Note 12

Employee Stock Benefit Plans:

Post-Reverse Merger

Following the closing of the reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 18,951 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 addition, following the closing of the reverse acquisition, the previous 2005 Equity Compensation Plan ("2005 Equity Plan") of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 753,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 890,170 shares were reserved for outstanding options.

Stock option activity under all of the Company's share-based compensation plans for the nine months ended September 30, 2012 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2012		180,718		$	19.54
Granted		739,000			15.87
Exercised		(7,964	)		6.78
Cancelled		(11,129	)		20.25
Outstanding, September 30, 2012		900,625		$	16.63
Options exercisable at September 30, 2012		180,625		$	19.48

At September 30, 2012, there was $11,650 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 3.8 years. The intrinsic value of options outstanding and exercisable at September 30, 2012 was not significant.

The Company calculates expected volatility for a share-based grant based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the nine months ended September 30, 2012, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.

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

	Nine Months Ended September 30, 2012
Risk-free interest rate		1.2	%
Volatility		85.53	%
Expected dividend yield		0	%
Expected life	5.5 years
Estimated forfeiture rate		0	%

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

On January 26, 2012, the Company issued 30,000 shares of common stock to the six non-employee directors for an aggregate fair value of $405.

On March 18, 2012, the Company granted an aggregate of 509,000 options to purchase common stock to a number of employees and consultants with a strike price of $14, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. Also on March 18, 2012, the Company granted an aggregate of 230,000 non-qualified options to purchase common stock to two executive employees with a strike price of $20, which was set to match the exercise price of the warrants issued in the reverse merger and was higher than the quoted market value of our stock at the date of grant. The aggregate fair value of the options granted was $6,652. The options vest over five years and expire ten years from the date of grant.

On December 13, 2011, as part of the reverse merger, the Company issued 380,000 shares of restricted common stock to two executives of Pre-merged PhotoMedex. These 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 three-year period. The Company determined the fair value of the awards to be the fair value of the Company's common stock on the date of issuance less the value paid for the award.

As part of the reverse acquisition, the Company assumed 164,000 unvested restricted stock awards that were issued on March 30, 2011. Pre-merged PhotoMedex had awarded 200,000 shares of restricted stock to two of its senior executives. The awards were amended on July 4, 2011 and on August 11, 2011 with respect to the vesting provisions such that upon the closing of the reverse merger, each executive would vest in that number of shares that could be vested without causing excise taxes under Sec. 4999 of the Internal Revenue Code to be imposed on the executive or the loss in any material respect of a deduction under Section 162(m) of the Internal Revenue Code, and any remaining shares would vest in substantially equal monthly installments over a 3-year period, on each month end, so long as the executive continues to be employed by the Company on each such date. If the executive's employment is terminated by the Company without cause, due to his resignation for good reason, or as the result of his death or disability, the vesting of the shares shall be accelerated. 36,000 of the restricted stock awards were vested as of December 13, 2011, the date of the reverse merger, for the one executive who opted to be so vested.

Out of the total options exercised into shares of common stock during 2011, the Company shall have the right to repurchase 310,442 shares of common stock at a price equal to the par value of such shares ($0.005 per share) in the event of either the resignation or the termination for cause according to the employment agreement of the employees with the Company or its subsidiary. The repurchase right will be subject to the same vesting periods as the option grants themselves. The Company accounted for the replacement of the options with an exercise price of $0.05, with 310,442 restricted shares, with similar vesting terms, as a modification of an award and determined that the fair value of the replaced award equals the new award and therefore no incremental costs should be recorded. As a result, the original stock based compensation of $869 continues to be expensed over the original vesting period.

Total stock based compensation expense was $4,817 and $16,436 for the nine months ended September 30, 2012 and 2011.