31, 2014			December 31, 2013
	(unaudited)
Lasers-in-service	$	14,277		$	12,599
Equipment, computer hardware and software		4,715			4,730
Furniture and fixtures		759			705
Leasehold improvements		488			534
		20,239			18,568
Accumulated depreciation and amortization		(8,781	)		(8,079	)
Property and equipment, net	$	11,458		$	10,489

Depreciation and related amortization expense was $824 and $634 for the three months ended March 31, 2014 and 2013, respectively.

Note 5

Patents and Licensed Technologies, net:

	March 31, 2014			December 31, 2013
	(unaudited)
Gross Amount beginning of period	$	15,648		$	15,411
Additions		56			171
Translation differences		29			66
Gross Amount end of period		15,733			15,648

Accumulated amortization		(5,344	)		(4,816	)

Patents and licensed technologies, net	$	10,389		$	10,832

Related amortization expense was $512 and $509 for the three months ended March 31, 2014 and 2013, respectively.

- 14 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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

Last nine months of 2014	$	1,542
2015		2,049
2016		2,047
2017		909
2018		899
Thereafter		2,943
Total	$	10,389

Note 6

Goodwill and Other Intangible Assets:

As part of the purchase price allocation for the reverse acquisition, the Company recorded goodwill in the amount of $24,005 and definite-lived intangibles in the amount of $12,000. Goodwill reflects the value or premium of the acquisition price in excess of the fair values assigned to specific tangible and intangible assets. Goodwill has an indefinite useful life and therefore is not amortized as an expense, but is reviewed annually for impairment of its fair value to the Company. The purchase price intrinsically recognizes the benefits of the broadened depth of the management team and the addition of a sizeable direct sales force creating greater access to the physician community with branded products and technologies. Furthermore, the purchase price paid by Radiancy, Inc., a private company includes, among other things, other benefits such as the intrinsic value of being a Nasdaq-listed issuer post-merger and now having access to capital markets and stockholder liquidity.

Balance at January 1, 2014	$	24,930
Translation differences		137
Balance at March 31, 2014	$	25,067

The Company has no impairment loss as of March 31, 2014.

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

	March 31, 2014									December 31, 2013
	(unaudited)
	Trademarks			Customer Relationships			Total			Trademarks			Customer Relationships			Total
Gross Amount beginning of period	$	5,772		$	6,417		$	12,189		$	5,744		$	6,372		$	12,116
Translation differences		12			20			32			28			45			73
Gross Amount end of period		5,784			6,437			12,221			5,772			6,417			12,189

Accumulated amortization		(1,326	)		(1,474	)		(2,800	)		(1,178	)		(1,310	)		(2,488	)

Net Book Value	$	4,458		$	4,963		$	9,421		$	4,594		$	5,107		$	9,701

Related amortization expense was $300 and $300 for the periods ended March 31, 2014 and 2013, 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”).

- 15 -

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 nine months of 2014	$	900
2015		1,200
2016		1,200
2017		1,200
2018		1,200
Thereafter		3,721
Total	$	9,421

Note 7

Accrued Compensation and related expenses:

	March 31, 2014		December 31, 2013
	(unaudited)
Accrued payroll and related taxes	$	830	$	707
Accrued vacation		339		290
Accrued commissions and bonus		1,423		2,233
Total accrued compensation and related expense	$	2,592	$	3,230

Note 8

Other Accrued Liabilities:

	March 31, 2014		December 31, 2013
	(unaudited)
Accrued warranty, current, see Note 1	$	1,021	$	1,094
Accrued taxes, net		1,371		1,023
Accrued sales returns (1)		9,773		16,046
Other accrued liabilities		3,497		3,869
Total other accrued liabilities	$	15,662	$	22,032

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

	Three Months Ended March 31,
	2014			2013
	(unaudited)			(unaudited)
Balance at beginning of year	$	16,046		$	11,781
Additions that reduce net sales		9,899			10,008
Deductions from reserves		(16,172	)		(10,241	)
Balance at end of period	$	9,773		$	11,548

Note 9

Short-term Debt:

Term-Note Credit Facility

In December 2013, the Company, through its subsidiary, Radiancy, Inc., entered into a term-note facility with JP Morgan Chase (“Chase”). The facility has maximum principal amount of $15 million and is for a term of one year. As of March 31, 2014 and December 31, 2013, the Company had total borrowings of $5 million and $10 million, respectively, under this facility. The stated interest rate for any draw under the credit facility was set as the greater of (i) prime rate, (ii) federal funds effective rate plus .5% or (iii) LIBOR plus 2.5%. Each draw has a repayment period of one year with principal due at maturity, although any draw may be paid early with penalty.

- 16 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 10

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 month period ended March 31, 2014 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 elected 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 (Israel 16% preferred income tax rate, 26.5% standard corporation tax rate and in the UK 20%).

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 11

Contingencies:

During the year ended December 31, 2013, Radiancy, Inc., a wholly-owned subsidiary of PhotoMedex, commenced legal action against Viatek Consumer Products Group, Inc., over Viatek’s Pearl and Samba hair removal products which Radiancy believes infringe the intellectual property covering its no!no! hair removal devices. The first suit, which was filed in the United States Federal Court, Southern District of New York, includes claims against Viatek for patent infringement, trademark and trade dress infringement, and false and misleading advertising. A second suit against Viatek was filed in Canada, where the Pearl is offered on that country’s The Shopping Channel, alleging trademark and trade dress infringement, and false and misleading advertising. Viatek’s response contains a variety of counterclaims and affirmative defenses against both Radiancy and its parent company PhotoMedex, including, among other counts, claims regarding the invalidity of Radiancy’s patents and antitrust allegations regarding Radiancy’s conduct.

On March 28, 2014, the Court granted the Company’s motion and dismissed PhotoMedex from the lawsuit. The Court also dismissed certain counterclaims and affirmative defenses asserted by Viatek, including Viatek’s counterclaims against Radiancy for antitrust, unfair competition, and tortious interference with business relationships and Viatek’s affirmative defenses of unclean hands and inequitable conduct before the U.S. Patent and Trademark Office in procuring its patent. Radiancy had also moved for sanctions against Viatek for failure to provide meaningful and timely responses to Radiancy’s discovery requests; on April 1, 2014, the Court granted Radiancy’s motion for sanctions against Viatek, which has appealed both the sanctions ruling and the dismissal of Viatek’s counterclaims and defenses from the case, as well as PhotoMedex dismissal as a plaintiff. As of May 12, 2014, the case remains in the discovery phase of the litigation. Radiancy, and PhotoMedex, had moved to dismiss PhotoMedex from the case, and to dismiss the counterclaims and affirmative defenses asserted by Viatek. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated as the case is still in the early stages of discovery to determine the validity of any claim or claims made by Viatek. Therefore, the Company has not recorded any reserve or contingent liability related to this particular legal matter. However, in the future, as the case progresses, the Company may be required to record a contingent liability or reserve for this matter.

- 17 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

On December 20, 2013, PhotoMedex, Inc. was served with a putative class action lawsuit filed in the United States District Court for the Eastern District of Pennsylvania against the Company and its two top executives, Dolev Rafaeli, Chief Executive Officer, and Dennis M. McGrath, President and Chief Financial Officer. The suit, filed by Mr. Guy Ratz, a former employee of Radiancy (Israel) Ltd., a wholly-owned subsidiary of the Company, alleges various violations of the Federal securities laws between November 7, 2012 and November 14, 2013, including that the Company and its officers made false and misleading statements or failed to disclose material facts concerning the Company’s business. Two other shareholders filed suit through other firms; the Asbestos Workers Local 14 Pension Fund was appointed the lead plaintiff in this case. An amended complaint was filed by the plaintiffs on April 15, 2014. The complaint seeks certification of the putative class as well as an unspecified amount of monetary damages, pre-and post-judgment interest and attorneys’ fees, expert witness fees and other costs. The Company and its officers intend to vigorously defend themselves against this lawsuit. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated as the cases have only been initiated and no discovery has been conducted to determine the validity of any claim or claims made by plaintiffs. Therefore, the Company has not recorded any reserve or contingent liability related to these particular legal matters. However, in the future, as the cases progress, the Company may be required to record a contingent liability or reserve for these matters.

Six putative class-action lawsuits were filed in connection with PhotoMedex’s proposed acquisition of LCA-Vision, Inc. Two of those suits were filed in the Court of Chancery of the State of Delaware and four were filed in the Court of Common Pleas of Hamilton County, Ohio. All cases assert claims against LCA-Vision, Inc., and a mix of other defendants, including LCA’s chief executive officer and directors, PhotoMedex, and Gatorade Acquisition Corp., a wholly owned subsidiary of PhotoMedex. The complaints generally allege that the proposed acquisition undervalued LCA and deprived LCA’s shareholders of the opportunity to participate in LCA’s long-term financial prospects, that the “go shop” and “deal-protection” provisions of the Merger Agreement were designed to prevent LCA from soliciting or receiving competing offers, that LCA’s Board breached its fiduciary duties and failed to maximize that company’s stockholder value, and that LCA, PhotoMedex, and Gatorade aided and abetted the LCA defendants’ alleged breaches of duty. The complaints seek injunctive relief, unspecified damages, and other relief. The Ohio plaintiffs agreed to consolidate their suits and take the lead on this matter, although the Ohio Court did not formally consolidate the suits until April 24, 2014. The Delaware suits were consolidated on March 25, 2014; on or around that same date, the parties reached an agreement by which LCA and the other defendants agreed to produce certain discovery to the plaintiffs on an expedited basis. On April 30, 2014, the Ohio plaintiffs (with the Delaware plaintiffs’ concurrence) agreed to withdraw their motion for a preliminary injunction and not seek to enjoin the stockholder vote or the consummation of the merger in return for LCA’s agreement to make certain supplemental disclosures related to the merger. Those supplemental disclosures were filed by LCA under a Form 8-K on April 30, 2014. This agreement did not affect the terms of the Merger Agreement or the amount of consideration LCA stockholders will be entitled to receive in the merger. Defendants intend to continue to vigorously defend themselves in the lawsuits if the parties cannot enter into a formal stipulation of settlement. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated, as the cases have only been recently initiated and little discovery has been conducted to determine the validity of any claim or claims made by plaintiffs. Therefore, the Company has not recorded any reserve or contingent liability related to these particular legal matters. However, in the future, as the cases progress, the Company may be required to record a contingent liability or reserve for these matters if the cases cannot be resolved.

- 18 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

or, alternatively, certification as subclasses of plaintiffs residing in those specific states. The complaint also seeks an unspecified amount of monetary damages, pre-and post-judgment interest and attorneys’ fees, expert witness fees and other costs. Dr. Rafaeli was served with the Complaint on May 5, 2014; to date, Radiancy, has not been served. Radiancy and its officers intend to vigorously defend themselves against this lawsuit. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated as the case has only been initiated and no discovery has been conducted to determine the validity of any claim or claims made by plaintiffs. Therefore, the Company has not recorded any reserve or contingent liability related to these particular legal matters. However, in the future, as the cases progress, the Company may be required to record a contingent liability or reserve for these matters.

From time to time in the ordinary course of our business, we and certain of our subsidiaries are involved in certain other legal actions and claims, including product liability, consumer, commercial, tax and governmental matters, and claims regarding false advertising and product efficacy which were already raised and reviewed in the Tria litigation. We believe, based on discussions with legal counsel, that these other litigations and claims will likely be resolved without a material effect on our consolidated financial position, results of operations or liquidity. However, litigation is inherently unpredictable, and excessive verdicts can result from litigation. Although we believe we have substantial defenses in these matters, we may, in the future, incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in a particular period.

Note 12

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 14,578 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 1,187,101 shares were reserved for outstanding options.

Stock option activity under all of the Company’s share-based compensation plans for the three months ended March 31, 2014 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2014		1,132,678		$	16.51
Granted		71,500			14.80
Exercised		-			-
Cancelled		(2,499	)		102.48
Outstanding, March 31, 2014		1,201,679		$	16.23
Options exercisable at March 31, 2014		517,179		$	16.45

At March 31, 2014, there was $8,057 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 2.6 years. The intrinsic value of options outstanding and exercisable at March 31, 2014 was not significant.

- 19 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 three months ended March 31, 2014, 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:

	Three Months Ended March 31, 2014
Risk-free interest rate	2.11%
Volatility	81.16%
Expected dividend yield	0%
Expected life	5.5 years
Estimated forfeiture rate	0%

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 27, 2014, the Company granted an aggregate of 71,500 options to purchase common stock to a number of employees and consultants with a strike price of $14.80, 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. The aggregate fair value of the options granted was $718.

Total stock based compensation expense was $1,262 and $1,290 for the three months ended March 31, 2014 and 2013, including amounts relating to consultants.

Note 13

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.

- 20 -

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 March 31, 2014 (unaudited)

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	40,870		$	7,219		$	1,986		$	50,075
Costs of revenues		6,250			2,830			1,265			10,345
Gross profit		34,620			4,389			721			39,730
Gross profit %		84.7	%		60.8	%		36.3	%		79.3	%

Allocated operating expenses:
Engineering and product development		287			310			198			795
Selling and marketing expenses		27,157			4,011			457			31,625

Unallocated operating expenses		-			-			-			7,587
		27,444			4,321			655			40,007
Income (loss) from operations		7,176			68			66			(277	)

Interest and other financing income (expense), net		-			-			-			147

Net income (loss) before taxes	$	7,176		$	68		$	66		$	( 424	)

Three Months Ended March 31, 2013 (unaudited)

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	49,060		$	5,955		$	2,201		$	57,216
Costs of revenues		7,517			2,931			1,418			11,866
Gross profit		41,543			3,024			783			45,350
Gross profit %		84.7	%		50.8	%		35.6	%		79.3	%

Allocated operating expenses:
Engineering and product development		218			324			231			773
Selling and marketing expenses		25,631			3,174			521			29,326

Unallocated operating expenses		-			-			-			5,659
		25,849			3,498			752			35,758
Income (loss) from operations		15,694			(474	)		31			9,592

Interest and other financing income, net		-			-			-			131

Net income (loss) before taxes	$	15,694		$	( 474	)	$	31		$	9,723

- 21 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

For the three months ended March 31, 2014 and 2013, net revenues by geographic area were as follows:

	Three Months Ended March 31,
	2014		2013
		(unadudited)		(unadudited)
North America 1	$	39,972	$	44,899
Asia Pacific 2		2,377		5,762
Europe (including Israel)		7,408		5,633
South America		318		922
	$	50,075	$	57,216

1 United States	$	34,766	$	38,007
1 Canada	$	5,206	$	6,892
2 Japan	$	698	$	4,262

As of March 31, 2014 and December 31, 2013, long-lived assets by geographic area were as follows:

	March 31, 2014		December 31, 2013
	(unaudited)
North America	$	10,157	$	9,119
Europe (including Israel)		1,297		1,370
South America		4		-
	$	11,458	$	10,489

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

Note 14

Significant Customer Concentration:

	Three Months Ended March 31,
	2014			2013
Customer A		0	%		10	%

No other customer was more than 10% of total company revenues for the three months ended March 31, 2014 and 2013.

Note 15

Subsequent Events:

On May 7, 2014, the LCA shareholders approved the proposed acquisition by PhotoMedex, Inc. with 11,943,611 proxies in favor of the acquisition, or 61.7% of the total outstanding shares of LCA. On May 8, 2014, the PhotoMedex board of directors voted unanimously in favor of consummating the acquisition effective May 12, 2014.

LCA is a publicly–traded Delaware corporation. LCA is a provider of fixed-site laser vision corrections services at its Lasik Plus® vision centers. The vision centers provide the staff, facilities, equipment and support services for performing laser vision correction that employs advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism. The vision centers are supported by independent ophthalmologists and credentialed optometrists, as well as other healthcare professionals. Substantially all of LCA’s revenues is derived from the delivery of laser vision correction procedures performed in the vision centers.

- 22 -

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

On February 13, 2014, the Company, LCA-Vision Inc. (NasdaqGS: LCAV), and Gatorade Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), had entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which the Company agreed to acquire the entire holdings of LCA. Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions therein, Merger Sub will be merged with and into LCA (the “Merger”), with LCA surviving as a wholly-owned subsidiary of the Company.

At the effective time of the merger, each outstanding share of LCA common stock (other than dissenting shares, treasury shares, any shares owned by the Company and its subsidiaries, and shares owned by a subsidiary of LCA) will be cancelled, and the shareholders will receive $5.37 in cash, without interest. Immediately prior to the effective time of the Merger, each outstanding option to acquire common stock granted under any LCA equity incentive plan, whether vested or exercisable, that is outstanding will be cancelled and converted into the right to receive an amount in cash, without interest, equal to the product of (i) the excess, if any, of $5.37 over the per share exercise price of the option multiplied by (ii) the total number of shares of common stock subject to the option. Also immediately prior to the effective time of the Merger, each outstanding share of restricted stock unit award or other right to receive common stock granted under any LCA equity incentive plan, whether vested or exercisable, will be cancelled and converted into the right to receive $5.37 per share in cash, without interest. The $5.37 per ownership interest price approximates a purchase price of $106.4 million for all LCA stock and equity instruments described above.

The Company is funding this transaction through the $85 million senior secured credit facilities as well as through existing cash balances.

On May 12, 2014, the Company entered into an $85 million senior secured credit facilities (“the Facilities”) with JP Morgan Chase (“Chase”) which includes a $10 million revolving credit facility and a $75 million four-year term loan. The facilities are secured by a first priority security interest in and lien on all assets of the Company. All current and future subsidiaries are guarantors on the facilities. There are financial covenants, a maximum leverage covenant and a minimum fixed charge covenant, which the Company must maintain. These covenants will be determined quarterly based on a rolling twelve months of financial data.

The facilities will be utilized to refinance the existing term debt with Chase, fund the acquisition of LCA and for working capital and other general corporate purposes.

- 23 -

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 for the year ended December 31, 2013. 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 four key components:

	•	Skilled direct sales force to target Physician and Professional Segments;
	•	Expertise in global consumer marketing;
	•	A full product life cycle model representing the ability to develop and commercialize innovative products from concept through regulatory and physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product life-cycle evolution; and
	•	Establishing XTRAC centers of excellence in key markets by acquiring a fully paid infrastructure of existing clinics with established high customer service standards and culture.

We believe that we are one of only a few aesthetic 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 including the recently launched no!no! Hair Removal PRO which introduces patented pulsed Thermicon technology producing 35% more energy aimed at removing more hair in less time.

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	•	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 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. The technology is also used in the no!no! Glow™, which is a 510(k)-cleared device and is a miniaturized LHE device also delivering ant-aging benefits for the at-home consumer in a hand-held size.
	•	Kyrobak®. Kyrobak uses clinically proven, proprietary technology to treat unspecified, lower back pain. The unique combination of Continuous Passive Motion (CPM) and Oscillation therapy is a non-invasive, relaxing method for long lasting relief of back pain. Used for better than 3 decades in professional rehabilitation and chiropractic settings, CPM has been proven to increase mobility of the joints, draw more oxygen and blood flow to the area, allowing the muscles to relax and release pressure between the vertebrae allowing the spine to open up and decompress.
	•	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. More than half of all major insurance 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 5 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 given the cumulative number of the no!no! brand products we’ve sold (more than 5 million) versus the size of the major markets where we have presence and/or substantive marketing initiatives, including:, the United States with approximately 318 million people; Japan with a population of approximately 127 million people; Brazil (pop.187 million); Germany (pop. 81 million); United Kingdom (pop. 64 million); Columbia (pop. 47 million); Canada (pop. 35 million); Australia (pop. 23 million) and Hong Kong (pop. 7 million).

Our consumer marketing platform is built upon a proprietary direct-to-consumer sales engine and creative marketing programs that drive brand awareness, in addition to presence in select retail and live Home Shopping Channels.

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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, commercials, 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 $33 million and $39 million for the three months ended March 31, 2014 and 2013, respectively. We use a mix of direct-to-consumer advertising that includes infomercials, commercials, catalog, print, radio and internet-based marketing campaigns, coupled with select retail resellers, such as Neiman Marcus, Nordstrom, 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 $8 million and $10 million for the three months ended March 31, 2014 and 2013, respectively. We utilize various sales and marketing methods including sales by direct-to-consumer, sales to retailers and home shopping channels. Our main international markets are Japan, United Kingdom and Australia with the recent additions of Germany, Brazil, Columbia and Hong Kong.

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. We have historically employed a direct sales force marketing primarily to dermatologists to create awareness of the XTRAC therapy. Beginning in 2012 we initiated direct to patient XTRAC advertising in the United States targeted at psoriasis and vitiligo patients through testing a variety of media including television and radio. We continue to increase our advertising expenditures in this area to reach the more than 10 million patients in the United States afflicted with these diseases.

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NEOVA®

Sales of the NEOVA skin care products historically have been driven by physicians, who act as spokespersons to their patients in support of the NEOVA line. We have marketed to physicians in the dermatology and plastic surgery field, through a direct sales force but have begun 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. In addition, we have increased marketing exposure to NEOVA by offering an introduction to the product line as an added-value purchase to consumers responding to our no!no! brand advertising.

Professional

Sales under the professional business segment are mainly generated from capital equipment, such as our XTRAC-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, as well as a resource in expanding the Professional segment of our revenues.

Sales and Marketing

As of March 31, 2014, our sales and marketing personnel consisted of 72 full-time positions.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates in the three months ended March 31, 2014. 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 for the year ended December 31, 2013.

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 March 31,
	2014		2013
Consumer	$	40,870	$	49,060
Physician Recurring		7,219		5,955
Professional		1,986		2,201

Total Revenues	$	50,075	$	57,216

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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 March 31,
	2014		2013
Direct-to-consumer	$	30,787	$	31,722
Distributors		627		5,291
Retailers and home shopping channels		9,456		12,047

Total Consumer Revenues	$	40,870	$	49,060

For the three months ended March 31, 2014, consumer products revenues were $40,870 compared to $49,060 in the three months ended March 31, 2013. The decrease of 16.7% during the periods was mainly due to the following reasons:

	•	Direct to Consumer. Revenues for the three months ended March 31 2014 were $30,787 compared to $31,722 for the same period in 2013. The revenues were consistent for the periods.
	•	Retailers and Home Shopping Channels. Revenues for the three months ended March 31, 2014 were $9,456 compared to $12,047 for the same period in 2013. The decrease of 22% was mainly due to the timing of specials on the various home shopping channel customers, mainly in the United States (“US”) and the UK.
	•	Distributors Channels. Revenues for the three months ended March 31, 2014 were $627 compared to $5,291 for the same period in 2013. The decrease in revenues of 88% was due to our distributor in Japan who modified its business model during 2013, affecting its role in the supply chain between its manufacturers and the Japan retailers they supply and causing revenues from our Japan distributor to decrease to $150 from $3,885. During the fourth quarter of 2013, we terminated our distribution agreement with the Japan distributor.

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 March 31,
	2014		2013
North America	$	33,180	$	39,225
International		7,690		9,835

Total Consumer Revenues	$	40,870	$	49,060

•

International revenues, excluding the decrease in Japan, increased by $1,590 which was partially due to our expansion in new international markets including Brazil, Hong Kong and Columbia.

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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 March 31,
	2014		2013
XTRAC Treatments	$	4,410	$	2,569
Neova skincare		1,927		2,226
Surgical products		397		467
Other		485		693

Total Physician Recurring Revenues	$	7,219	$	5,955

XTRAC Treatments

Recognized treatment revenue for the three months ended March 31, 2014 was $4,410, which approximates 63,000 treatments, with prices between $65 to $95 per treatment, compared to recognized treatment revenues for the three months ended March 31, 2013 was $2,569, which approximates 37,000 treatments with prices between $65 to $85 per treatment. 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 will be generally reimbursed by insurers. We have historically employed a direct sales force marketing primarily to dermatologists to create awareness of the XTRAC therapy. Beginning in 2012 we initiated direct to patient XTRAC advertising in the United States targeted at psoriasis and vitiligo patients through testing a variety of media including television and radio. We continue to increase our advertising expenditures in this area to reach the more than 10 million patients in the United States afflicted with these diseases.

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 months ended March 31, 2014, we deferred net revenues of $81 under this approach compared to deferred net revenues of $590 for the three months ended March 31, 2013.

NEOVA skincare

For the three months ended March 31, 2014, revenues were $1,927 compared to $2,226 for the three months ended March 31, 2013. 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 March 31, 2014 and 2013, revenues were $397 and $467, 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 March 31,
	2014		2013
North America	$	6,389	$	5,162
International		830		793

Total Physicians Recurring Revenues	$	7,219	$	5,955

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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 March 31,
	2014		2013
Dermatology equipment	$	1,215	$	1,077
LHE equipment		470		778
Omnilux/Lumiere equipment		271		253
Surgical lasers		30		93

Total Professional Revenues	$	1,986	$	2,201

Dermatology equipment

For the three months ended March 31, 2014 and 2013, dermatology equipment revenues were $1,215 and $1,077, respectively. There were no domestic XTRAC laser sales for the three months ended March 31, 2014 and 2013. We sell the laser directly to the customer only 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 thirty-three systems for the three months ended March 31, 2014, twenty 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 $1,077 for the three months ended March 31, 2013. We sold thirty-three systems for the three months ended March 31, 2013, twenty 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

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.

For the three months ended March 31, 2014 and 2013, LHE® brand products revenues were $470 and $778, respectively.

Omnilux/Lumiere equipment

For the three months ended March 31, 2014 and 2013, Omnilux/Lumiere equipment revenues were $271 and $253, 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 March 31, 2014 and 2013, surgical laser revenues were $30, representing one laser system and $93, representing three laser systems, respectively.

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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 March 31,
	2014		2013
North America	$	393	$	520
International		1,593		1,681

Total Professional Revenues	$	1,986	$	2,201

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 March 31,
	2014		2013
Consumer	$	6,250	$	7,517
Physician Recurring		2,830		2,931
Professional		1,265		1,418

Total Cost of Revenues	$	10,345	$	11,866

Overall, cost of revenues has decreased in the segments due to the related decreases in the consumer and professional revenues.

Gross Profit Analysis

Gross profit decreased to $39,730 for the three months ended March 31, 2014 from $45,350 during the same period in 2013. As a percentage of revenues, the gross margin was 79.3% for both the three months ended March 31, 2014 and 2013.

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

Company Profit Analysis	For the Three Months Ended March 31,
	2014			2013
Revenues	$	50,075		$	57,216
Percent decrease		(12.5	%)
Cost of revenues		10,345			11,866
Percent decrease		(12.8	%)
Gross profit	$	39,730		$	45,350
Gross margin percentage		79.3	%		79.3	%

The primary reasons for the changes in gross profit for the three months ended March 31, 2014, compared to the same period in 2013, were due mainly to decreases in home shopping channel and retailers and distributors within the Consumer segment. Offsetting this, the Physician Recurring segment had 21% greater revenues than the prior year period with a greater gross margin percentage driven by greater utilization of our installed base of XTRAC equipment.

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

Consumer Segment	For the Three Months Ended March 31,
	2014			2013
Revenues	$	40,870		$	49,060
Percent decrease		(16.7	%)
Cost of revenues		6,250			7,517
Percent decrease		(16.9	%)
Gross profit	$	34,620		$	41,543
Gross margin percentage		84.7	%		84.7	%

Gross profit for the three months ended March 31, 2014 decreased by $6,923 from the comparable period in 2013. The key factor for this decrease was due to the decrease in all channels of consumer revenues.

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 March 31,
	2014			2013
Revenues	$	7,219		$	5,955
Percent increase		21.2	%
Cost of revenues		2,830			2,931
Percent decrease		(3.4	%)
Gross profit	$	4,389		$	3,024
Gross margin percentage		60.8	%		50.8	%

Gross profit for the three months ended March 31, 2014 increased by $1,365 from the comparable period in 2013. The primary reason for the increased gross margin is the increase in number of 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 March 31,
	2014			2013
Revenues	$	1,986		$	2,201
Percent decrease		(9.7	%)
Cost of revenues		1,265			1,418
Percent decrease		(10.7	%)
Gross profit	$	721		$	783
Gross margin percentage		36.3	%		35.6	%

Gross profit for the three months ended March 31, 2014 was consistent with the comparable period in 2013.

Engineering and Product Development

Engineering and product development expenses for the three months ended March 31, 2014 increased to $795 from $773 for the three months ended March 31, 2013. 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.

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Selling and Marketing Expenses

For the three months ended March 31, 2014, selling and marketing expenses increased to $31,625 from $29,326 for the three months ended March 31, 2013. The increase was primarily for the following reasons:

	•	We increased no!no! Hair Removal, Neova, no!no! skin and Kyrobak direct to consumer activities in North America, the UK, Brazil and Germany via commercials, infomercial, online campaigns, radio and print media, which resulted in an increase in advertising, media buying, and other related selling and marketing expenses. Additionally we have increased the marketing activities of the XTRAC laser system in the US market.
	•	Media buying and advertising expenses in the three months ended March 31, 2014 were 37.4% of total revenues compared to 25.7% of total revenues in the three months ended March 31, 2013. The factors listed above as well as the change in mix of revenues particularly as a result of the decrease in revenues from our Japan distributor. These distributor revenues require substantially less sales and marketing costs than what is required in the direct channel. Direct to consumer revenues are 61.5% of total revenues for the three months ended March 31, 2014 compared to 55.5% of total revenues for the three months ended March 31, 2013. In addition, we added new initiatives to support Neova, Kyrobak, no!no! skin and our XTRAC therapy for psoriasis and vitiligo spending approximately $1,113.

General and Administrative Expenses

For the three months ended March 31, 2014, general and administrative expenses increased to $7,587 from $5,659 for the three months ended March 31, 2013. The increase was due to the following reasons:

	•	We have recorded $979 in costs related to the upcoming acquisition of LCA Vision.
	•	We have recorded $775 in costs related to the various litigations.

Interest and Other Financing Expense, Net

Net interest and other financing expense for the three months ended March 31, 2014 increased to $147, as compared to net interest and other financing income of $131 for the three months ended March 31, 2013. The decrease of $278 is mainly due to an increase in interest expense of $42. The interest expense related to the term note that began in December 2013. 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 and LK Technology, which has a functional currency of the Brazilian Real.

Taxes on Income, Net

For the three months ended March 31, 2014, the net taxes on income amounted to a benefit of $79 as compared to $2,511 for the three months ended March 31, 2013.

Net Income

The factors described above resulted in net loss of $345 during the three months ended March 31, 2014, as compared to net income of $7,212 during the three months ended March 31, 2013, a decrease of 105%.

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.

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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 March 31,
	2014			2013		Change

Net income	$	(345	)	$	7,212	$	(7,557	)

Adjustments:
Depreciation and amortization		1,636			1,443		193
Interest expense, net		47			5		42
Income tax expense		(79	)		2,511		(2,590	)

EBITDA		1,259			11,171		(9,912	)

Stock-based compensation expense		1,262			1,290		(28	)

Non-GAAP adjusted income	$	2,521		$	12,461	$	( 9,940	)

Liquidity and Capital Resources

At March 31, 2014, our current ratio was 3.19 compared to 2.46 at December 31, 2013. As of March 31, 2014 we had $84,403 of working capital compared to $83,058 as of December 31, 2013. Cash and cash equivalents were $29,724 as of March 31, 2014, as compared to $45,388 as of December 31, 2013. In addition, we had $18,348 and $14,113 in short term bank deposits as of March 31, 2014 and December 31, 2013, respectively.

On August 18, 2012, the Board of Directors approved a stock repurchase program up to a maximum to $25 million. In August 2013, 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. To date, we have repurchased 2,987,413 shares at an average price of $13.98 per share for a total of $41,757. The shares will be purchased with cash on hand, subject to certain limitations and covenants in connection with the acquisition debt financing provided for the LCA Vision, Inc. acquisition on May 12, 2014.

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 second quarter of 2015.

Net cash and cash equivalents used in operating activities was $4,486 for the three months ended March 31, 2014 compared to cash provided by of $3,064 for the three months ended March 31, 2013.

Net cash and cash equivalents used in investing activities was $6,041 for the three months ended March 31, 2014 compared to $1,489 for the three months ended March 31, 2013. This was primarily due to the purchase of short term investments of $4,235 and the increase in the placement of lasers into service for the three months ended March 31, 2014.

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 $5,224 for the three months ended March 31, 2014 compared to $200 for the three months ended March 31, 2013. In the three months ended March 31, 2014, we had repayments of $5,000 on term debt and $224 for certain notes payable.

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Commitments and Contingencies

There were no items that significantly impacted our commitments and contingencies as discussed in the notes to our 2013 annual financial statements included in our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

At March 31, 2014, 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 for the year ended December 31, 2013, 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 months ended March 31, 2014, 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 that we filed for the year ended December 31, 2013.

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 March 31, 2014. Based on that evaluation, management has concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level described below.

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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

As of May 12, 2014, the case remains in the discovery phase of the litigation. Radiancy, and PhotoMedex, had moved to dismiss PhotoMedex from the case, and to dismiss the counterclaims and affirmative defenses asserted by Viatek. On March 28, 2014, the Court granted the Company’s motion and dismissed PhotoMedex from the lawsuit. The Court also dismissed certain counterclaims and affirmative defenses asserted by Viatek, including Viatek’s counterclaims against Radiancy for antitrust, unfair competition, and tortious interference with business relationships and Viatek’s affirmative defenses of unclean hands and inequitable conduct before the U.S. Patent and Trademark Office in procuring its patent. Radiancy had also moved for sanctions against Viatek for failure to provide meaningful and timely responses to Radiancy’s discovery requests; on April 1, 2014, the Court granted Radiancy’s motion for sanctions against Viatek, which has appealed both the sanctions ruling and the dismissal of Viatek’s counterclaims and defenses from the case, as well as PhotoMedex dismissal as a plaintiff. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated as the case is still in the early stages of discovery to determine the validity of any claim or claims made by Viatek. Therefore, the Company has not recorded any reserve or contingent liability related to this particular legal matter. However, in the future, as the case progresses, the Company may be required to record a contingent liability or reserve for this matter.

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contingent liability related to these particular legal matters. However, in the future, as the cases progress, the Company may be required to record a contingent liability or reserve for these matters.

On April 25, 2014, a putative class action lawsuit was filed in the United States District Court for the District of Columbia against the Company’s subsidiary, Radiancy, Inc. and Dolev Rafaeli, Radiancy’s President. The suit was filed by Jan Mouzon and twelve other customers residing in ten different states who purchased Radiancy’s no!no! Hair products. It alleges various violations of state business and consumer protection codes including false and misleading advertising, unfair trade practices, and breach of express and implied warranties. The complaint seeks certification of the putative class, or, alternatively, certification as subclasses of plaintiffs residing in those specific states. The complaint also seeks an unspecified amount of monetary damages, pre-and post-judgment interest and attorneys’ fees, expert witness fees and other costs. Dr. Rafaeli was served with the Complaint on May 5, 2014; to date, Radiancy, has not been served. Radiancy and its officers intend to vigorously defend themselves against this lawsuit. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated as the case has only been initiated and no discovery has been conducted to determine the validity of any claim or claims made by plaintiffs. Therefore, the Company has not recorded any reserve or contingent liability related to these particular legal matters. However, in the future, as the cases progress, the Company may be required to record a contingent liability or reserve for these matters.

ITEM 1A. Risk Factors

As of March 31, 2014, our risk factors have not changed materially from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

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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)
	2.2		Agreement and Plan of Merger by and among PhotoMedex, Inc., Gatorade Acquisition Corp. and LCA-Vision Inc., dated as of February 13, 2014 (34)
	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)
	4.6		Credit Agreement, dated December 27, 2013, between Radiancy, Inc. and JP Morgan Chase Bank, N.A. (35)
	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)

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	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)
	10.32		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)
	10.45		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)

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	10.57		Lease Agreement dated June 3, 2013 by and between Maestro Properties Limited and Photo Therapeutics, Ltd. (UK) (32)
	10.58		Lease Agreement dated September 23, 2013 by and between Liberty Property Limited Partnership and PhotoMedex, Inc. (33)
	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.

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(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 as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

(33)	Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.

(34)	Filed as part of LCA Vision, Inc.’s Current Report on Form 8-K on February 13, 2014.

(35)	Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2013.

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.

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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 May 12, 2014	By:	/s/ Dolev Rafaeli
		Name Dolev Rafaeli
		Title Chief Executive Officer

Date May 12, 2014	By:	/s/ Dennis M. McGrath
		Name Dennis M. McGrath
		Title President & Chief Financial Officer

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