Gadsden Properties, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

For the quarterly period ended September 30, 2015

OR

For the transition period from _________ to ___________

Commission File Number 0-11365

PHOTOMEDEX, INC.

(Exact name of registrant as specified in its charter)

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 x 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 x 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.

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

Yes ¨ No x

The number of shares outstanding of the issuer's common stock as of November 6, 2015 was 22,081,718 shares.

PHOTOMEDEX, INC.

INDEX TO FORM 10-Q

PART I – Financial Information

ITEM 1. Financial Statements

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(unaudited)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(unaudited)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands, except share and per share amounts)

(Unaudited)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 1

The Company:

Background

PhotoMedex, Inc. (and its subsidiaries) (the “Company”) is a Global Skin Health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. The Company provides proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis (a precursor to certain types of skin cancer), photo damage and unwanted hair.

Acquisitions and Dispositions

On May 12, 2014, PhotoMedex completed the acquisition of 100% of the shares of LCA-Vision Inc. (“LCA-Vision” or “LCA”), which was 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 intended to add an additional operating segment to its organization. The Company planned to begin to directly market certain of its existing products from these centers. The results of operations of LCA-Vision have been included from May 13, 2014 through January 31, 2015 into the Company’s consolidated financial statements as a discontinued operation. (See Note 3, Acquisition of LCA-Vision Inc.).

On January 31, 2015, the Company sold 100% of the shares of LCA-Vision Inc. for $40 million in cash. Excluding working capital adjustments and professional fees, the Company realized net proceeds of approximately $37.7 million, substantially all of which were used to repay indebtedness. The LCA-Vision assets and liabilities were considered to be held for sale as of December 31, 2014. For the statement of comprehensive loss, for the three and nine months ended September 30, 2015, the activity related to LCA’s operations through the date of disposition, and any gains or losses therefrom, are captured as discontinued operations. (See Note 2, Discontinued Operations.)

On June 22, 2015, the Company, and certain subsidiaries, sold the assets, and related liabilities, of the XTRAC and VTRAC business for $42.5 million in cash, including restricted cash of $750 to be held in escrow for twelve months. The Company realized net proceeds of approximately $41 million, substantially all of which were used to repay the remaining balance of the credit facilities, including any outstanding forbearance fees and transaction fees. As management determined that the XTRAC and VTRAC business represent a component of which operations and cash flows can be clearly distinguished operationally and for financial reporting purposes, and also that the disposal represent a strategic shift that will have a major effect on the company’s remaining operations and financial results, it was concluded that the disposal qualified as a discontinued operations. Thus for the statements of operations, for the three and nine months ended September 30, 2015 and 2014, the activity related to the XTRAC and VTRAC business’ operations through the date of disposition, and any gains or losses there from, are reported as discontinued operations. The XTRAC and VTRAC business assets and liabilities were retrospectively reclassified as held for sale in the accompanying condensed consolidated balance sheet as of December 31, 2014. (See Note 2, Discontinued Operations.)

On August 31, 2015 the Company entered into a First Amendment (the “First Amendment”) to its Stock Purchase Agreement (the “Stock Purchase Agreement”) of January 31, 2015, under which the Company and its subsidiary LCA-Vision Inc. (“LCA”) sold LCA and its subsidiaries to Vision Acquisition, LLC (“Vision”). The First Amendment amends the Stock Purchase Agreement to permit an Internal Revenue Code Section 338(h)(10) or 336(e) election under which all parties to the transaction, including the Company, are treated for tax purposes as if Vision had purchased the assets of LCA rather than LCA’s stock. Vision agreed to pay the Company the sum of $300 for entry into the First Amendment. The transaction was completed as of August 31, 2015 and such amount was included in the three months ended at September 30, 2015 as an additional gain on the sale of discontinued operations.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Liquidity

On May 12, 2014, the Company had entered into $85 million senior secured credit facilities (“the Facilities”) with JP Morgan Chase (“Chase”) which included a $10 million revolving credit facility and a $75 million four-year term loan. The facilities were utilized to refinance the existing term debt with Chase, fund the acquisition of LCA and for working capital and other general corporate purposes.

Effective February 28, 2015, the Company had entered into a Second Amended and Restated Forbearance Agreement (the "Second Amended Forbearance Agreement") with the lenders that were parties to the Credit Agreement dated May 12, 2014, and with Chase, as Administrative Agent for the Lenders.

Pursuant to the terms of the Second Amended Forbearance Agreement, the Lenders had agreed to forbear from exercising their rights and remedies with respect to the Specified Events of Default from August 25, 2014 until April 1, 2016, or earlier if any new event of default occurs (the "Forbearance Period"). Chase and the Lenders also agreed that the Company would not be obligated to pay the principal amounts set forth in the Credit Agreement for any date identified therein during the period beginning on February 28, 2015 and ending on the end of the Forbearance Period (the "Effective Period"), and that any failure to do so would not constitute a default or event of default. Instead, the Lenders and the Company agreed that the Company would make prepayments against the Term Loan of $250 on the first business day of each month during the Forbearance Period, which were applied in direct order of maturity. The Company also agreed that, on or before the fifth calendar day of each month, the Company would pay against the Term Loan $125 to the extent that the cash-on-hand exceeded $5 million, and 100% of the cash-on-hand in excess of $7 million, also to be applied to the Term Loan in inverse order of maturity. There were additional terms agreed to by the Company regarding the interest rate to be charged upon the outstanding balance of the Loans, compensation paid to officers, the use of funds for capital projects, and the preparation of a strategic business plan to repay the outstanding balances to the Lenders.

Also, as consideration for the Lender's entry into the Second Amended Forbearance Agreement, the Company had agreed to pay the Lenders certain forbearance fees (the "Forbearance Fees"), which were earned on the last business day of each of the specified months: for May and June 2015, $750 each month, with additional amounts specified for later periods. In addition, the $500 Forbearance Fee set forth in Section 4.10(b) of the Amended Forbearance Agreement remained due and payable to the Lenders on the earlier of the Expiration Date or the Termination Date of the Forbearance Period. The Second Amended Forbearance Agreement was also subject to customary covenants, including limitations on the incurrence of or payments on indebtedness to other persons or entities and requirements that the Company provide periodic financial information and information regarding the status of outstanding litigation involving the Company and its subsidiaries to the Lenders.

On June 23, 2015, the Company repaid in full the outstanding balances of the Facilities (including all unpaid interest). Pursuant to the Payoff Letter, effective as of June 23, 2015, and all other termination and release documents in connection therewith, the Company and its subsidiaries have been released from all of their obligations, including any guarantee and collateral obligations, and other additional terms in connection with the Facilities. The Company has used the proceeds from the sale of the XTRAC and VTRAC Business to complete payment of the outstanding amounts under the Facilities and ancillary costs, which totaled $40.3 million.

On September 1, 2015, PhotoMedex, Inc. and its subsidiary PhotoMedex Technology, Inc. (“PTECH”) entered into an Asset Purchase Agreement and a Supplemental Agreement (together, the “Asset Purchase Agreement”) with DaLian JiKang Medical Systems Import & Export Co., LTD, (“JIKANG”). Under the Asset Purchase Agreement, JIKANG is to acquire the SLT® surgical laser business (the “Transferred Business”) from PTECH, for a total purchase price of $1.5 million (the “Purchase Price”). The agreement was later amended to add an affiliate company to the transaction. The Company will receive net cash of approximately $1.2 million after payment of closing and ancillary costs. The Purchase Price is payable to the Company in three installments. An initial deposit of $300 was made on September 2, 2015. JIKANG will provide two letters of credit to the Company for the remainder of the Purchase Price. The $1 million Letter of Credit will become payable to the Company on or about November 17, 2015, at which time substantially all the assets will be then be transferred to JIKANG in consummation of the transaction. The remaining Letter of Credit, for $200, will be payable to the Company by February 17, 2016, after certain post-closing steps including the receipt of all assets at JIKANG’s facilities and the training of JIKANG’s personnel. The Asset Purchase Agreement contains customary representations, warranties and covenants by each of the Company, PTECH and JIKANG, as well customary indemnification provisions among the parties. The Company has recorded the deposit as an accrued liability as of September 30, 2015 until the significant uncertainty on the collectability of the $1million Letter of Credit and the subsequent transfer of substantially all the assets to the purchaser will be resolved. Management does not believe that the sale of the SLT business represents a strategic shift for the company.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Basis of Presentation:

Accounting Principles

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, 2014 (“fiscal 2014”). 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 (“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 accompanying condensed consolidated balance sheet as of December 31, 2014 has been derived from our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2014, and has been retrospectively adjusted to reflect the assets and liabilities of certain discontinued operations within assets and liabilities held for sale. (See Note 2, Discontinued Operations.)

The results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 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.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Held for Sale Classification and Discontinued Operations

A disposal group is reported as held for sale when management has approved or received approval to sell and is committed to a formal plan, the disposal group is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A disposal group classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying value of the business exceeds its estimated fair value less cost to sell, a loss is recognized. However, when disposal group meets the held for sale criteria, the Company first evaluates whether the carrying amounts of the assets not covered by ASC 360-10 included in the disposal group (such as goodwill) are required to be adjusted in accordance with other applicable GAAP before measuring the disposal group at fair value less cost to sell.

Assets and liabilities related to a disposal group classified as held for sale are segregated in the consolidated balance sheet in the period in which the business is classified as held for sale.

Until December 31, 2014, in accordance with previous US GAAP, operations of a disposal group were reported as discontinued operations if the disposal group is classified as held for sale, the operations and cash flows of the business have been or will be eliminated from our ongoing operations as a result of a disposal transaction and we will not have any significant continuing involvement in the operations of the business after the disposal transaction. See below regarding change to the criteria for reporting discontinued operations.

Accordingly, the disposal of LCA-Vision was presented as discontinued operations.

Commencing January 1, 2015 (the effective date of the ASU 2014-08-see below), only disposal of a component of an entity is a group of components of an entity that represents a strategic shift that has or will have a major effect on an entity's operations and financial results shall be reported as discontinued operations. The revised guidance did not change the criteria required to qualify for held for sale presentation. The revised guidance includes several new disclosures and among others, required to reclassify the assets and liabilities of discontinued operations to separate line items in the balance sheets for all periods presented. Accordingly, the assets and liabilities of the XTRAC and VTRAC as of December 31, 2014 were reclassified and presented as assets and liabilities held for sale (without changing their classification as current or non-current). Also, the results of the operations of LCA operating segment and the XTRAC and VTRAC business were presented as discontinued operations in the consolidated statements of operations (see also Note 2, Discontinued operations).

The results of discontinued operations are reported in discontinued operations in the consolidated statement of comprehensive loss for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell. Depreciation is not recorded on assets of a business while it is classified as held for sale.

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 be granted FOB destination terms. 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 and included in deferred revenues until that time.

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.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 9).

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

Functional Currency

The currency of the primary economic environment in which the operations of the Company, its U.S. subsidiaries and Radiancy Ltd., its subsidiary in Israel, are conducted is the US dollar ("$" or "dollars"). Thus, the functional currency of the Company and its subsidiaries (other than the foreign subsidiaries mentioned below) is the dollar (which is also the reporting currency of the Group). The operations of the other foreign subsidiaries are each conducted in the local currency of the subsidiary. These currencies include: Great Britain Pounds (GBP), Brazilian Real (BRL), Hong Kong Dollar (HKD), Columbian Peso (COP), South Korean Won (KRW) and Indian Rupee (INR). 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.

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 (loss), 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 (loss). Deferred taxes are not provided on translation adjustments as the earnings of the subsidiaries are considered to be permanently reinvested.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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:

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 and long term debt which are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity approximate the carrying values. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.

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

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

Derivatives

The Company 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.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

From time to time the Company carries out transactions involving foreign exchange derivative financial instruments (mainly forward exchange contracts) which are 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 (Loss) and included in interest and other financing expenses, net.

At September 30, 2015, the balance of such derivative instruments amounted to approximately $0 in liabilities and approximately $113 were recognized as financing expense in the Statement of Comprehensive (Loss) Income during the nine months ended that date.

The nominal amounts of foreign currency derivatives as of September 30, 2015 consist of forward transactions for the exchange of $0 into NIS as of September 30, 2015.

Accrued Warranty Costs

The Company offers a standard warranty on product sales generally for a one to two-year period. 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 nine months ended September 30, 2015 and 2014 (with respect to the continuing operations) is summarized as follows:

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:

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Diluted earnings per share for the three and nine months ended September 30, 2015, exclude the impact of common stock options and warrants, totaling 1,459,824 shares, as the effect of their inclusion would be anti-dilutive, due to the loss from continuing operations for the periods. Diluted earnings per share for the three and nine months ended September 30, 2014, excluded the impact of common stock options and warrants, totaling 2,623,682 shares, as the effect of their inclusion would be anti-dilutive, due to the loss from continuing operations for the periods.

Adoption of New Accounting Standards

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08").

The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

The provisions of ASU 2014-08 were required to be applied in a prospective manner to disposals or classifications as held for sale components of an entity that occur with annual periods beginning on or after December 15, 2014 and interim periods within those years.

The Company applied the provisions of ASU 2014-08 in the first quarter of 2015. Accordingly, the company applied ASU 2014-08 with respect to the discontinuance of the XTRAC and VTRAC business which occurred during June 2015 (see Note 2, Discontinued Operations). However, the discontinuance of LCA business which was presented in the accompanying December 31, 2014 consolidated balance sheets as held for sale was accounted for in accordance with previous GAAP.

The adoption of ASU 2014-08 did not have a material impact on the Company's consolidated results of operations and financial condition and also did not affect disposals or classifications as held for sale, of components (such as the sale of LCA) that occurred before the provisions of ASU 2014-08 became effective.

Recently Issued Accounting Standards

In July, 2015, The FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) ("ASU 2015-11").

ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance. Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).

For a public entity, the amendments in ASU 2015-11 are effective, in a prospective manner, for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (the first quarter of fiscal year 2017 for the Company). Early adoption is permitted as of the beginning of an interim or annual reporting period.

The Company is in the process of assessing the impact, if any, of ASU 2015-11 on its consolidated financial statements.

In May 2014, The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09").

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

An entity should apply the amendments in this ASU using one of the following two methods: 1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects the latter transition method, it also should provide certain additional disclosures.

For a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017 which effective date was recently updated according to ASU 2015-14, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company). Early application is permitted only as of annual reported periods beginning after December 15, 2016, including interim periods within such reporting period. The Company is in the process of assessing the impact, if any, of ASU 2014-09 on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provide guidance on management’s responsibility in evaluating whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 also provide guidance related to the required disclosures as a result of management evaluation. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance which is prospectively effective for fiscal years beginning after December 15, 2015, requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The Company believes that this will not have a material impact on its consolidated financial statements.

For public business entities, the amendments ASU 2015-16 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of ASU 2015-16 with earlier application permitted for financial statements that have not been issued.

Note 2

Discontinued Operations:

On June 22, 2015, the Company closed on the asset sale of the XTRAC and VTRAC business for $42.5 million in cash. The Company realized net proceeds of approximately $41 million. The sale was effective June 22, 2015. The domestic XTRAC business was considered a recurring revenue stream given its pay-per-use model, where the machines are provided to professionals who then paid us based on the number of treatments administered with the device. The domestic revenues from this business have historically been reported in our Physician Recurring business segment. Internationally, we sold our XTRAC-Velocity and VTRAC equipment to distributors which sales have been historically reported in our Professional Equipment segment. As this business was a substantial business unit of the Company, and as such the sale brings a shift in focus of management. The Company accordingly classified this former business as held for sale in accordance and discontinued operations with ASC Topic 360.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The accompanying condensed consolidated financial statements reflect the operating results and balance sheet items of the XTRAC and VTRAC business as discontinued operations separately from continuing operations. Also, as of December 31, 2014, balance sheet items related to XTRAC and VTRAC business were presented as assets held for sale and as liabilities held for sale respectively. The Company recognized a gain of $10,634, net of tax of $3,954, on the sale of the discontinued operations in the nine months ended September 30, 2015, which represents the difference between the adjusted net purchase price and the carrying value of the disposal group.

Revenues from the XTRAC and VTRAC business, reported as discontinued operations, for the three months ended September 30, 2015 and 2014 were $0 and $7,598, respectively. Loss from the XTRAC and VTRAC business, reported as discontinued operations, for the three months ended September 30, 2015 and 2014 were $0 and $378, respectively.

Revenues from the XTRAC and VTRAC business, reported as discontinued operations, for the nine months ended September 30, 2015 and 2014 was $14,669 and $20,837, respectively. Loss from the XTRAC and VTRAC business, reported as discontinued operations, for the nine months ended September 30, 2015 was $5,042, which includes interest expense of $2,289 and stock compensation of $1,684 related to the contractual acceleration of vesting of awards then outstanding to employees from the XTRAC and VTRAC business, included as the result of acceleration of vesting periods, due to the sale. Income from the XTRAC and VTRAC business, reported as discontinued operations, for the nine months ended September 30, 2014 was $1,499.

LCA, acquired by the Company on May 12, 2014, is a provider of fixed-site laser vision corrections services at its LasikPlus® 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 are derived from the delivery of laser vision correction procedures performed in the vision centers. After preliminary investigations and discussions, the Board of Directors of the Company, with the aid of its investment banker, had reached a formal decision during December 2014 to enter into, substantive, confidential discussions with potential third-party buyers and began to develop plans for implementing a disposal of the assets and operations of the business. The Company accordingly classified this former segment as held for sale and discontinued operations in accordance with ASC Topic 360. On February 2, 2015, the Company closed on the sale transaction of 100% of the shares of LCA for $40 million in cash. Excluding estimated working capital adjustments and direct expenses (professional fees to third parties), the Company realized net proceeds of approximately $37.7 million which amount is considered as the fair value less cost to sell of LCA. The sale was effective January 31, 2015. No income tax benefit was recognized by the Company from the loss on the sale of discontinued operations.

The accompanying condensed consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. Also, as of December 31, 2014, balance sheet items related to LCA were presented as assets held for sale and as liabilities held for sale, respectively. The Company recognized an estimated loss of $44,598 on the sale of the discontinued operations during the fourth quarter and the year ended December 31, 2014, which included a decrease in the implied fair value of goodwill, related to LCA, of $43,091. The remaining loss of $1,507 represents the difference between the adjusted net purchase price and the carrying value of the disposal group. The impairment amount was categorized as level 3 measurements. For the nine months ended September 30, 2015, the Company recorded an adjustment of $41 on the sale of the discontinued operations of LCA.

The Company entered into a First Amendment (the “First Amendment”) to its Stock Purchase Agreement (the “Stock Purchase Agreement”) of January 31, 2015, under which the Company and its subsidiary LCA-Vision Inc. (“LCA”) sold LCA and its subsidiaries to Vision Acquisition, LLC (“Vision”). The First Amendment amends the Stock Purchase Agreement to permit an Internal Revenue Code Section 338(h)(10) or 336(e) election under which all parties to the transaction, including the Company, are treated for tax purposes as if Vision had purchased the assets of LCA rather than LCA’s stock. Vision agreed to pay the Company the sum of $300 for entry into the First Amendment. The transaction was completed as of August 31, 2015 and such amount was included in the three months ended September 30, 2015 as an additional gain on the sale of discontinued operations.

Revenues from LCA, reported as discontinued operations, for the three months ended March 31, 2015 and for the nine months ended September 30, 2015 were $9,158. Loss from LCA, reported as discontinued operations, for the three months ended March 31, 2015 and for the nine months ended September 30, 2015 was $1,667, which includes stock compensation of $2,363 related to the contractual acceleration of vesting of awards then outstanding to employees from LCA, included as a result of acceleration of vesting periods, due to the sale of LCA.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following is a summary of assets and liabilities held for sale in the condensed consolidated balance sheet as of December 31, 2014:

All such assets were disposed of, and the liabilities extinguished upon closing of the LCA-Vision sale transaction in February 2015 and the XTRAC and VTRAC business sale transaction in June 2015.

Note 3

Acquisition:

Acquisition of LCA-Vision Inc.:

On May 12, 2014, PhotoMedex Inc., completed the acquisition of 100% of the shares of LCA-Vision, a previously publicly-traded Delaware corporation.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

LCA is a provider of fixed-site laser vision corrections services at its LasikPlus® 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 are derived from the delivery of laser vision correction procedures performed in the vision centers.

The purchase price of LCA-Vision was $106,552 in aggregate consideration, paid in cash (including the full use of the credit facility), consisting of:

The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. The Company expected that the allocation would be finalized within twelve months after the merger. However, LCA was sold in January 2015 and it is presented as a discontinued operations, see Note 2. Accordingly management has determined to retain the provisional amounts. Based on the purchase price allocation, the following table summarizes the provisional fair value amounts of the assets acquired and liabilities assumed at the date of acquisition:

The purchase price exceeded the fair value of the net assets acquired by $49,582, which was recorded as goodwill. LCA was recognized at that time as a new reportable segment and the entire goodwill was allocated to the activities of LCA.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

On January 31, 2015, the Company sold 100% of the shares of LCA-Vision Inc. for $40 million in cash and on August 31, 2015 amended the transaction to permit an Internal Revenue Code Section 338(h)(10) or 336(e) election under which all parties to the transaction, including the Company, are treated for tax purposes as if Vision had purchased the assets of LCA rather than LCA’s stock. Vision agreed to pay the Company the additional sum of $300 for entry into the First Amendment.

Note 4

Inventories:

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

Note 5

Property and Equipment, net:

Depreciation and related amortization expense was $84 and $292 for the nine months ended September 30, 2015 and 2014, respectively.

Note 6

Patents and Licensed Technologies, net:

Related amortization expense was $681 and $619 for the nine months ended September30, 2015 and 2014, respectively. Estimated amortization expense for amortizable patents and licensed technologies assets for the future periods is as follows:

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 7

Goodwill and Other Intangible Assets:

Goodwill reflects the value or premium of the acquisition price in excess of the fair values assigned to specific tangible and intangible assets in a business combination transaction. Goodwill has an indefinite useful life and therefore is not amortized as an expense, but is reviewed at least 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. Furthermore, the purchase price paid by Radiancy, Inc., a private company, included, among other things, other benefits such as the intrinsic value of being a Nasdaq-listed issuer post-merger and having an access to capital markets and stockholder liquidity.

The Company’s cumulative impairment losses of goodwill related to the continuing operations as of September 30, 2015 is $121 related to the closing of its Brazil operations effective September 30, 2015. See Note 2 regarding impairment of goodwill allocated to the activities of LCA which is presented as discontinued operations.

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

Related amortization expense was $647 and $712 for the nine months ended September 30, 2015 and 2014, respectively. Customer Relationships embody the value to the Company of relationships that PhotoMedex had formed with its customers. Trademarks include the tradenames and various trademarks associated with PhotoMedex products (e.g. “Neova” “Omnilux” and “Lumiere”).

Estimated amortization expense for the above amortizable intangible assets for the future periods is as follows:

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 8

Accrued Compensation and related expenses:

Note 9

Other Accrued Liabilities:

Note 10

Long-term Debt:

In the following table is a summary of the Company’s long-term debt:

Senior Secured Credit Facilities

On May 12, 2014, the Company had entered into an $85 million senior secured credit facilities (“the Facilities”) with JP Morgan Chase (“Chase”) which included a $10 million revolving credit facility and a $75 million four-year term loan. The facilities were utilized to refinance the existing term debt with Chase, fund the acquisition of LCA and for working capital and other general corporate purposes.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Effective February 28, 2015, the Company had entered into a Second Amended and Restated Forbearance Agreement (the "Second Amended Forbearance Agreement") with the lenders that were parties to the Credit Agreement dated May 12, 2014, and with Chase, as Administrative Agent for the Lenders.

Pursuant to the terms of the Second Amended Forbearance Agreement, the Lenders had agreed to forbear from exercising their rights and remedies with respect to the Specified Events of Default from August 25, 2014 until April 1, 2016, or earlier if any new event of default occurs (the "Forbearance Period"). Chase and the Lenders also agreed that the Company would not be obligated to pay the principal amounts set forth in the Credit Agreement for any date identified therein during the period beginning on February 28, 2015 and ending on the end of the Forbearance Period (the "Effective Period"), and that any failure to do so would not constitute a default or event of default. Instead, the Lenders and the Company agreed that the Company would make prepayments against the Term Loan of $250 on the first business day of each month during the Forbearance Period, which were applied in direct order of maturity. The Company also agreed that, on or before the fifth calendar day of each month, the Company would pay against the Term Loan $125, to the extent that the cash-on-hand exceeded $5 million, and 100% of the cash-on-hand in excess of $7 million, also to be applied to the Term Loan in inverse order of maturity. There were additional terms agreed to by the Company regarding the interest rate to be charged upon the outstanding balance of the Loans, compensation paid to officers, the use of funds for capital projects, and the preparation of a strategic business plan to repay the outstanding balances to the Lenders.

Also, as consideration for the Lender's entry into the Second Amended Forbearance Agreement, the Company had agreed to pay the Lenders certain forbearance fees (the "Forbearance Fees"), which were earned on the last business day of each of the specified months: for May and June 2015, $750 each month, with additional amounts specified for later periods. In addition, the $500 Forbearance Fee set forth in Section 4.10(b) of the Amended Forbearance Agreement remained due and payable to the Lenders on the earlier of the Expiration Date or the Termination Date of the Forbearance Period. The Second Amended Forbearance Agreement was also subject to customary covenants, including limitations on the incurrence of or payments on indebtedness to other persons or entities and requirements that the Company provide periodic financial information and information regarding the status of outstanding litigation involving the Company and its subsidiaries to the Lenders.

On June 23, 2015, the Company repaid in full the remaining outstanding balances of the Facilities (including all unpaid interest). Pursuant to the Payoff Letter, effective as of June 23, 2015, and all other termination and release documents in connection therewith, the Company and its subsidiaries have been released from all of their obligations, including any guarantee and collateral obligations, in connection with the Facilities. The Company has used the proceeds from the sale of the XTRAC and VTRAC Business, as well as its subsidiary in India, to complete payment of the remaining outstanding amount under the Facilities and ancillary costs, which totaled $40.3 million.

Note 11

Income Taxes:

The Company's tax expense includes federal, state and foreign income taxes at statutory rates and the effects of various permanent differences.

The application of the rules of ASC 740-270, Interim Reporting (of taxes), to the results of continuing operations (losses) for the three month and nine month period ended September 30, 2015 and the discontinued operations resulting from the XTRAC and VTRAC sale in June 2015 (net gain), result in an allocation of US federal and state tax expense and UK tax expense to the discontinued operations. The three month and nine month losses from continuing operations in the US and the UK, which otherwise would not show a tax benefit (a 100% valuation allowance would apply against such tax benefits), report a tax benefit in the third quarter limited to the amount of the tax expense reported on the profit / gain from discontinuing operations. This reporting is covered by an exception to the normal rules under ASC 740-270, Interim Reporting.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The difference between the Company's effective tax rates for the three and nine month periods ended September 30, 2015 and the U.S. Federal statutory rate (34%) is primarily the result of two factors. The tax benefits in the US and UK are computed under the statutory rates of 36.8% (federal and state) and 20% respectively but them limited as explained above. Tax expense in Israel is computed using an effective rate of 26.5%. During the nine months ended September 30, 2015, the Company recorded a tax benefit from continuing operations of $2,919 which is offset by tax expense on the sale of discontinued operations of $4,064.

During the three and nine months ended September 30, 2015, the Company had no material changes to liabilities for uncertain tax positions. The Company is currently under examination for its 2012 United States federal return and various states. At this time, the Company does not believe that the results of these examinations will have a material impact on its financial statements.

Note 12

Commitments and 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.

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 that motion. Viatek 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; the Court has denied those appeals. The Court has appointed a Special Master to oversee discovery. A Markman hearing on the patents at issue was held on March 2, 2015. Viatek has requested an opportunity to supplement its patent invalidity contentions in the US case; Radiancy opposes that request. Radiancy has been granted permission by the US Court to supplement its earlier sanctions motion to include the legal fees and costs associated with preparing and prosecuting that motion; to date, Viatek has paid $82,510.24 in sanctions to Radiancy. As of June 30, 2015, discovery and related court hearings continue in both the US and the Canadian cases. 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.

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 alleges various violations of the Federal securities laws between November 7, 2012 and November 14, 2013.

A mediation on possible settlement of this action was held on November 10, 2014; the parties including the Company’s insurance carrier agreed on a possible settlement. On August 11, 2015, the Court entered an order approving that proposed settlement, which provides a fund of $1.5 million for the benefit of those persons or entities who purchased securities issued by the Company during the period November 6, 2012 and November 5, 2013, inclusive. The settlement fund will also pay for plaintiffs' counsel's fees and expenses approved by the Court with respect to the action. The Company maintains insurance that helped to defray the cost of the proposed settlement, and does not expect the proposed settlement to have a material impact on its financial results. The settlement was approved by the Court on August 11, 2015. The Company had paid its own legal fees up to the deductible cap on its insurance policy, and all amounts to be paid to plaintiffs and plaintiff’s counsel were paid by the carrier of the insurance policy

The Company was served on July 29, 2014 with an application to certify a class action, filed in Israel District Court for Tel Aviv against the Company and its two top executives, Dolev Rafaeli, Chief Executive Officer, and Dennis M. McGrath, President and Chief Financial Officer. The plaintiffs’ who initiated this complaint have agreed to be part of, and be bound by, the settlement reached in the United States District Court for the Eastern District of Pennsylvania against the Company and the same two top executives as described above.

There were multiple class-action lawsuits filed in connection with PhotoMedex’s proposed acquisition of LCA-Vision, Inc. All cases asserted 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 parties have reached a possible settlement in these suits. On August 11, 2015, the Ohio Court entered an order approving that proposed settlement. Under the terms of settlement, LCA had published certain additional disclosure statements regarding its acquisition by the Company and its financial statements prior to its shareholder vote on the acquisition, which was held on May 12, 2014. The settlement also provided for the payment of certain plaintiffs' counsel's fees and expenses with respect to the action. LCA maintained insurance that helped defray the cost of the proposed settlement; the Company contributed less than $100 to the settlement, plus the payment of its legal fees; the settlement did not have a material impact on its financial results. As a result of the settlement, this action was dismissed with prejudice

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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. A mediation was scheduled in this matter for November 24, 2014, but no settlement was reached. On March 30, 2015, the Court dismissed this action in its entirety for failure to state a claim. The Court specifically dismissed with prejudice the claims pursuant to New York General Business Law §§349-50 and the implied warranty of fitness for a particular purpose; the other counts against Radiancy were dismissed without prejudice. The Court also granted Dr. Rafaeli's motion to dismiss the actions against him for lack of personal jurisdiction over him by the Court. The Court denied the plaintiffs request for jurisdictional discovery with respect to Dr. Rafaeli and plaintiffs request to amend the complaint. Radiancy and its officers intend to continue to vigorously defend themselves against any attempts to continue this lawsuit.

On July 17, 2014, plaintiffs’ attorneys refiled their putative class action lawsuit in the United States District Court for the District of Columbia against only the Company’s subsidiary, Radiancy, Inc. The claims of the suit are virtually identical to the claims originally considered, and dismissed without prejudice, by the same Court. A companion suit was filed in the United States District Court for the Southern District of New York, raising the same claims on behalf of plaintiffs from New York and West Virginia against Radiancy and its President, Dr. Dolev Rafaeli. That New York case has now been removed to the D.C. Court and the cases are in process of being consolidated into one action. The Company intends to defend itself vigorously against this suit. 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.

On June 30, 2014, the Company’s subsidiary, Radiancy, Inc., was served with a class action lawsuit filed in the Superior Court in the State of California, County of Kern. The suit was filed by April Cantley, who purchased Radiancy’s no!no! Hair products. It alleges various violations of state business and consumer protection codes including false and misleading advertising, breach of express and implied warranties and breach of the California Legal Remedies Act. The complaint seeks certification of the class, which consists of customers in the State of California who purchased the no!no! Hair devices. The complaint also seeks an unspecified amount of monetary damages, pre-and post-judgment interest and attorneys’ fees, expert witness fees and other costs. Radiancy has filed an Answer to this Complaint; the case is now in the discovery phase. On October 30, 2015, Radiancy filed to remove this action to the United States District Court for the Southern District of California; as a result of that filing, all discovery in this case has now been stayed. Radiancy and its officers intend to vigorously defend themselves against this lawsuit. Discovery has now commenced in this action. 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.

The Company and its subsidiary, Radiancy, Inc. had filed suit against Schulberg MediaWorks in the United States District Court for the Eastern District of Pennsylvania. The suit sought resolution of unbilled amounts allegedly owed to Schulberg and the return of the Company's media assets. All claims in the suit have been settled and all claims and past due amounts were settled for $300 which was paid subsequent to the end of the quarter.

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.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 13

Employee Stock Benefit Plans:

Post-Reverse Merger

The Company has a Non-Employee Director Stock Option Plan. This plan has authorized 370,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 12,912 shares were reserved for outstanding stock options. The directors, who were elected to our Board in connection with the reverse merger, each received a one-time stock award of 5,000 shares of the Company’s common stock in January 2012.

In addition, the Company has a 2005 Equity Compensation Plan (“2005 Equity Plan”). The 2005 Equity Plan has authorized 6,000,000 shares, of which 3,071,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 859,026 shares were reserved for outstanding options as of September 30, 2015.

Stock option activity under all of the Company’s share-based compensation plans for the nine months ended September 30, 2015 was as follows:

At September 30, 2015, there was $4,694 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 2.86 years. The intrinsic value of options outstanding and exercisable at September 30, 2015 was not significant.

The Company calculates expected volatility for share-based grants based on historic daily stock price observations of its common stock. 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 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 26, 2015, the Company issued 1,495,000 restricted stock units to a number of employees. The restricted shares have a purchase price of $0.01 per share and vest, and cease to be subject to the Company’s right of repurchase, over a four-year period. The Company determined the fair value of the awards to be the quoted market price of the Company’s common stock units on the date of issuance less the value paid for the award. The aggregate fair value of these restricted stock units issued was $2,766.

Total stock based compensation expense was $5,901, including $4,046 that is included in discontinued operations, and $2,710 for the nine months ended September 30, 2015 and 2014, respectively, including amounts relating to consultants.

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 14

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 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 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. On June 22, 2015, the Company sold its XTRAC and VTRAC business and has classified the revenues and expenses of this business to discontinued operations. The domestic XTRAC business revenues from this business have historically been reported in our Physician Recurring business segment. Internationally, we sold our XTRAC-Velocity and VTRAC equipment to distributors which sales have been historically reported in our professional equipment segment. For a period during 2014 through January 31, 2015 the Company had a fourth operating segment, Clinics segment. This represented our LCA business which was classified as discontinued operations as of December 31, 2014. See also Note 2, Discontinued Operations.

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. Interest and other financing income (expense), net is also not allocated to the operating segments. Unallocated assets include cash and cash equivalents, prepaid expenses and deposits.

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

Three Months Ended September 30, 2015 (unaudited)

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Three Months Ended September 30, 2014 (unaudited)

Nine Months Ended September 30, 2015 (unaudited)

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nine Months Ended September 30, 2014 (unaudited)

For the three and nine months ended September 30, 2015 and 2014 (unaudited), net revenues by geographic area were as follows:

As of September 30, 2015 and December 31, 2014, long-lived assets by geographic area were as follows:

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

PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Note 15

Significant Customer Concentration:

Customer (A) representing retail sales reflected in the Company’s Consumer Segment in the amount of $1,836 represented approximately 10.2% of consolidated revenues for the three months ended September 30, 2015. No single customer accounted for more than 10% of total company revenues for the nine months ended September 30, 2015 or either of the three or nine months ended September 30, 2014.

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, 2014. 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

On June 22, 2015, the Company, and certain subsidiaries, sold the assets, and related liabilities, of the XTRAC and VTRAC business for $42.5 million in cash, including $750 in escrow. The Company realized net proceeds of approximately $41 million, substantially all of which were used to repay the credit facilities, including any outstanding forbearance fees. This asset sale was accounted for as a discontinued operation. Thus for the statements of operations, for the three and nine months ended September 30, 2015 and 2014, the activity related to the XTRAC and VTRAC business’ operations through the date of disposition, and any gains or losses there from, are captured as discontinued operations. The XTRAC and VTRAC business assets and liabilities were reported to be held for sale as of December 31, 2014.

LCA, acquired by the Company on May 12, 2014, is a provider of fixed-site laser vision corrections services at its LasikPlus® vision centers. After preliminary investigations and discussions, the Board of Directors of the Company, with the aid of its investment banker, had reached a formal decision during December 2014 to enter into, substantive, confidential discussions with potential third-party buyers and began to develop plans for implementing a disposal of the assets and operations of the business. The Company accordingly classified this former segment as held for sale and discontinued operations. On February 2, 2015, the Company closed on the sale transaction of 100% of the shares of LCA for $40 million in cash.

The accompanying condensed consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. Also, as of December 31, 2014, balance sheet items related to LCA were presented as assets held for sale and as liabilities held for sale, respectively.

On August 31, 2015 the Company entered into a First Amendment to its Stock Purchase Agreement of January 31, 2015, under which the Company and its subsidiary LCA-Vision Inc. (“LCA”) sold LCA and its subsidiaries to Vision Acquisition, LLC. The First Amendment amends the Stock Purchase Agreement to permit an Internal Revenue Code Section 338(h)(10) or 336(e) election under which all parties to the transaction are treated for tax purposes as if Vision had purchased the assets of LCA rather than LCA’s stock. Vision agreed to pay the Company the sum of $300 for entry into the First Amendment. The transaction was completed as of August 31, 2015 and such amount was included in the three months ended at September 30, 2015 as an additional gain on the sale of discontinued operations.

On September 1, 2015, PhotoMedex, Inc. and its subsidiary PhotoMedex Technology, Inc. (“PTECH”) entered into an Asset Purchase Agreement and a Supplemental Agreement (together, the “Asset Purchase Agreement”) with DaLian JiKang Medical Systems Import & Export Co., LTD, (“JIKANG”). Under the Asset Purchase Agreement, JIKANG is to acquire the SLT® surgical laser business (the “Transferred Business”) from PTECH, for a total purchase price of $1.5 million (the “Purchase Price”). The agreement was later amended to add an affiliate company to the transaction. The Company will receive net cash of approximately $1.2 million after payment of closing and ancillary costs. The Purchase Price is payable to the Company in three installments. An initial deposit of $300 was made on September 2, 2015. JIKANG will provide two letters of credit to the Company for the remainder of the Purchase Price. The $1 million Letter of Credit will become payable to the Company on or about November 17, 2015, at which time substantially all the assets will be then be transferred to JIKANG in consummation of the transaction. The remaining Letter of Credit, for $200, will be payable to the Company by February 17, 2016, after certain post-closing steps including the receipt of all assets at JIKANG’s facilities and the training of JIKANG’s personnel. The Asset Purchase Agreement contains customary representations, warranties and covenants by each of the Company, PTECH and JIKANG, as well customary indemnification provisions among the parties. The Company has recorded the deposit as an accrued liability as of September 30, 2015 until the significant uncertainty on the collectability of the $1million Letter of Credit and the subsequent transfer of substantially all the assets to the purchaser will be resolved. Management does not believe that the sale of the SLT business represents a strategic shift for the company.

Our technologies, products and research efforts are directed to addressing the worldwide aesthetic industry. We provide dermatologists, professional aestheticians, and consumers with the equipment and skin care products they need to treat acne, UV damage, hair removal and skin tightening and rejuvenation, among other skin conditions. In December 2011, PhotoMedex merged with Radiancy Inc. which brought to PhotoMedex the no!no!® line of home-use consumer products for hair removal, acne treatment, skin rejuvenation and lower back pain. In addition to a synergistic product line, Radiancy possesses a proprietary consumer marketing engine built upon direct-to-consumer sales and creative marketing programs that drive brand awareness. During 2013 and throughout 2014, we began to benefit from the impact of these marketing methodologies and expertise on our and NEOVA® topical skin care lines while continuing to realize organic and geographic growth of additional brands.

To execute our strategic initiatives, we rely in part on a.) a skilled sales force to target Physicians and other healthcare professionals; b.) a developed expertize in global consumer marketing; and c.) a business model addressing the full product life cycle representing the ability to develop and commercialize innovative products from concept thru regulatory and physician acceptance, ultimately marketed directly to the consumer as dictated by normal product life cycle evolution.

We believe that we are one of only a few aesthetic 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

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 6 million no!no!® products to consumers, the majority of whom have been in Japan and North America.

Our products are sold in large markets around the world, and although the Company has sold cumulatively more than 6 million no!no! brand products, this represents only a fraction of the population in these markets, including:, the United States with approximately 318 million people; Japan with a population of approximately 127 million people; Germany (pop. 81 million); United Kingdom (pop. 64 million); Canada (pop. 35 million); Australia (pop. 23 million) and Hong Kong (pop. 7 million). As the modality for consumers’ preferences in being exposed to product advertising continues to evolve, the Company is continually challenged with introducing new and innovative advertisements and formats to expose consumers to its products and offer them for sale to these audiences.

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.

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:

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 $10 million and $17 million for the three months ended September 30, 2015 and 2014, respectively. Our consumer distribution segment in North America had sales of approximately $35 million and $71 million for the nine months ended September 30, 2015 and 2014, 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 $6 million and $8 million for the three months ended September 30, 2015 and 2014, respectively. In the international consumer segment, sales were approximately $17 million and $24 million for the nine months ended September 30, 2015 and 2014, 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 our NEOVA® skin care, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. NEOVA represents a recurring revenue stream 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 the NEOVA products.

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 LHE® brand products and our Omnilux and Lumière Light Therapy systems.

We now possess an expanded product offering for the physician community. We are also distributing through our 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 an opportunity, as well as a resource in expanding the Professional segment of our revenues.

Sales and Marketing

As of September 30, 2015, our sales and marketing personnel consisted of 39 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 September 30, 2015. 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, 2014.

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:

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 September 30, 2015, consumer products revenues were $15,994 compared to $24,938 in the three months ended September 30, 2014. For the nine months ended September 30, 2015, consumer products revenues were $51,659 compared to $94,261 in the nine months ended September 30, 2014.The decrease of 35.9% and 45.2% during the periods, respectively, was mainly due to the following reasons:

Due to the decline in revenues, discussed above, management determined that there was a risk of goodwill impairment for this segment. As of September 30, 2015 goodwill allocated to the Consumer segment was $20,445. We conducted a goodwill impairment analysis as June 30, 2015 and again evaluated the underlying assumptions of that analysis as of September 30, 2015 while considering the developing marketing initiatives being implemented to grow revenues for our existing products leveraging the cumulative brand identity. Our assessment concluded that there was not any impairment of goodwill. Our analysis employed the use of both a market and income approach, with each method given equal weighting. Significant assumptions used in the income approach include growth and discount rates, margins and the Company’s weighted average cost of capital. We used historical performance and management estimates of future performance to determine margins and growth rates. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. Consumer has a fair value that is nominally in excess of its carrying value. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion.

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

Physician Recurring Segment

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

NEOVA skincare

For the three months ended September 30, 2015, revenues were $1,074 compared to $1616 for the three months ended September 30, 2014. For the nine months ended September 30, 2015, revenues were $3,785 compared to $5,430 for the nine months ended September 30, 2014. These revenues are generated from the sale of various skin, hair, and wound care products to physicians in both the domestic and international markets. The decrease in revenues in the three and nine month periods is generally due to a customer in the hair restoration business discontinuing purchasing a specific product line designed for use in that type of procedure.

Surgical products

For the three months ended September 30, 2015 and 2014, revenues were $203 and $441, respectively. For the nine months ended September 30, 2015 and 2014, revenues were $856 and $1,326, respectively. These revenues are generated from the sale of various related laser fibers and laser disposables in both the domestic and international markets. On September 1, 2015, PhotoMedex, Inc. and its subsidiary PhotoMedex Technology, Inc. (“PTECH”) entered into an Asset Purchase Agreement with DaLian JiKang Medical Systems Import & Export Co., LTD. The agreement was later amended to add an affiliate company to the transaction. Under the Asset Purchase Agreement, JIKANG is to acquire the SLT® surgical laser business from PTECH, for a total purchase price of $1.5 million. The Purchase Price is payable to the Company in three installments. An initial deposit of $300 was made on September 2, 2015. JIKANG provided two letters of credit to the Company for the remainder of the Purchase Price. A $1 million Letter of Credit will become payable to the Company on or about November 17, 2015, at which time substantially all the assets will be then be transferred to JIKANG in consummation of the transaction. The remaining Letter of Credit, for $200, will be payable to the Company by February 17, 2016, after certain post-closing steps including the receipt of all assets at JIKANG’s facilities and the training of JIKANG’s personnel. The Company has recorded the deposit as an accrued liability as of September 30, 2015 until the significant uncertainty on the collectability of the $1million Letter of Credit and the subsequent transfer of substantially all the assets to the purchaser will be resolved. Management does not believe that the sale of the SLT business represents a strategic shift for the Company.

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

Professional Segment

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

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 September 30, 2015 and 2014, LHE® brand products revenues were $320 and $610, respectively. For the nine months ended September 30, 2015 and 2014, LHE® brand products revenues were $1,098 and $1,566 respectively.

Omnilux/Lumiere equipment

For the three months ended September 30, 2015 and 2014, Omnilux/Lumiere equipment revenues were $369 and $355, respectively. For the nine months ended September 30, 2015 and 2014, Omnilux/Lumiere equipment revenues were $958 and $1,018, 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.

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

Cost of Revenues: all segments

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