Case 2:13cv06808PD Document 18 Red 04/14114 Page 1 of 99

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

GUY RATZ, Individually and on behalf of all others similarly situated,

Plaintig CIVIL ACTION NO.: 2:13-cv-06808-PD vs.

PHOTOMEDEX, INC., DENNIS M. MCGRATH and DOLEV RAFAELI, JURY TRIAL DEMANDED Defendants. April 14, 2014

AMENDED COMPLAINT FOR VIOLATION OF FEDERAL SECURITIES LAWS

Scoff it Shepherd Jams E Miller Jams C. Shah Karen Leser- Grenon Eric L. Young SHEPHERD, FINKELMAN, MILLER SHEPHERD, FINKELMAN, MILLER & SHAH, LLP & SHAH, LLP 65 Main Street 35 East State Street Chester, CT 06412 Media, PA 19063 Telephone: (860) 526-1100 Telephone: (610) 891-9880 Facsimile: (866) 300-7367 Facsimile: (866) 300-7367 Email: jrnii1er(i4sfrsbw. corn Email: sshepherd(à)sfiris]aw.corn 1deser(2),sfrsJaw. corn shah':.uimIawconi eyoun Inis1aw. corn

Attorneys for Lead Plaintiff and the Proposed Class Case 2:13cv06808PD Document 18 Red 04/14114 Page 2 of 99

TABLE OF CONTENTS

Page

TABLE OF CONTENTS ......

I. INTRODUCTION ...... 1

II. NATURE OF THE ACTION...... 2

III. JURISDICTION AND VENUE ...... 8

IV. PARTIES...... 9

A. Lead Plaintiff ...... 9

B. Defendant...... 9

V. FACTUAL ALLEGATIONS ...... 11

A. The 2011 Reverse Merger ...... 11

B. The No!No! Hair Removal Product And Its Status As PhotoMedex's Core Product ...... 15

VT. CLASS PERIOD STATEMENTS, MATERIAL MISREPRESENTATIONS AND MATERIAL OMISSIONS...... 24

VII. THE TRUTH COMES TO LIGHT ...... 52

VIII. ADDITIONAL FACTS GIVING RISE TO A STRONG AND COGENT INFERENCE OF SCIENThR ...... 67

IX. LOSS CAUSATION...... 79

X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET...... 83

XI. INAPPLICABILITY OF THE SAFE HARBOR ...... 84

XII. CLASS ACTION ALLEGATIONS...... 85

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COUNT I VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE lOb-S THEREUNDER (Against PhotoMedex, Rafàeli and McGrath)...... 88

COUNT II VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT AND RULE lOb-S THEREUNDER (Against Rafaei and McGrath) ...... 92

JURY DEMAND...... 94

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I. INTRODUCTION

1. Lead Plaintig Asbestos Workers, Local 14 Pension Fund, by and through its undersigned counsel, individually on its own behalf and on behalf of all persons or entities that purchased and/or acquired the common stock of PhotoMedex, Inc. ('PhotoMedex" or the

'Company') between November 6, 2012 and November 5, 2013 (the "Class Period"), brings this action seeking relief under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § §

78j(b) and 78t(b) (the 'Exchange Act') and Rule 1 Ob- S promulgated thereunder by the United

States Securities and Exchange Commission ("SEC"), 7 C.F.R § 240. 10b-5, against

PhotoMedex, the Company's Chief Executive Officer Dolev Rafàeli, Ph. D. ("Rafàei'), and the

Company's Chief Financial Officer, President, and Director Dennis M. McGrath ('McGrath"), as well as for control person liability under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t, against Rafàei and McGrath (the individual Defendants'). Lead Plaintifl in support of this

Amended Complaint ("Complainf) and for its claims, alleges the following upon knowledge as to itself and its own acts and, as to all other matters, based upon the investigation nude by and through its counsel, which included the following: (a) review and analysis of filings nude by

PhotoMedex and the Individual Defendants with the SEC; (b)review and analysis of press releases, public statements, news articles, securities analysts' reports, earnings conference call transcripts, and other publications disseminated by or concerning PhotoMedex; (c) interviews with former employees (identified herein as confidential witnesses) of Photomedex and its predecessor, Radiancy, Inc. ('Radiancy"); (d) review of other publicly available inforimtion about or pertinent to PhotoMedex and the allegations in this Complaint; and (e) independent analysis of the above items. Additional facts supporting the allegations contained herein are

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known only to the Defendants or are exclusively within their control at this time. Lead Plaintiff believes that substantial additional evidential support exists for the allegations set forth in this

Complaint that will be revealed after a reasonable opportunity for discovery.

II. NATURE OF THE ACTION

2. PhotoMedex, currently headquartered in Horsham, Pennsylvania, describes itself as a "leader in the dermatology market, committed to the Science of Skin Health in disease management and skin rejuvenation," Hip://www.phoiomedexcorn(conyany/purposehtrn, with the purpose "to provide branded dermatological solutions of superior value to improve patients' lives now and into the future." Id. To that end, the Conpany supplies proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis, and photodamage. The Company's flagship product, however, which generates most ofthe Company's revenues, is the no no! hair removal device ('no no! device"), described in more detail below.

3. In its current form, PhotoMedex is the result of a December 2011 'reverse merger" with Radiancy,' a fornirly privately-held developer and manufacturer of home- use and professional aesthetic and dermatological devices headquartered in Orangeburg, New York, with significant operations in the State of Israel-

' A 'reverse merger," otherwise known as a 'reverse takeover," is "a type of merger used by private companies to become publicly traded without resorting to an initial public offering. Initially, the private company buys enough shares to control a publicly traded conpany. The private company's shareholder then uses their shares in the private company to exchange for shares in the public company. At this point, the private company has effectively become a publicly traded one." httpi/www.investcpedia.com'terms!r/reversetakeover.asp; see also https:'/www.sec.gow'investor/alerts/reversenrrgers.pdf(explahtg the nature of reverse mergers in general).

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4. Radiancy marketed and sold a range of home-use devices under its proprietary brand, no! no! ®, for various indications including hair removal, acne treatment, skin rejuvenation, and facial muscle toning, which PhotoMedex now markets and sells as a result of the merger. Prior to the reverse merger, Radiancy's chief product was the no !no! device. Under the terms of the merger, Radiancy's President and Chief Executive Officer ("CEO"), Rafaeli, became the CEO of the new PhotoMedex, while PhotoMedex's previous President and CEO,

McGrath, assumed the position of President and Chief Financial Officer ("CFO") ofthe new

PhotoMedex

5. After the reverse merger, Radiancy's no !no! hair removal device became the new flagship product for PhotoMedex, and the Company's main revenue and profit driver. According to one of the advertising websites operated by Radiancy (which, following the reverse merger, became a wholly owned subsidiary of PhotoMedex), the no! no! device works through direct application ofthe device to the skin, whereupon the device transmits heat to the hair and removes it (httpliwww.trynono.conTilhownono-hawworks/). From the time of the December 2011 reverse merger and even continuing today, PhotoMedex represents to investors that the no! no! device has several technical "competitive advantages" over other hair removal products/ processes such as shavers, waxing, threading, and laser-based and intense pulsed light-based products. In fact and unbeknownst to investors, the no !no! device is no better or more effective at removing hair or reducing hair regrowth than a shaver, though it is significantly more expensive than a razor, with some models priced at approximately $270 per unit and others more than $300 per unit for retail. Essentially, PhotoMedex' s business model of generating revenue from the no! no! device relies on a massive false advertising campaign, which misinforms and

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cajoles consumers into purchasing a novelty product that reliable scientific studies establish is lacking in efficacy. Indeed, the Company's advertising canpaign cites to three studies, one conducted in Chile, another conducted in Israel (in-house at Radiancy's clinical department), and the last in the United States (funded by Radiancy), which ostensibly provide clinical proof of the no!no! device's superior efficacy. As explained below, the Company and Individual Defendants are well aware that the no no! device lacks efficacy and is no more effective than a razor.

Nevertheless, Defendants persist in an aggressive campaign to falsely advertise the supposed benefits of PhotoMedex' s flagship product - the no! no! device.

6. Putting aside the legality of engaging in a false and misleading marketing campaign to consumers about the efficacy of its flagship product, this strategy can be effective, as demonstrated by the no! no! hair device's success inthe North American market and, in particular, the United States, but it also carries a very significant risk. If the mix of information in a consumer market reaches a tipping point in which consumers realize that the no no! device is no more effective than a razor in either eliminating hair or reducing hair regrowth, but is much more expensive, then the market ultimately will react and sales will diminish and/or collapse.

But the Company has failed to disclose this known risk to investors since the reverse merger was consummated on December 13, 2011, and continues to inform investors ofthe technical

"conpetitive advantages" that the no !no! device purportedly possesses, as compared to other hair removal/reduction products.

In recognition of the flawed nature of the no !no! device, as explained below, in

2013, PhotoMedex was forced to spend significantly more on advertising inthe United States than in 2012 to generate significantly less sales in 2013 when conpared to 2012, while the

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Company's sales in its second biggest market, Japan, literally collapsed in 2013. As explained

below, throughout the Class Period, Defendants were on notice and aware that the Company's

exclusive distributor in its second biggest market, Japan, was experiencing significant financial

problems and that sales of the no!no! device in Japan were flagging, as Defendants had both

specific information regarding the tens of millions of dollars in products (principally, the no no!

device) which had been shipped by PhotoMedex to that distributor and booked as sales, and

information regarding the actual amount of sales to consumers in Japan Throughout the Class

Period, Defendants concealed this material information while continuing to make positive (but

false and misleading) statements regarding the Company's prospects in Japan

8. As described in more detail below, prior to and during the pendency of the reverse

merger, Radiancy was sued for falsely advertising the efficacy of the no! no! device by a

competitor, and ultimately was forced to change its consumer advertising regarding its flagship

product as a result this litigation This lawsuit also gave rise to a clinical study, initially

commissioned by the competitor for litigation purposes, but later published by a peer-review journal in June 2013 (but not well publicized), concluding that the device was no more effective

at removing hair than a razor or reducing hair growth Nevertheless, the Company continued to

tout the efficacy and "competitive advantages" of the no! no! device to investors - - using

representations that it withdrew from its consumer advertising as a result of the competitor's

lawsuit, but which it continued to use in trumpeting PhotoMedex' s products and prospects to

investors. Significantly, despite the fact that the confidential terms of the settlement amounted to

an admission that PhotoMedex' s flagship product lacks efficacy, the Company and its officers

explicitly denied that the lawsuit and the settlement of that lawsuit had or would have any

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material inpact on the Company's business.

9. Investors first received meaningfiul and well-publiciied notice in October 2013 of the June 2013 study, which was critical ofthe perfornance of the no! no! device, as compared to the representations regarding the performance ofthis product, when Streetsweeper.org , an investor blog and short seller, issued a report. The report, inter alia, compared the June 2013 study to the studies cited by PhotoMedex with the assistance of a neutral and objective expert, who is a dernatologist and a professor at the University of Colorado. The conparison revealed that, in contrast to the June 2013 critical study, the studies cited by PhotoMedex were either not scientifically rigorous or the results were not as significant or supportive as PhotoMedex had represented to consunrs. The Streetsweeper.org report also predicted that the Company's fortunes in Japan were at risk. Those words soon proved prophetic.

10. On November 6, 2013, the Company issued a press release reporting its financial results for the third quarter of 2013, announcing that its revenues had declined 19.0%, primarily because there were ahmst no sales of the Company's no!no! device to the Japanese market.

Japan was a critical market for the no!no! device, representing 20% of the Company's revenues for 2011. Throughout the Class Period, the Company frequently touted its prospects for expansion, as well as the enduring popularity, of the no!no! device in Japan and actively misled investors regarding PhotoMedex's prospects in Japan-

11. At the tinr of the November 6, 2013 press release, the Company blamed the revenue loss to a re-organization by its distributor, which Rafàei explained on a san-day earnings call was a result ofthe distributor's plan to eliminate the middlemen that existed between the distributor and retailers. On the same cal], Rafàei revealed that at least 160,000

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units worth at least $43 million at retail prices, and amounting to approximately five percent

(5%) of the Company's gross annual revenues (based on the average selling price of

PhotoMedex' s products to its Japanese distributor), approximately 15% ofthe amount of sales that PhotoMedex had booked as sales/revenue in Japan over the previous four (4) years (based on the average selling price ofPhotoMedex' s products to its Japanese distributor) and over 50% of the amount of sales that reasonably could have been anticipated by the Company to the Japanese distributor in 2013 (based on the average selling price ofPhotoMedex's products to its Japanese distributor), were actually in the hands of the distributor. Since Defendants touted the

Company's ability to track actual sales to consumers in Japan through a market research firm, which, inter alice, tracked scanned bar codes at retailers, it is highly unlikely that Defendants were unaware ofthe true state of affairs in the Japanese market throughout the Class Period. Despite claims by PhotoMedex in November, 2013 that sales in Japan remained stable, as explained below, the Conpany's numbers simply do not add up. Later, in December 2013, the Company revealed that its agreement with the Japanese distributor had been terminated because of disputes over marketing expenses and the distributor's failure to meet its minimum purchase obligations.

Despite the purported popularity ofthe no!no! device in Japan, no replacement distributor had been found as of March 2014.

12. On November 14, 2013, Streetsweeper.org issued another report on PhotoMedex, which, among other things, pointed out that the Company's Japanese distributor had been experiencing financial problems since at least as early as 2013. The Japanese distributor, a public company in Japan, had seen its revenue tumble and its net income slip by more than two- thirds, as conpared to the previous year. The Conpany' s executives knew about or, at the very

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ninimun severely and recklessly disregarded and filed to disclose the problems with its sole distributor in Japan long before the report by Streetsweeper.org and the disclosure of severe issues in Japan on November 6, 2013.

13. As a result ofthese revelations, common shares of PhotoMedex dropped by more than 17%, costing stockholders, including Lead Plaintiff tens ofmillions in lost shareholder value. Accordingly, Lead Plaintiff asserts claims under the Exchange Act against the Company and the Individual Defendants arising out of misrepresentations and/or omissions of material facts regarding: (i) the effectiveness of the Company's key product, the no! no! device, which rested on flimsy and weak, non-scientific studies; (ii) the existence of a more credible study raising serious doubts as to the touted effectiveness ofthe Company's key product, which, in fact, showed that the product works no better than shaving; and (iii) the Conpany's actual performance and prospects for success in Japan, given the flawed nature of its flagship product and critical problems with its sole Japanese distributor.

III. JURISDICTION AND VENUE

14. This action arises under Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C.

§78j(b) and 78t(a)) and Rule lOb-S promulgate thereunder (17 C.F.R §240.10b 5).

15. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and Section27 ofthe Exchange Act (15 U.S.C. §78aa).

16. Venue is proper in this Judicial District pursuant to Section 27 ofthe Exchange

Act and 28 U.S.C. § 1391(b). Many of the acts and conduct complained of herein, including the preparation and dissemination of materially false and misleading information to the investing public, occurred insubstantial part in this District. The Company is headquartered in this

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Judicial District, which is the nerve center of PhotoMedex's operations.

17. In connection with the acts and omissions alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities ofthe national securities markets.

IV. THE PARTIES

A. Lead Plaintiff

18. Asbestos Workers, Local 14 Pension Fund a/kla Asbestos Workers Philadelphia

Pension Plan ("Lead Plaintiff' or 'Pension Fund'), an institutional investor, purchased the publicly traded contmn stock of PhotoMedex at artificially inflated prices during the Class

Period as set forth in the Certification previously filed with the Court and incorporated herein by reference, and has suffered damages as a result ofthe disclosure ofthe wrongful acts of

Defendants, as alleged herein

B. Defendants

19. Defendant, PhotoMedex, is a skin health company incorporated under the laws of the State of Nevada, which imintains is current principal executive offices and headquarters at

100 Lakeside Drive, Suite 100, Horshan Pennsylvania. During the Class Period, PhotoMedex maintained its principal executive offices and headquarters at 147 Keystone Drive,

Montgomeryville, Pennsylvania. In its current form and as described in more detail below,

PhotoMedex was the result of a reverse merger with Radiancy, a then-private company, in

December 2011. The Company is a small company employing 168 full-time personnel as of

March 2014. The Company's primary product, which it markets through Radiancy, a now

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wholly-owned subsidiary of PhotoMedex, is the no!no! device, as described above and in further detail below. At all tins relevant to this action, PhotoMedex common stock has been listed for quotation and publicly traded on the NASDAQ stock exchange.

20. Defendant, Rafàeli, was the CEO of Radiancy from 2006 to 2011, whereupon he became the CEO of PhotoMedex after its reverse merger with Radiancy. Under the terms of the reverse merger, Rafàei' s compensation was set at the base rate of $450,000, but with a quarterly cash bonus equal to 1% of the GAAP sales reported in PhotoMedex' s consolidated quarterly financial reports. Rafàei was reported as the highest paid CEO in the Philadelphia region for

2011, receiving $28,284,287 in compensation-- most ofwhich was paid in shares of

Photomedex stock. See httDI/www.bizoun1aIs.com'phi1ade1phia/printedition/2O 12/06/15/

Ieaders-who-make-the-imst.htrnl?page=alL According to PhotoMedex's website, Rafaei holds a Ph.D. in business management from Century University a/k/a American Century University of

Albuquerque, New Mexico. Rafàei reviewed, approved, and signed certain ofPhotoMedex' s false and misleading SEC filings during the Class Period. During the Class Period, Rafàei sold or otherwise disposed of 1,028,750 shares, or 40.04%, ofPhotoMedex contmn stock that he owned or controlled after the reverse merger, for which he received proceeds or other payments in excess of $15.9 million

21. Defendant, McGrath, was elevated from CFO to CEO of the previous

PhotoMedex entity in 2009. He assumed the position as CFO ofthe merged PhotoMedex entity under the terms of the reverse merger. According to Photomedex's website, McGrath holds a

B.S. in Accounting from LaSalle University. McGrath reviewed, approved, and signed certain of

PhotoMedex's false and misleading SEC filings during the Class Period. During the Class

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Period, McGrath sold or otherwise disposed of 101,795 shares, or 32.14%, of PhotoMedex common stock that he owned or controlled after the reverse merger, for which he received proceeds or other payments in excess of$ 1.5 million-

22. According to Confidential Witness One ("CW1"), an individual who worked for

Photomedex as a Vice President of Sales from shortly after the conclusion of the reverse merger between Radiancy and Photomedex for approximately eighteen (18) months and for the majority ofthe Class Period and reported directly to the Individual Defendants and the Conpany's Chief

Operating Officer, Michael it Stewart ("Stewart"), and the Company's Executive Vice

President, Giora Fishman ('Pislmrnf'), Rafàei, McGrath, Stewart and Fishman were known as the 'Committee of Four," and these individuals made all significant business decisions at

PhotoMedex and were intimately involved in all marketing related decisions with respect to

PhotoMedex' s products.

V. FACTUAL ALLEGATIONS

A. The 2011 Reverse Meiter

23. According to its 2009 annual report filed on Form 10-K with the SEC on March

23, 2010 ("2009 10-K"), PhotoMedex was originally organized and founded in 1987 as Laser

Photonics Inc., a company principally devoted to research and development and based in Orlando

Florida, with insignificant revenue from actual consumers. In January 2000, the U.S. Food and

Drug Administration approved a device for treating psoriasis, a common skin condition, and the company changed its name to PhotoMedex soon thereafter. See 2009 10-K. In the ensuing decade, PhotoMedex expanded its business through a series of acquisitions to include other product lines applicable to therapeutic skin care and LED therapy for acne and photodamage, and

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began marketing directly to consumers. Id. PhotoMedex, then known as Laser Photonics Inc., went public in January 1998. See Form S-i flied with the SEC on January 27, 1998 ("1998 5-

1").

24. By the Summer of 2009, with lackluster performance of its portfolio of clinical devices and mounting losses despite incurring heavy marketing expenses, PhotoMedex was on the verge of bankruptcy. See generally http:Uwsw.bizjournakcom1phi]ade1p1iia/print-edition

/2012/0 1/06/photondex-bouncñig-back-ftoimbitk-ofhtiii1?page=aTh As a result ofthe

Company's financial problems, the Company's then-board of directors appointed McGrath, who was the CFO at the time, as President and CEO ofthe Company to improve PhotoMedex's management and financial position- Id. McGrath secured supplemental finding from top shareholders and a bridge loan that enabled the Company to stave off bankruptcy at that time, and then completed a private offering in October 2009 and a secondary public offering in May 2010 to raise more capital Id.; see also httpi/articles.pliilly.corn1201 1-1 1-22/business!

30429328 1 coivertil,le-debt- shareholders-nerger. Although PhotoMedex's financial position had improved, the earnings per share for Company stock was still negative throughout 2010. See

Form 10-K for 2010 filed with the SEC on March 31, 2011 ("2010 10-K') at F-38. In March

2011, a major investor, Perseus Partners VII, L.P. ('Perseus Partners"), informed the Company that it was interested in liquidating its convertible debt position and encouraged the Company to explore opportunities to effectuate that liquidation, thereby forcing PhotoMedex to once again look for alternative and near-term sources of liquidity and capital See Form S-4 filed with the

SEC on August 12, 2011 ('2011 S-4") at 41-44. Later, in 2011, PhotoMedex found its financial salvation in Radiancy. Id. As McGrath explained, the marriage of Radiancy and PhotoMedex

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combined the marketing strengths of Rafaei with McGrath's accounting and financial management expertise. httpPwww.biziounia1s.com'phi1ade1phia/p±iedftion

/2012/0 i/06/photondex1,ouncing1,ack-froimbitk7ofhIm1?page=aTh

25. Radiancy, a private company prior to its merger with PhotoMedex, was incorporated in Delaware in 1998 with its U.S. headquarters in Orangeburg, NY and its manufacturing operations based in the State of Israel Radiancy was formed to market hair removal products to beauty parlors, cosmeticians and dernatologists. See httx'iIwww.haaretz.corn/bushiess/ radiancy- snew-aesthetic biorned subsidiary-corning- honphoonedex-hoking-at.dua1..1istng..omahad-ha-anF 1.425466. Alter a dispute in 2004 between the company's management and its shareholders, as well as between Radiancy's shareholders themselves, Radiancy's ownership and leadership were re-organized, and Rafàei was appointed CEO of Radiancy in 2006. Id. In August 2011, as of the time that the reverse merger transaction between Radiancy and PhotoMedex was being conpleted, Radiancy had only

64 total shareholders. See 2011 S-4 at 100.

26. Radiancy and PhotoMedex first had preliminary, but ultimately unsuccessfiul, merger discussions in early 2007. See 2011 S-4 at 41-42. Those discussions revived with an exploratory meeting in October 2010 and intensified after PhotoMedex received notice from

Perseus Partners of its desire to liquidate its interest inthe Company. Id. at 41-44. Radiancy and

PhotoMedex executed a definitive merger agreement on July 4, 2011, and the reverse merger was completed on December 13, 2011. See Form 8-K filed with the SEC on December 16, 2011

("12/16/11 8-K') and Form 8-K filed with the SEC on July 8, 2011 ("7/8/11 8-K').

27. The merger agreement amounted to a reverse merger -- even though Radiancy was

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to merge into a wholly-owned subsidiary created by PhotoMedex Although the combined

Company retained the PhotoMedex name, Radiancy was, in essence, the acquiring entity. See

12/16/2011 8-K. Radiancy shareholders were allocated approximately 75% ofthe shares of the combined Company, while previous PhotoMedex shareholders were allocated 25% of shares following the reverse merger. Id .2 Rafaei became the CEO of the combined entity and new

Company, while McGrath became the CFO. Compare Form 10-K filed with the SEC on March

30, 2012 ("2011 10-K") with 2010 10-K.

28. According to CW1, the reverse merger between PhotoMedex and Radiancy was a

'Tharriage of convenience." CW1 explained that, based on his/her understanding, the reverse merger provided Radiancy with a way to obtain access to the U.S. capital markets as a public company without going through the extensive highly regulated process of pursuing an initial public offering ("IPO"). In addition, according to CW1, the reverse merger provided

PhotoMedex with the opportunity to access Radiancy's finds to assist in developing the

Company's struggling legacy product line. Confidential Witness Two (CWT), a former employee of PhotoMedex who served as a vice president of research, development and engineering before the Class Period and who currently works for a competitor of PhotoMedex, stated that, in exchange for bailing out PhotoMedex, Radiancy gained the veneer of respectability as a public company and access to the investing public, without having to go through the more exacting scrutiny imposed for IPOs. CW2 described the no!no! device as a "sham product" that

2PhotoMedex' s most recent annual report for 2013 [i.e., its Form 10-K filed with the SEC on March 17, 2014 ("2013 10-K")] states that, following the reverse merger, former Radiancy stockholders held approximately 80% of the Company's shares and that shareholders of PhotoMedex before the merger held approximately 20% of the Company's shares following completion of the reverse merger.

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merely bums hair off of skin According to Confidential Witness Three ('CW3"), an individual who worked as a marketing manager for Radiancy in Israel before the reverse merger for a period of approximately eighteen (18) months between 2007 and 2009, as described filly below, problems related to the no no! device were well known within Radiancy and to Rafàei for at least several years prior to the reverse merger and the commencement of the Class Period.

According to Confidential Witness Four ('CWT), an individual who worked as a purchasing agent and then as a product manager at PhotoMedex for more than seven (7) years and for approximately half of the Class Period, an internal divide erupted between PhotoMedex and

Radiancy legacy personnel after the reverse merger, which divide former Radiancy personnel were Sent on maintaining and, as a result, former PhotoMedex personnel were replaced with

Radiancy personnel following the reverse merger with former Radiancy personnel insistent upon the fact that only they could be involved in marketing and selling legacy Radiancy products.

B. The No!No! Hair Removal Product And Its Status As PhotoMedex's Core Product

29. After the reverse merger, the no no! device became the main revenue and profit driver of the new PhotoMedex. For example, in its third quarter report, filed with the SEC on

Form 10-Q on November 13, 2012 ("Q3 2012 10-Q"), the Q3 2012 10-Q noted that the

'Consumer segment, the Company's largest business unit, generates revenues by bringing professional technologies into the home-use arena, through the no !no! product line," while noting in its annual report for 2012 filed in March 2013 that its no!no! device is its "flagship product"

See 2012 10-K.

30. Radiancy first launched the no! no! hair removal device in South America

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(specifically, upon information and beiel in Chile) in 2004 and in the United States home use market in 2007, prior to the merger with PhotoMedex. See 11/14/2011 S-4 at 136. Radiancy also used the no! no! brand name for other product lines for acne removal, facial muscle toning, and after-treatment topicals. Id. The no!no! device is widely marketed, appearing and featured in television talk shows, magazines, newspapers, other periodicals, as well as online. https:'/ww.trwiono.com' PSAR3/press.aspx. Radiancy represented and represents that the no no! device uses "patented" and "proprietary" technology, which Radiancy branded as

'Themicoif' and essentially uses heat to bum offhair. 2013 10-K at 6. In connectionwith its heavy marketing of the no! no! device, Radiancy consistently cited to three (3) clinical studies that purportedly establish the effectiveness of the device. See, e.g., hupsi/www.trynonacom

/PSAR3/tñu.aspx.

31. After the United States, Japan has been identified as the largest market for the no!no! device for at least several years and since the reverse merger. For exanple, inks 2011

10-K filed approximately four (4) months after the reverse merger, the Conpany made the following representation:

We intend to continue implementing a global multichannel sales and marketing strategy. We have sold over 2.5 millionno!no!® units to consumers, the majority ofthese over the past two and a half years. Growth has largely been driven by North America (with a population of 400 million) and Japan (with a population of 127 million)....

Because the Company's Japanese distributor of our no!no!® brand ofproducts accounts for a significant part of its business, adverse conditions or risks relating to Japan could harm its business.

Approximately 20% of the Company's revenues related to the sale of its no!no!®

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brand products for the year ended December 31, 2011 was generated by sales in Japan

32. In November 2010, approximately one (1) year before the reverse merger, Tria

Beauty, Inc. ('Tria"), a competitor which manufactures, markets, and sells an FDA-approved laser hair removal device, filed a lawsuit against Radiancy on the grounds that Radiancy was misrepresenting the efficacy of and making false claims regarding the no!no! hair removal products to consumers. See Tria Beauty Inc. v. Radiancy Inc., Case No. 10-cv-05030-RS (N.D.

Cal.) at Dkt. No. 1 (the "Tria Litigatioif') Specifically, in the Tria Litigation, Tria asserted that, contrary to Radiancy's representations that using the no no! device will result in near- 100% reduction or even permanent elimination of hair re-growth, and comparing the no! no! device to lasers, the no !no! device did not result in any "long-ternf' or "permanent' ' reduction of hair, a reduction in the rate ofhair re-growth, or work as well as laser hair removal products. See

Amended Complaint in Tria Litigation at Dkt. No. 54.

33. In the course of the Tria Litigation, Tria engaged Dr. Brian S. Biesman ('Dr.

Biesman"), a dermatologist and professor at Vanderbilt University Medical Center, to compile an expert report on the safety and effectiveness of the no !no! device, which was produced to

Radiancy in April 2012 at the latest. See Tria Litigation at Dkt. Nos. 98, 132. Approximately three (3) months later, in a formal study sponsored by Tria, Dr. Biesman presented his findings that using the no! no! device was no more effective at long-term hair removal or reduction than shaving. See httpliwww. skiriandallergyiiews.corn/ indexph?id= 1059&type=98&tx ttnews%SBtt news%5D=1 34423&cHash=da03e20e36. The study by Dr. Biesniin was not widely published to the investing public or otherwise and news regarding this study was not

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widely disseminated to the investing public or otherwise. Indeed, it appears that only one author,

Amy Pfeiffer, with Elsevier, Inc.'s Global Medical News and/or International Medical News

Group, reported on this study while specifically identitiing it as having been sponsored by Ti-ia, a

competitor of Radiancy.

34. This study was formally published in July 2013, in the peer-reviewed journal,

Lasers in Surgery and Medicine, during the Class Period. PhotoMedex and its officers never

disclosed Dr. Biesman's study to investors, or that, to put it mildly, as explained below, the

no no! device's efficacy is highly questionable in nature, which the Company and the Individual

Defendants have known all along. The publication of Dr. Biesman's study also was not widely

disseminated to the investing public or otherwise. Indeed, the only publically available reference

to Dr. Biesman's study (beyond the academic journal in which it was published) appeared in a

press release issued by Tria in July 2013, as described below.

35. During the pendency of the Tria Litigation, which overlapped with the reverse

merger process, Radiancy and PhotoMedex only disclosed the existence ofthe action in SEC

filings, without offering any commentary on the merits ofthe case other than to state that it

intended to "contest the case vigorously." 8/12/2011 S-4 at F-6. In July 2012, seven (7) months

after the Radiancy- PhotoMedex reverse merger, Radiancy, now organized as a PhotoMedex

subsidiary, reached a confidential settlement with Tria resolving the litigation

36. On July 3, 2012, PhotoMedex issued a press release announcing the resolution of

the Tria Litigation (the "Tria Settlement"), a resolution which Rafaeli, now CEO of

PhotoMedex, commented would have no material inpact on or negative ramifications for the

Company's business:

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We are pleased to put this costly and protracted litigation and its associated legal costs behind us on terms that will not materially impact our business other than to alleviate ongoing litigation

37. The Company's announcement that the Tria Settlement would not have a material impact on its business was reported in the press and to the investing public.

38. On July 17, 2012, Tria also issued a press release announcing the Tria Settlement, the terms of which were confidential, but which press release stated as follows:

DUBLIN, Calif, July 17, 2012 /PRNewswire/ -- Tria Beauty, Inc. announced today that it has entered into a settlement of its false-advertising lawsuit against Radiancy, makers of the no! no! hair removal device. The settlement comes shortly after a series of favorable rulings by the court regarding Tria Beauty's entitlement to damages caused by Radiancy's false advertising, as well as Radiancy's counterclaim that Tria's Hair Removal Laser does not deliver permanent results. The specific terms and conditions of the settlement are confidential.

"We are extremely pleased with the outcome of this litigation We achieved all of our objectives and sent a clear message that we all must play by the rules, on a level playing field," stated Kevin Appelbaum, CEO.

As Radiancy documents submitted in court show, Radiancy deliberately engaged in a massive advertising campaign based on bogus claim lacking any scientific basis, including knowingly false claims that the no!no! "provides an effect similar to what lasers accomplish in the dermatologist office"; produces "laser-like results"; is like laser and IPL [intense pulsed light] treatments, the heat gradually disrupts the hair growth cycle." Mimicking medical laser claims, Radiancy claimed that the no!no! Hair provided "up to 94% reduction in hair re-growth", allowed users to "get rid of unwanted hair and keep it gone" and 'have a life of freedom from hair." As Radiancy admitted in papers filed with the court shortly before the settlement, it has dropped all such claim as a result of Tria's lawsuit.

"We entered into this litigation because we believed the Radiancy device offered consumers nothing more than the benefits of a typical shaver, despite their aggressive advertising to contrary," Appelbaum stated. "While the terms of the settlement are confidential, the facts speak for themselves and are a natter of public record." Those facts included the report of a controlled study conducted by laser expert Dr. Brian S. Biesman, which established conclusively that the no!no! provides no greater or longer-lasting hair reduction results than an ordinary razor.

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By contrast, although Radiancy sought to call into question the results Tria Beauty's Hair Removal Laser delivers, the evidence in the case amply demonstrated the truth of Tria's claims to permanent, hair-free results. Such evidence included two separate clinical studies, both directed by renowned physician and laser specialist Dr. Ronald U. Wheeland, which demonstrated that the Tria laser for hair removal provides substantial and permanent hair reduction benefits to users who follow a course of treatments with the device.

"We do not enter into litigation lightly and only pursue it as a last resort," said Appelbaum. "However, we will not sit idly by if we see companies misleading consumers, making marketing claims without proper substantiation, or skirting the regulatory process with the FDA. We have invested many millions of dollars in the development of products that provide consumers breakthrough skin care benefits, proven their efficacy and safety through multiple clinical studies and obtained the required clearances from the FDA and regulatory agencies around the world. If others choose not to play by clearly established regulatory guidelines for marketing and selling consumer medical devices over-the-counter, we will act, and sometimes our actions will involve litigation"

39. The assertions contained in this press release by one ofthe Company's competitors in the context of settlement of litigation was not widely disseminated to the investing public or otherwise. Indeed, it does not appear that the assertions contained in the Tria press release issued on July 17, 2012 were published or cited to in any publication in the United States.

Instead, the assertions simply appeared in the press release and were neither cited to nor

republished in the United States based upon a search ofpublically available sources. 3

40. The Company ignored the July 17, 2012 press release by Tria and has never publically acknowledged, commented upon or responded to it. Notwithstanding the statements contained in Tria's July 17, 2012 press release, as described filly below, PhotoMedex continued to represent that the no no! device was effective, both in consumer advertisements and investor communications. Indeed, as discussed below, the Company continued to misrepresent the nature

3 1t does appear that certain of the statements contained in Tria' s press release were republished in one overseas publication, India Pharma News, on July 17, 2012.

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ofthe no no! device to the investing public (after apparently being required to specifically cease such misrepresentations to consumers as a result ofthe Tria Settlement). Moreover, as discussed below, the apparent changes that PhotoMedex was required to iiwlemnt could not have been surprising to the Company or the Individual Defendants because, even before the reverse merger,

Radiancy and Rafàei specifically knew that the no! no! device was no more effective than an electric razor in eliminating hair or reducing hair regrowth and that any conparison between the efficacy of the no no! device and lasers or intense pulse light treatments or devices were false and misleading in nature.

41. Since the press release by Tria was only that of a competitor and PhotoMedex specifically asserted that the Tria Settlement would have no material impact on the Company's business, investors had no reason at this time to question the underlying effectiveness of the no !no! device, based upon the mix of information available in the marketplace and, as described below, PhotoMedex's continuing assurances that the no !no! device was efficacious.

42. Although the terms of the confidential Tria Settlement remain undisclosed, the

Company's consumer advertisements have changed. PhotoMedex no longer represents that the no !no! device will result in near- 100% reduction or even permanent elimination of hair re- growth, or compares the no !no! device to lasers, or that using the no !no! device will result in any

"permanent" reduction ofhair or hair re-growth, or work as well as laser hair removal products.

43. During the Class Period, however, as discussed below, the Company and the

Individual Defendants continued to misrepresent the efficacy ofthe no !no! device to the investing public -- using specific representations in investor communications regarding the no !no! device that they had been required to cease in consumer advertisements as a result of the

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Tria Settlement.

44. Rather than disputing the indisputable (i.e., the assertions of Tria in its press release which was not widely publicized and otherwise facially subject to being discounted as the statements of a competitor), PhotoMedex merely ignored the facts and massaged the Language of its advertising to consumers, now representing that the no!no! device had "long lasting results" rather than that the results were '1ong-tern" and doubling down on its strategy of using a massive advertising and disinforimtion canpaign to prop up the consumer belief that the no no! device is more effective than a simple razor in eliminating hair or reducing hair regrowth

Indeed, when questioned about the Tria Settlement on a August 8, 2012 conference call with analysts and investors regarding the Conpany's performance during the second quarter of2012,

Rafaei and McGrath affirmed that strategy and reassured investors that there was and would be no material impact as a result of the confidential resolution:

Rafaei: We've - we've announced in a press release after the settlement was signed that the - that anything contained in the agreement is not going to be affecting the Company and it's not going to be affecting the results so it's immaterial to the results ofthe Company.

McGrath: Let me just make a couple of other comments. The terms of the agreement are not material to the conpany in any case since the agreement prohibits us from disclosing any of the terms. We chose and [sic] honor that agreement. So we believe that the settlement terms did not have them through a diverse [sic] effect on the Company. We have - we continue to modify our message on a quarterly basis.

That litigation has been over a year in its making, we nude substantial changes to our messaging last year that as you can see our revenues have continued to increase. We don't think the settlement has a nuterial impact onus and our messaging is driven by what we see the consumers respond to. And when this commenced a year ago, we changed some things and our consumers responded extremely well to that and we'll continued to drive that process. It's a fundamental part of our marketing platform to test and test and be deliberate

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about what's said, how it's said, and how it calls consumers to action-

45. On August 18, 2012, the Company announced a plan to repurchase up to $25 million of its common shares in the open market over the next twelve (12) months as part of an apparent decision to prop up the share price ofPhotoMedex's common stock. Indeed, in its 2012

10-K and 2013 10-K, the Company admitted that it adopted this share repurchase program as a result of downward pressure created on PhotoMedex's stock price by short sellers. As explained below, the share repurchase program served to artificially inflate the price of the Company's stock during a time in which the Individual Defendants disposed of significant portions of their holdings ofPhotoMedex stock during the Class Period.

46. On October 2, 2012, before the commencement of the Class Period, PhotoMedex issued a press release trumpeting its success in Japan Specifically, the press release stated that

'New Data Show[s] no no! Hair Dominates the Japanese Market for Women's Hair Removal

Devices" and "Exclusive Distributor Ya-Man Achieved Market Share in Stores of 53% in Just

Four Years." The October 2, 2012 press release identified Ya-Man, Ltd. ("Ya-Man") as the

Company's exclusive distributor in Japan, and Defendant Rafaei stated in the press release that

"Ya-Man has been a tremendous distribution partner for us." Despite the Company's statements in this October 2, 2012 press release, as detailed below, during the Class Period, the sales of the

Company's products (specifically and primarily the no!no! device) were slowing markedly in

Japan and an analysis ofthe financial statements ofthe Company's key and exclusive distributor in Japan, Ya-Man, discloses that its revenues and profits were filling precipitously while

PhotoMedex continued to claim Japan as a market in which it could achieve continued success and growth As Rafàeli admitted just after the close of the Class Period, on November 6, 2013,

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in a conference call with research analysts and investors, PhotoMedex had the specific ability to closely monitor its sales in Japan (which occur ahmst exclusively through retail channels), including through a market research company, 01K market data, which, as Rafàei explained on

Novenber 6, 2013, monitors and "controls the scanning of products at the cash register" in

Japan Thus, as explained below, it is inconceivable and implausible that Defendants were unaware ofthe significant problems existing in the Japanese market throughout the Class Period, which problems were not disclosed until the end of the Class Period.

VI. CLASS PERIOD STATEMENTS, MATERIAL MISREPRESENTATIONS AND MATERIAL OMISSIONS

47. In regular press releases, conference calls and filings with the SEC through the

Class Period, PhotoMedex and the Individual Defendants repeatedly made false and misleading statements and/or failed to disclose material adverse facts concerning the state and expectation of

PhotoMedex's growth, operations, business prospects and finances, as well as the effectiveness of its no no! device, thereby propping up the share price at artificial levels throughout the Class

Period.

48. On November 6, 2012, before the market opened at 8 a.m. (EST), in a press release promoting the success of a TV home shopping event marketing the no no! device,

PhotoMedex made a number of false and misleading statements describing the no no! device as a

'revolutionary product innovation [that] offers a solution to unwanted hair of all types and colors by instantly removing hair and reducing the rate ofhair regrowth with no pain, no mess and no chemicals. Based on the patented and exclusive Thermicon technology, no!no! uses heat to remove hair and get long-lasting results over time, making it universally safe and effective for

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everyone." (Emphasis added.)

49. These statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that the no no! device was no more effective than a razor in removing hair or reducing hair growth; the Conpany had specifically agreed to eliminate such false chhm from its consumer advertisements as part ofthe Tria Settlement and

Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction

50. On November 7, 2012, the Company issued a press release reporting its financial and operating results for the third quarter ending September 30, 2012. The Company stated in pertinent part a follows:

Dr. Dolev Rafàeli, PhotoMedex CEO, commented, 'We are pleased to deliver another quarter of strong financial results with revenues increasing 63% over last year, gross profit increasing 71% and net income increasing 79%. Revenues for the first nine ninths of 2012 exceed revenues for all of2011. Our consumer marketing programs continue to deliver outstanding results, while the steps we have taken to reduce costs, such as using ocean freight more often to deliver products and consolidating imnufàcturing, have contributed to margin expansion as well

'Yesterday we reported that sales of no!no! hairTM once again broke home television shopping sales records in the U.S. at a 24-hour beauty event held this past weekend despite the fact that the Northeast, a major target market, was still suffering from the effects of the recent hurricane. We beat our own record, which was established over this past Fourth of July holiday. The products for this event were shipped in the fourth quarter, while the products for the Fourth of July holiday week shipped in the second quarter."

51. These statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that the no no! device was no more effective than a razor in removing hair or reducing hair growth, the Conpany had specifically agreed to

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eliminate such false chhm from its consumer advertisements as part ofthe Tria Settlement and

Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction

52. On November 13, 2012, the Conpany filed its quarterly report for the period ending September 30, 2012 on Form 10-Q with the SEC ("3Q 2012 10-Q"), which was signed by

Rafaei and McGrath, and repeated the Company's previously announced quarterly financial results. In the 3Q 2012 10-Q, which was filed approximately four (4) months after the Tria

Settlement, PhotoMedex failed to disclose that the no!no! device is no more effective than a razor. Instead, PhotoMedex continued to represent, as it did in its prior quarterly filings before the July 2012 settlement, that the 'Thermicon brand Heat Transfer Technology," the basis of the no no! device, "enable[s] longer-lasting hair removal" and the no! no! hair removal device is

"designed to reduce hair growth" With regard to the no!no! brand expansion in Japan, the 3Q

2012 10-Q highlighted the importance of Japan as PhotoMedex's second biggest market for the no!no! device: "[eJven at this level of sales, we believe we have ample opportunity for flirt her expansion, as Japan's 2010population was over 127 million people and North America's was approximately $400 million people —far greater than the more than three million who have already purchased our products." hi terms ofrisk factors, the 3Q 2012 10-Q simply stated that they "have not changed materially from the thk factors previously disclosed in our Annual

Report on Form 10-K for the year ended December 31, 2011."

53. The 201110-K represented that the no!no! device "competed directly with branded, premium retail products such as Philips and Brain and other light based products of public companies such as Syneron, Solta and Palomar" and that "[in addition, due to regulatory

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restrictions concerning claims about the efficacy ofpersonal care products, we may have difficulty differentiating our products from other conpetitive products, and competing products entering the personal care market could harm our revenue." As for risk in the Japanese market, the 2011 annual report only cautioned:

Approximately 20% of the Company's revenues related to the sale ofno!no!® brand products for the year ended December 31, 2011 was generated by sales in Japan The Company relies on a key independent distributor for these sales, and the Company has no assurance that this distributor will continue to purchase its products at the same levels as in prior years, will purchase its new products or that such relationship will continue on favorable terms, if at all. The potential loss of this distributor may result in lower sales and profits. Ifthe Company is unable to recoup these sales, it may have an adverse material negative effect on its thture operating results. Factors that could impact the Company's results in the market include:

increased regulatory constraints with respect to the claims the Company can make regarding the efficacy ofproducts and tools, which could limit its ability to effectively market them;

the Japanese economy may be adversely affected and consumer spending may be impaired as a result of the recent and potential future earthquakes, tsunami and other natural disasters in Japan;

significant weakening ofthe Japanese yen;

continued or increased levels of regulatory and media scrutiny and any regulatory actions taken by regulators, or any adoption of more restrictive regulations, in response to such scrutiny, and

increased conpetitive pressures from other home use aesthetic device companies who actively seek to solicit its distributors to join their business.

54. The cited statements in the 3Q 2012 10-Q were false and misleading because (a) the Company and the Individual Defendants knew and failed to disclose that the no no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Conpany

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had specifically agreed to eliminate such false claims from its consumer advertisements as part of the Tria Settlement, (c) Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction, and (d) the Conpany knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported on

September 10, 2012 a decline of Y447 million (approximately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approximately $4.49 million) and approximately fifty-two percent (52%) in ordinary income inthe quarter ending July, 2012 (as compared to the same quarter in 2011). Moreover, despite the Conpany' s overwhelmingly positive statements in its October 2, 2012 press release regarding the success ofYa-Man in building the no!no! device brand in Japan, as of November 13, 2012, Defendants knew or recklessly disregarded (and failed to disclose) the fact that sales to consunrs in Japan were significantly flagging and that Japan was becoming, at best, a troubled market for PhotoMedex

That is because Ya-Man only purchased approximately $11.5 million in product from the

Company in 2013, as detailed in PhotoMedex's 2013 10-K published after the Class Period reporting net revenues in Japan, and Ya-Man only purchased approximately $2.8 million in product fromthe Conpanyinthe fourth quarter of 2012, compare 2012 10-K with 3Q 2012 10-Q reporting, respectively, $21.1 million in net revenues in Japan for 2012 and $18.318 million in net revenues for Japan as of September 30, 2012, and, as discussed below, at the end of the Class

Period it was discovered that there was over $46 million in unsold Company product (principally, the no no! devices) based on retail prices in the Japanese marketplace. Therefore, as of

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November 13, 2012 and based upon the Company's carethi monitoring of consumer sales at the retail level, PhotoMedex knew or recklessly disregarded and filed to disclose the fact that, as of

September 30, 2012, sales in the Japanese market were dramatically slowing.

55. On December 17, 2012, the Company issued a press release announcing a two- year extension of its agreement with the Company's exclusive distributor of the no no! device in

Japan The press release states in pertinent part as follows:

PhotoMedex, Inc. (NASDAQ and TASE: PHMD) announces the signing of a two-year extension with Ya-man, the exclusive distributor of its no no! brand in Japan The new agreements calls for minimum order quantities and advertising budgets consistent with the existing agreement, which was due to expire on December 31, 2012. Independent research shows that no!no! hair is the leading women's hair removal device in Japan, accounting for more than 50% of all retail sales.

Commenting on the renewal of the agreement with Ya-man, Dr. Dolev Rafàei, chief executive officer of PhotoMedex, said, "Ya-man has been a strong distribution partner for the no! no! brand for the past three years and we are delighted to renew the agreement and our partnership, which further advances our market-leading position in Japan. We expect continued growth ofno!no! products there through our finely honed consumer marketing program and the excellent work Ya-Man is doing, supported by brand extensions into other categories including the no!no! line for men."

(Emphasis added.)

56. The above statements were false and misleading because (a) the Company and the

Individual Defendants knew and failed to disclose that the no !no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Company had specifically agreed to eliminate such false chhm from its consumer advertisements as part ofthe Tria Settlement, (c)

Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction,

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and (d) the Company knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on Septenber 10,

2012 and December 14, 2012 (a) a decline of Y447 million (approxinately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approxinately

$4.49 million) and approximately My-two percent (52%) in ordinary income in the quarter ending July, 2012 (as compared to the same quarter in 2011), and (b) a decline of1 .25 billion

(approximately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent

(61%) in ordinary income in the quarter ending October, 2012 (as compared to the same quarter in 2011). Moreover, despite the Company's overwhelmingly positive statements in its October

2, 2012 press release regarding the success of Ya-Man in building the no no! device brand in

Japan, as of November 13, 2012, Defendants knew or recklessly disregarded (and failed to disclose) the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex. That is because Ya- Man only purchased approximately $11.5 million in product from the Company in 2013, as detailed in PhotoMedex' s

2013 10-K published after the Class Period reporting net revenues in Japan, and Ya-Man only purchased approximately $2.8 million in product from the Company in the fourth quarter of

2012, compare 2012 10-K with 3Q 2012 10-Q reporting, respectively, $21.1 million innet revenues in Japan for 2012 and $18.318 million in net revenues for Japan as of September 30,

2012, and, as discussed below, at the end ofthe Class Period it was discovered that there was more than $46 million in unsold Conpany products (principally, the no!no! devices) based on

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retailprices in the Japanese marketplace. Therefore, as ofNovember 13, 2012 and based upon the Company's careful monitoring of consumer sales at the retail level, PhotoMedex knew or recklessly disregarded and failed to disclose the fact that, as of September 30, 2012, sales in the

Japanese market were dramatically slowing.

57. In a January 10, 2013 Quarterly Update prepared by PhotoMedex with the assistance of Crystal Research Associates, a purportedly 'lidependent research firm that provides institutional-quality research on snail and mid-cap companies," PhotoMedex represented as follows:

Demonstrating the success ofthese [marketing] strategies, the no-no !® line has consistently broken sales records and is believed to hold the largest market share of any home-use aesthetic device, measured at 26% based on 2010 retail sales data. The Company is also a leading brand of home-use device disposables (Source: Medical Insight, Inc.'s Home-Use Devices: Rapidly Moving into the Mainstream, August 2011). In addition, new market data commissioned by Ya- Man Ltd, the Company's Japan distributor, and compiled by GJK Japan in October 2012 found that no-no!® Hair is the leading women's hair removal device in Japan. Based on data collected from retailers for the six months ended March 31, 2012, the Company's no-no!®Hairproduct accounts for 53% of the cumulative retail value of all women's hair removal devices sold in store in Japan. Importantly, this data is limited to only brick-and-mortar stores and does not include other retail avenues in Japan, such as home shopping, catalog, or direct to consumer, where PhotoMedex has less competition; thus, the Company believes it is possible that its market share is Japan is even higher when all channels are included. Capitalizing on the strength of its consumer marketing in Japan, PhotoMedex has also recently launched its no-no!® line for men.

PhotoMedex' s competitive advantages include the perceived strength of its technologies as well as its marketing platform. PhotoMedex and Radiancy's technologies are clinically supported, hold regulatory clearances, are associated with low costs of goods and high margins, and have large addressable market opportunities. As well, each platform has unique advantages to distinguish it from competitive offerings. For instance, the no-no!® Hair home-use products are designed as an alternative to the use of lasers or intense pulsed light (IFL) hair removal treatments. Both professional and home-use laser hair removal techniques are ineffective for blont4 white, gray, or red hair, as these follicles

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lack the melanin that attracts laser light Laser-based hair removal is also not well suited for darker skin colors where there is insufficient contrast between the melanin in the skin and the melanin in the hair to direct the laser. The no- no!® Hair's heat transfer technology, however, can be used for all skin color and hair types and is virtually painless.

In Japan, no!no!® Hair has reached a 53% market share based on retail sales in brick-and-mortar stores.

(Emphasis added.) Interim of risk disclosures, this Quarterly Update referred investors to the

2011 10- K risk disclosures, thereby representing that they had not materially changed.

58. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that (a) the no! no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Conpany had specifically agreed to eliminate such false claims and comparisons of the no!no! device to laser or intense pulsed light (IPL) hair removal treatments from its consumer advertisements as part ofthe Tria

Settlement, (c) Rafàei had known for years, dating back to at least 2009, as described below, about the no no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction, and (d) the Conpany knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on September 10, 2012 and December 14, 2012 (a) a decline of Y447 million

(approximately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approximately $4.49 million) and approximately fitly-two percent (52%) in ordinary income in the quarter ending July, 2012 (as compared to the same quarter in 2011), and

(b) a decline of fl .25 billion (approximately $12.5 million) and approximately twelve percent

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(12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent (61%) in ordinary income in the quarter ending October, 2012

(as compared to the sarne quarter in 2011). In addition, the January 10, 2013 Quarterly Report failed to disclose that, despite trumpeting its success in the Japanese market, in recognition of the flawed nature of the no!no! device, the Company's sales in Japan continued to fall (having peaked at $29.5 trillion in20l0, fallen to $25.9 trillion in20ll and fallen further to $21.1 million in 2012). Moreover, despite the Company's overwhelmingly positive statements in its

October 2, 2012 press release, as repeated in the January 10, 2013 Quarterly Report regarding the success of Ya-Man in building the no!no! device brand in Japan, as of January 10, 2013,

Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming, at best, a troubled market for

PhotoMedex That is because Ya- Man only purchased approximately $11.5 million in product from the Conpany in 2013, as detailed in PhotoMedex's 2013 10-K published after the Class

Period reporting net revenues in Japan, and, as discussed below, at the end ofthe Class Period, it was discovered that there was over $46 million in unsold Conpany products (principally, the no!no! devices) based on retail prices inthe Japanese marketplace. Therefore, as of January 10,

2013 and based upon the Company's careful monitoring of consumer sales at the retail level,

PhotoMedex knew or recklessly disregarded and failed to disclose the fact that, as of January 10,

2013, sales in the Japanese market were dramatically slowing.

59. Although Crystal Research Associates states that it is an independent research frn its website also makes clear that it essentially works with companies, such as PhotoMedex, on corporate communications and similar matters: "Crystal Research Associates provides

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investor-based research and corporate communications services to increase the visibility of innovative and growing private and public companies that represent extraordinary investment opportunities [and] [r]egardless of the size of the client, our independent research and advisory services provide additional value and assistance in realizing a company's goals, enabling it to achieve its flullest potentiaL" hitpliwww.crvsta Ira .com'about-us. Moreover, although the

January 10, 2013 'Quarterly Update" is published on Crystal Research Associates' imsthead, this Quarterly Update discloses, on the very last substantive page, that the document was prepared by PhotoMedex itself with the assistance of Crystal Research Associates, which did not independently verify any of the information is this ostensible research report. httpi/ cdnl.hubspot.com'hub/l 501 54/docs/PhotoMedexPHMDQuarter1y-UpdateO 1.-i O2O 1 3.pdf

60. On February 3, 2013, the Company issued a press release announcing another successfiul home shopping television event for its no!no! device. Like the press release it issued for the previous home shopping television event in November 2012, the Company described its no no! device as "the answer to ever-growing demand for professional, pain-free long-lasting hair removal that can be performed in the comfort and convenience ofthe home" that "[t]his revolutionary product innovation offers a solution to unwanted hair of all types and colors by instantly removing hair and reducing the rate of hair regrowth with no pain, no mess and no chemicals" and that "[b]ased on the patented and exclusive Thermicon technology, no!no! uses heat to remove hair and get long-lasting results over time, making it universally safe and effective for everyone."

61. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that the no no! device was no more effective

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than a razor in removing hair or reducing hair growth, the Conpany had specifically agreed to eliminate such false claim from its consumer advertisements as part ofthe Tria Settlement and

Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction-

62. On March 13, 2013, the Conpany issued a press release reporting its financial and operating results for fourth quarter and fiscal year ending December 31, 2012. The Company stated in pertinent part as follows:

Dr. Dolev Rafàeli, PhotoMedex CEO, commented, 'We are very pleased with the progress we made in 2012, our first year ofPhotoMedex and Radiancy operating a single company. Not only did we deliver excellent growth in revenues and profits, but the integration of operations and culture went smoothly as a result of the dedicated effort and commitment of our people worldwide. Furthermore, the quality of growth realized in all major lines of our business, positions us well for further revenue gains in 2013."

"Our consumer engine, with our world-class and efficient marketing platform, continues to outpace all competition We also have proven out our premise that marketing lessons learned in the consumer segment are transportable to the Nova® care line to no! no !TM Consumers and creating awareness ofXTRAC® among psoriasis patients through the message that the safest and most effective therapy for their disease is available at their local dermatologist. We are pleased that our efforts transformed the pre-merged PhotoMedex into a profitable business unit for 2012," he added.

Reported Financial Results

Revenues for the fourth quarter of2012 were $54.8 million, an increase of9l% over the same period in the prior year. Included in this amount is $7.2 million in revenues from pre-merged PhotoMedex. This compares with revenues for the fourth quarter of 2011 of $28.8 million, which included $1.5 million ofrevenues from pre-merged PhotoMedex

Net income for the fourth quarter of2012 was $5.9 million or $0.27 per diluted share, which included $1.4 million in stock-based compensation expense and $1.4 million in depreciation and amortization expenses. This compares with a net loss for the fourth quarter of 2011 of $3.0 million or $0.22 per share, which included

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$5.2 million on stock-based compensation expense and $0.3 million in depreciation and amortization expenses.

Revenues for the year ended December 31, 2012 were $220.7 million, an increase of 67% over the same period in 2011. Included in this amount is $27.8 million in revenues from pre-merged PhotoMedex. This compares with revenues for the year ended Decenber 31, 2011 of$132. 1 million, which included $1.5 million revenues from pre-merged PhotoMedex.

Net income for the year ended December 31, 2012 was $22.5 million or $1.08 per diluted share, which included $6.2 million in stock-based compensation expense, $5.6 million in depreciation and amortization expenses, $5.4 million in expenses for past litigation and $0.7 million in other one-time charges. This compares with a net loss for the year ended Decenber 31, 2011 of $0.7 million or $0.06 per share, which included $21.6 million in stock-based compensation expense, $0.6 million in depreciation and amortization expenses, $3.8 million in expenses for past litigation and $14.5 million in merger-related expenses.

As of December 31, 2012, the Company had cash, cash equivalents and short-term investments of $62.4 million Durthg the 2012 fourth quarter the Company repurchased 418.717 shares of its common stock in the open market at an average price of $12.93 per share, for a total of $5.4 million

On a pro forma basis, had the merger been completed on January 1, 2011, revenues for the three months ended December 31, 2011 would have been $34.3 million, gross profit would have been $23.9 million and the net loss would have been $8.1 million On a pro forma basis, had the merger been completed on January 1, 2011, revenues for the year ended December 31, 2011 would have been $162.3 million, gross profit would have been $118.5 million and the net loss would have been $13.1 million Management expects revenues for the first quarter of 2013 to be more than $57 million

63. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that the no no! device was no more effective than a razor in removing hair or reducing hair growth, the Conpany had specifically agreed to eliminate such false claim from its consumer advertisements as part ofthe Tria Settlement and

Rafaeli had known for years, dating back to at least 2009, as described herein, about the no no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction

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64. On March 18, 2013, the Conpany filed its 2012 10-K, which was signed by, among others, Rafàeli and McGrath, and repeated the Company's previously reported financial results. With regard to the effectiveness of the no no! brand as compared to other existing hair removal products such as shag, the Form 10-K stated as follows:

Our no! no! ® hair removal products are built upon our proprietary heat-based Thermicon® brand technology to address consumer concerns over perceived limitations of existing hair removal products, including safety and pain, and to overcome inherent limitations of light-based hair removal solutions. Unlike other products that use methods that are paintli], have side effects, are limited in body areas that can be treated or that emanate from the principle of selective therimlysis, the Thermicon® brand devices are based on heat only and are therefore applicable for all hair colors and sith types, can be used on all body areas, and if used per instructions - do not have adverse events, and are virtually painless. Themic on® brand devices utilize a high-temperature thermodynamic wire filament that is activated when the devices are moved in contact with and across the treatment area. We believe that the no!no!® brand hair removal products have several advantages over existing products for both the consumer and professional hair removal market, including:

Broad Applicability. Where other hair removal products such as shavers, waxing, threading and laser-based and intense pulsed light-based products are either limited by body area treated, are only effective at treating certain hair colors and skin types or are limited by the age of the consumer, products employing the Thermicon® brand devices technology, which do not rely upon light, are virtually painless and without side-effects and are equally effective across all hair colors and all skin types. Therefore, we believe that unlike other hair removal methods (such as shaving, threading and waxing), including light based devices, Thermicon® brand devices effectively remove hair on people with light hair or dark skin.

We have realized favorable market adoption of Thermicon® brand technology, which not only overcomes the challenges of other hair removal methods but also puts control of the hair removal process in consumers' hands.

65. Interim ofrisk factors, like the 201110-K, the 2012 10-K asserted that the only competitive risk specific to the no no! device was that it "conpeted directly with branded,

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premium retail products such as Philips and Braun and other light based products ofpublic

companies such as Syneron, Solta and Palomar" and that "[in addition, due to regulatory

restrictions concerning claims about the efficacy ofpersonal care products, we may have

difficulty differentiating our products from other conpetitive products, and competing products

entering the personal care market could harm our revenue."

66. With regard to the no!no! brand expansion in Japan, the 2012 10-K stated,

"[eJven at this level of sales, we believe we have ample opportunity forfurther expansion, as

Japan's 2012 population was over 127 million people and North America's was approximately

$400 million people —far greater than the more than four million who have already purchased our products."As for risk factors in the Japanese market, the 2012 10-K only

cautioned:

Approximately 9% ofthe Company's revenues related to the sale ofno!no!® brand products for the year ended December 31, 2012 was generated by sales in Japan The Company relies on a key independent distributor for these sales, and the Company has no assurance that this distributor will continue to purchase its products at the same levels as in prior years, will purchase its new products or that such relationship will continue on favorable terms, if at all. The potential loss of this distributor may result in lower sales and profits. Ifthe Company is unable to recoup these sales, it may have an adverse material negative effect on its thture operating results. Factors that could impact the Company's results in the market include:

increased regulatory constraints with respect to the claims the Company can make regarding the efficacy ofproducts and tools, which could limit its ability to effectively market them;

the Japanese economy may be adversely affected and consumer spending may be impaired as a result of the recent and potential future earthquakes, tsunami and other natural disasters in Japan;

significant weakening ofthe Japanese yen

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continued or increased levels of regulatory and media scrutiny and any regulatory actions taken by regulators, or any adoption of more restrictive regulations, in response to such scrutiny, and

increased conpetitive pressures from other home use aesthetic device companies who actively seek to solicit its distributors to join their business.

67. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that (a) the no! no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Conpany had specifically agreed to eliminate such false claims from its consumer advertisements as part of the Tria

Settlement, (c) Rafàeli had known for years, dating back to at least 2009, as described below, about the no no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction, and (d) the Conpany knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on September 10, 2012, December 14, 2012 and March 14, 2013 (a) a decline of

447 million (approximately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approximately $4.49 million) and approximately fifty-two percent

(52%) in ordinary income inthe quarter ending July, 2012 (as compared to the same quarter in

2011), (b) a decline of1 .25 billion (approximately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent (61%) in ordinary income in the quarter ending October, 2012

(as compared to the same quarter in 2011), and (c) a decline of1 .40 billion (approximately

$14.0 million) and approximately nine percent (9%) in total sales and a decline of Y881 million

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(approximately $8.81 million) and approximately ninety- one percent (91%) in ordinary income in the quarter ending January, 2013 (as conpared to the same quarter ending in 2012).

Moreover, as of March 18, 2013, Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex. That is because Ya- Man only purchased approximately $11.5 million in product from the Company in 2013, as detailed in PhotoMedex' s

2013 10-K published after the Class Period reporting net revenues in Japan, and, as discussed below, at the end of the Class Period it was discovered that there was over $46 million in unsold

Company products (principally, the no!no! devices) based on retail prices in the Japanese marketplace. Therefore, as of March 18, 2013 and based uponthe Conpany's careful monitoring of consumer sales at the retail level, PhotoMedex knew or recklessly disregarded and failed to disclose the fact that, as of March 18, 2013, sales in the Japanese market were dramatically slowing.

68. On May 8, 2013 the Company issued a press release reporting its financial and operating results for the first quarter ending March 31, 2013. The Company stated in pertinent part as follows:

• Revenues of $57.2 million, an increase of 14% conpared with the prior-year first quarter and an increase of 4% sequentially

• Consumer revenues of $49.0 million, an increase of 16% conpared with the prior-year first quarter and an increase of 6% sequentially

• Direct-to-consumer channel revenues of $31.7 million, an increase of 1% compared with the prior-year first quarter and an increase of 6% sequentially

• Global retail and home shopping channel revenues of$ 12.0 million, an increase of 101% compared with the prior-year first quarter and a decrease of 3%

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sequentially

• Distributor consunr channel revenues of $5.3 million, an increase of 13% compared with the prior-year first quarter and an increase of4l% sequentially

• XTRAC® adjusted treatment revenues of $3.2 million, an increase of 73% compared with the prior-year first quarter and an increase of 22% sequentially

• XTRAC® recurring revenue U.S. installed base of 401 at quarter end, an increase of 51 placements during the quarter, including 27 on the Comeback program ofpreviously sold systems

• NOVA® skin care revenues of $2.2 million, an increase of 3% conpared with the prior-year first quarter and an increase of 14% sequentially

• Gross profit of $45.4 million, an increase of 16% compared with the first quarter of 20 12

• Gross margin of 79.3% compared with 77.7% in the prior-year first quarter

• Pre-tax income of $9.7 million, an increase of9l% compared with the prior-year first quarter and an increase of 45% sequentially

• Earnings per diluted share of $0.34, an increase of3l%, compared with the prior-year first quarter and an increase of2l% sequentially

• Non-GAAP adjusted income of$ 12.5 million or $0.59 per diluted share, representing increases of 49% and 34%, respectively, compared with the prior-year first quarter and increases of3l% and 31%, respectively, sequentially

Reported Financial Results

Revenues for the first quarter of 2013 were $57.2 million, an increase of 14% compared with revenues for the first quarter of2012 of $50.3 million

Net income for the first quarter of 2013 was $7.2 million, or $0.34 per diluted share, which included $1.3 million in stock-based compensation expense and $1.4 million in depreciation and amortization expenses. This compares with net income for the first quarter of 2012 of $4.9 million, or $0.26 per diluted share, which included $1.8 million in stock-based compensation expense and $1.3 million in depreciation and amortization expenses.

PhotoMedex repurchased no shares of its common stock during the first quarter of

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2013.

As of March 31, 2013 the Company had cash and cash equivalents of $63.5 million or $3.00 per diluted share, compared with $62.3 million as of December 31, 2012. Current assets included $24.3 million in accounts receivable, compared with $19.1 million as of December 31, 2012. The increase in accounts receivables was largely related to the impact of the timing of shipments related to a television home shopping special event in the first quarter, which were collected in the second quarter.

Management expects revenues for the second quarter of 2013 to exceed $59 minion-

Dr. Dolev Rafàeli, PhotoMedex CEO, commented, 'The rapid growth we have achieved the past few years continued during the first quarter and, importantly, featured an improvement in gross margin led by a 16% increase in consumer revenues, particularly from our no!no!TM products. No!no! is now available in most ever Bed Bath and Beyond store across the U.S. and we are pleased with the initial sales ranp. We have also had strong responses to our Spanish- Language advertisements in the U. S. and our marketing of no no! Men In addition we achieved substantial sales increases in Nova® skin care products from upselling no no! customers at our can centers.

'Qeographic expansion holds particular promise for PhotoMedex as we prepare to launch no no! in Brazil and further develop the German and Korean markets. We are very excited about the sales potential in these geographies going in to the second half of the year."

Dr. Rafàeli added, 'XTRAC adjusted treatment revenues were up 73% compared with the first quarter of 2012 as our direct-to-patient advertising is having a clear impact. We've initiated television and radio advertising in six near areas ofthe country and we plan additional rollouts of advertising in new markets throughout the year."

69. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that (a) the no! no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Conpany had specifically agreed to eliminate such false claims from its consumer advertisements as part of the Tria

Settlement, (c) Rafàei had known for years, dating back to at least 2009, as described below,

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about the no no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction, and (d) while trumpeting its prospects in other overseas markets, the Company knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on Septenber 10,

2012, Decenber 14, 2012 and March 14, 2013 (a) a decline of Y447 million (approximately

$4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million

(approximately $4.49 million) and approximately lilly-two percent (52%) in ordinary income in the quarter ending July, 2012 (as compared to the same quarter in 2011), (b) a decline of1 .25 billion (approxinately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent

(61%) in ordinary income in the quarter ending October, 2012 (as compared to the same quarter in 2011), and (c) a decline of1 .40 billion (approximately $14.0 million) and approximately nine percent (9%) in total sales and a decline of Y881 million (approximately $8.81 million) and approximately ninety-one percent (91%) in ordinary income in the quarter ending January, 2013

(as compared to the same quarter ending in 2012). Moreover, Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consunrs in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex That is because Ya- Man only purchased approximately $11.5 million in product from the Company in

2013, as detailed inPhotoMedex's 2013 10-K published after the Class Period reporting net revenues in Japan, and, as discussed below, at the end ofthe Class Period it was discovered that there was over $46 million in unsold Company products (principally, the no no! devices) based

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onretailprices in the Japanese marketplace. Therefore, as of May 8, 2013 and based upon the

Company's careflul monitoring of consumer sales at the retail level, PhotoMedex knew or

recklessly disregarded and failed to disclose the fact that, as of May 8, 2013, sales in the Japanese

market were dramatically slowing.

70. On May 10, 2013, the Company filed its quarterly report for the period ended

March 31, 2013 on Form 10-Q with the SEC, that was signed by Defendants Rafàei and

McGrath, and repeated the Company's previously announced quarterly flnancialresults. With

regard to the no!no! brand expansion in Japan, the Form 10-Q stated, "[eJven at this level of

sales, we believe we have ample opportunity for further expansion, as Japan's 2012 population was over 127 million people and North America's was approximately $400 million people —far greater than the more than four million who have already purchased our products."

71. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that (a) the no! no! device was no more

effective than a razor in removing hair or reducing hair growth, (b) the Conpany had specifically

agreed to eliminate such false claims from its consumer advertisements as part of the Tria

Settlement, (c) Rafàei had known for years, dating back to at least 2009, as described below,

about the no no! device's lack of efficacy in reducing hair growth or accomplishing

longer-lasting hair reduction, and (d) while trumpeting its prospects in other overseas markets,

the Company knew or recklessly disregarded and failed to disclose the fact that its sole

distributor and key business partner in Japan, Ya-Man, was financially troubled and was

experiencing declining revenues and income, having reported, respectively, on September 10,

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2012, Decenber 14, 2012 and March 14, 2013 (a) a decline of Y447 million (approximately

$4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million

(approximately $4.49 million) and approximately filly-two percent (52%) in ordinary income in the quarter ending July, 2012 (as compared to the same quarter in 2011), (b) a decline of1 .25 billion (approxinately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent

(61%) in ordinary income in the quarter ending October, 2012 (as compared to the same quarter in 2011), and (c) a decline of1 .40 billion (approximately $14.0 million) and approximately nine percent (9%) in total sales and a decline of Y881 million (approximately $8.81 million) and approximately ninety-one percent (91%) in ordinary income in the quarter ending January, 2013

(as compared to the same quarter ending in 2012). Moreover, Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex That is because Ya- Man only purchased approximately $11.5 million in product from the Company in

2013, as detailed hiPhotoMedex's 2013 10-K published after the Class Period reporting net revenues in Japan, and, as discussed below, at the end ofthe Class Period it was discovered that there was over $46 million in unsold Company products (principally, the no no! devices) based onretailprices inthe Japanese marketplace. Therefore, as of May 10, 2013 and based upon the

Company's careful monitoring of consumer sales at the retail level, PhotoMedex knew or recklessly disregarded and failed to disclose the fact that, as of May 10, 2013, sales in the

Japanese market were dramatically slowing.

72. On August 7, 2013, the Company issued a press release reporting its financial and

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operating results for the second quarter ending June 30, 2013. The Company stated in pertinent part as follows:

• Consumer revenues of $48.7 million, a decrease of 3.5% compared with the prior-year second quarter and a decrease of 0.8% sequentially • Direct-to-consumer channeirevenues of $30.3 million, a decrease of 10.0% compared with the prior-year second quarter and a decrease of 4.4% sequentially • Global retail and home shopping channel revenues of $9.9 million, an increase of 1.6% compared with the prior-year second quarter and a decrease of 17.7 % sequentially • Distributor consumer channel revenues of $8.4 million, an increase of2O. 4% compared with the prior-year second quarter and an increase of 59.4% sequentially • Gross profit of $46.7 million, an increase of 0.3% compared with the prior-year second quarter • Gross margin of 80.4%, conpared with 79.0% in the prior-year second quarter • Pre-tax income of $9.0 million, an increase of 77.0% compared with the prior-year second quarter • Earnings per diluted share of $0.34, an increase of 70.0% compared with the prior-year second quarter • Net income of $7.1 million, an increase of 68.4% compared with the prior-year second quarter • Non-GAAP adjusted income of $11.8 million or $0.56 per diluted share, an increase of 43.6%, compared with the prior-year second quarter • Board of Directors authorized an additional $30 million common stock share repurchase program

Reported Financial Results Revenues for the second quarter of2013 were $58.1 million, a decrease of 1.4% compared with revenues for the second quarter of 2012 of $58.9 million.

Net income for the second quarter of 2013 was $7.1 million or $0.34 per diluted share, which included $1.3 million in stock-based conpensation expense and $1.5 million in depreciation and amortization expense. This compares with net income for the second quarter of 2012 of $4.2 million or $0.20 per diluted share, which included $1.5 million in stock-based compensation expense and $1.4 million in depreciation and amortization expense.

Revenues for the six months ended June 30, 2013 were $115.3 million, an increase of 5.6% compared with revenues for the six months ended June 30, 2012 of$ 109.2 million

Net income for the six months ended June 30, 2013 was $14.3 million or $0.68

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per diluted per share, which included $2.6 million in stock-based conpensation expense and $3.0 million in depreciation and amortization expense. This compares with net income for the six months ended June 30, 2012 of $9.1 million or $0.45 per diluted share, which included $3.3 million in stock-based compensation expense and $2.8 million in depreciation and amortization expense.

As of June 30, 2013 the Company had cash and cash equivalents of $62.5 million or $2.97 per diluted share, compared with $62.3 million as of December 31, 2012. During the second quarter the Conpany repurchased 324,758 shares of its conmon stock inthe open market at an average price of $16.53 per share, for a total of $5.4 million Current assets included $28.6 million in accounts receivable, compared with $19.1 million as of December 31, 2012. The increase in accounts receivables was largely due to the timing of $5.2 million of second quarter shipments related to television home shopping special events in Europe and North America, as well as a $5.3 million site letter of credit not collected until after the quarter had ended.

Management expects revenues for the third quarter of 2013 to be in The with second quarter 2013 revenues.

Dr. Dolev Rafàeli, PhotoMedex CEO, commented, 'We are pursuing the next major phase of our growth strategy through expansion of the no no! brand into Brazil and continued ranip-up in Germany, while building the domestic XTRAC business to critical mass by expanding our patient marketing canpaigns and installed base of systems. XTRAC advertising has now been rolled out nationally. Our second quarter XTRAC revenues, which more than doubled over the prior year, show the successfiul execution of our plan"

Dr. Rafàeli added, 'We are pleased with the earnings and cash flow we have been consistently generating, and with our ability to increase or decrease our media spend as warranted by market conditions and with a focus on driving profitability. During the quarter our U.S. consumer revenues were impacted by the attack during the Boston Marathon and by the tornados in Oklahoma, which muted the response to our domestic consumer advertising programs as our target customers were engaged with these events yet our advertising expenditures had already been committed. Our efforts to cross- sell the Neova skincare line to the consumer market have been very successfiul, with sales of more than $1.0 million this quarter representing a 10-fold increase in one year."

Share Repurchase Expanded Last year on August 18, 2012 the Conpany announced that its Board of Directors authorized the repurchase of its common shares on the open market during the ensuing 12 months. It is expected that by the 2013 anniversary date of this

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program, the Conpany will have flulfilled the $25 million limit under this program. Consequently, the Board of Directors has authorized an additional $30 million share repurchase program of its conmon shares in the open market over the next 12 months, at such times and prices as determined appropriate by the Company's management in collaboration with the Board of Directors. The shares will be purchased with cash on hand.

"The expansion of our share repurchase program by a further $30 million is reflective of the confidence we have in the growth ofPhotoMedex, our ability to generate free cash flow and our commitment to building shareholder value," Dr. Rafaei concluded.

73. The above statements were false and misleading because (a) the Company and the

Individual Defendants knew and failed to disclose that the no no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Company had specifically agreed to eliminate such false claims from its consumer advertisements as part ofthe Tria Settlement, (c)

Rafaei had known for years, dating back to at least 2009, as described below, about the no!no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction, and (d) while trumpeting its prospects in other overseas markets, the Company knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on September 10, 2012, December 14, 2012, March 14,

2013 and July 26, 2013 (a) a decline of Y447 million (approximately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approxinately

$4.49 million) and approximately My-two percent (52%) in ordinary income in the quarter ending July, 2012 (as compared to the same quarter in 2011), (b) a decline of1 .25 billion

(approximately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent

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(61%) in ordinary income hi the quarter ending October, 2012 (as compared to the same quarter in 2011), (c) a decline offl .40 billion (approximately $14.0 million) and approximately nine percent (9%) in total sales and a decline of Y881 million (approximately $8.81 million) and approximately ninety-one percent (91%) in ordinary income in the quarter ending January, 2013

(as compared to the same quarter ending in 2012), and (d) a decline of1 .06 billion

(approximately $10.6 million) and approximately five percent (5%) in total sales and a decline of

1.27 billion (approximately $12.7 million) and approxinately seventy-one percent (71%) in ordinary income for the fiscal year period ending April, 2013 (as compared to the prior fiscal year period ending in April, 2012). In addition, as Rafàeli and McGrath later admitted in a November

6, 2013 conference call with research analysts and investors that Ya-Man ceased ordering products from PhotoMedex beginning inthe third quarter of 2013. Furtherimre, as discussed below, the Conpany elected to continue its stock repurchase plan to prop up PhotoMedex' s share price, while the Individual Defendants continued to dispose of their ownership interests in the

Company at a prodigious pace. Moreover, Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex. That is because Ya-Man only purchased approximately $11.5 million in product from the Company in 2013, as detailed in

PhotoMedex's 2013 10-K published after the Class Period reporting net revenues in Japan, and, as discussed below, at the end ofthe Class Period it was discovered that there was over $46 million in unsold Company products (principally, the no no! devices) based on retail prices in the

Japanese marketplace. Therefore, as of August 7, 2013 and based upon the Company's carethi monitoring of consumer sales at the retail level, PhotoMedex knew or recklessly disregarded and

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failed to disclose the fact that, as of August 7, 2013, sales in the Japanese market were dramatically slowing.

74. On August 9, 2013, the Company filed its quarterly report for the period ended

June 30, 2013 on Form 10-Q with the SEC, that was signed by Defendants Rafàeli and McGrath, and repeated the Company's previously announced quarterly financial results. With regard to the no!no! brand expansion in Japan, the Form 10-Q states, "[eJven at this level of sales, we believe we have ample opportunity for further expansion, as Japan's 2012 population was over 127 million people and North America's was approximately $400 million people —far greater than the more than four million who have already purchased our products."

75. The above statements were false and misleading because the Company and the

Individual Defendants knew and failed to disclose that (a) the no! no! device was no more effective than a razor in removing hair or reducing hair growth, (b) the Conpany had specifically agreed to eliminate such false claims from its consumer advertisements as part of the Tria

Settlement, (c) Rafàei had known for years, dating back to at least 2009, as described below, about the no no! device's lack of efficacy in reducing hair growth or accomplishing longer-lasting hair reduction and, while trumpeting its prospects in other overseas markets, (d) the Company knew or recklessly disregarded and failed to disclose the fact that its sole distributor and key business partner in Japan, Ya-Man, was financially troubled and was experiencing declining revenues and income, having reported, respectively, on September 10,

2012, December 14, 2012, March 14, 2013 and July 26, 2013 (a) a decline of Y447 million

(approximately $4.47 million) and approximately eight percent (8%) in total sales and a decline of Y449 million (approximately $4.49 million) and approximately lilly-two percent (52%) in

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ordinary income hi the quarter ending July, 2012 (as compared to the same quarter in 2011), (b) a decline of1 .25 billion (approximately $12.5 million) and approximately twelve percent (12%) in total sales and a decline of Y722 million (approximately $7.22 million) and approximately sixty-one percent (61%) in ordinary income in the quarter ending October, 2012 (as compared to the same quarter in 2011), (c) a decline of fl .40 billion (approximately $14.0 million) and approximately nine percent (9%) in total sales and a decline of Y881 million (approximately

$8.81 million) and approximately ninety-one percent (91%) in ordinary income in the quarter ending January, 2013 (as conpared to the same quarter ending in 2012), and (d) a decline of

1.06 billion (approximately $10.6 million) and approxinately five percent (5%) in total sales and a decline of YI.27 billion (approximately $12.7 million) and approximately seventy-one percent (71%) in ordinary income for the fiscal year period ending April, 2013 (as compared to the prior fiscal year period ending in April, 2012). In addition, as Rafàeli and McGrath later admitted on the November 6, 2013 conference call, Ya- Man ceased ordering products from

PhotoMedex beginning in the third quarter of 2013. Moreover, Defendants knew or recklessly disregarded and failed to disclose the fact that sales to consumers in Japan were significantly flagging and that Japan was becoming at best, a troubled market for PhotoMedex That is because Ya- Man only purchased approximately $11.5 million in product from the Company in

2013, as detailed hiPhotoMedex's 2013 10-K published after the Class Period reporting net revenues in Japan, and, as discussed below, at the end ofthe Class Period it was discovered that there was over $46 million in unsold Company products (principally, the no no! devices) based onretail prices inthe Japanese marketplace. Therefore, as ofAugist 9, 2013 and based upon the

Company's careful monitoring of consumer sales at the retail level, PhotoMedex knew or

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recklessly disregarded and failed to disclose the fact that, as of August 9, 2013, sales in the

Japanese market were dramatically slowing.

76. Allthe Form 10-Qs and the Form 10-K contained signed certifications pursuant to the requirements of the Sarbanes—Oxley Act of 2002 ("SO)C") by both Rafaei and McGrath, stating that the financial information contained in the Form 1 0-Qs and 10-K was accurate, fairly presented, in all material respects, the financial condition and results of operations ofthe

Company, and disclosed all material changes in the Conpany' s internal controls over financial reporting.

77. The Company's aforementioned statements were false and misleading when issued because the Company and Rafàei and McGrath misrepresented and failed to disclose adverse facts, which were known to them or recklessly disregarded by then including that (i) the effectiveness ofthe Company's key product, the no!no! device rested on flimsy, weak studies;

(ii) a more credible study raised serious doubts as to the touted effectiveness of the Company's key product, and in fact showed that the product works no better than shaving; and (iii) the

Company had materially overestimated the success, concealed material risks related to sales of the no no! device in the Japanese market and failed to disclose significant problems with its key business partner in Japan, Ya-Man, as well as the fact that Ya-Man had suddenly ceased ordering product of any kind from PhotoMedex. As a result of the above, the Company's financial statements, assurances and expectations with regard to the Company's growth, operations, and business prospects were false and misleading at all relevant times.

VII. THE TRUTH COMES TO LIGHT

78. The truth that the no no! device, PhotoMedex' s key product, lacked efficacy and was no more effective than a razor was a significant risk factor to the Company's bottom line and

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the undisclosed problems with the Company's distributor and sales in Japan were revealed in a series of events from October 17, 2013 to before the market opened on November 6, 2013, which punished the Company's share price despite PhotoMedex's aggressive stock repurchase plan

79. First, on October 17, 2013, TheStreetSweeper.org published a report, entitled

'PhotoMedex: Just say No!No!," raising serious risks and concerns regarding, among other things, the effectiveness of the no!no! device. Significantly, in the report, a neutral third-party dermatologist and medical school professor, Dr. Theresa Pacheco, compared the "clinical" studies commissioned by Radiancy and the study conducted by Dr. Biesman first at the behest of

Tria during Tria Litigation, but later published in an independent peer-reviewed journaL The report stated in pertinent part as follows:

Here are six key PHMD issues that we believe pose risks for investors:

Clinical study: No!no! no more effective

One of the biggest issues that could ultimately upset investors revolves around FHMJ) s biggest product It's a hot-re device designed to bum the hair and damage the hair follicle - similar to laser, light devices - or epliation which a medical doctor described to TheStreetSweeper as a small wire that delivers heat into a single hair follicle, that thermally destroys or damages the follicle so the hair doesn't grow or can't be seen

PHMD also makes products for psoriasis and other skin disorders sold to dermatologists, aestheticians and consumers. But its top product is the no!no! device designed for longterm hair removal in the home.

But it just doesn't work any better than shaving.

That's right. Vanderbilt University Medical Center clinical assistant professor Dr. Brian Biesmin conducted an eye-opening study, including a statistical analysis of hair counts on 22 test subjects who used no!no!. Subjects shaved an area of a leg with a razor blade and an adjacent area of the leg with the no! no! device.

Even longterm the no! no! was no more effective than shaving. Dr. Biesman said

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in an interview with TheStreetSweeper.

"Our study found it was comparable to shaving. It was no better and no worse in terms of the number of hairs in the treated area, the color of the hair and the thickness of hair, "said Biesman, Nashville Center for Laser and Facial Surgery director and past president of the American Society for Laser Medicine and Surgery.

The medical journal 'taser in Surgery and Medicine" published the study. Sponsored by Tria Beauty, the study underwent peer review among experts who disclosed no conflict of interest. Dr. Biesman said he got feedback from experts who endorsed the study methodology.

Dr. Biesman said nurses performd the study treatments. Though some consumers have reported no no! burned then test subjects had no such problems.

As for long-term hair removal effectiveness "... it seems unlikely that, Wi 6 treatment produce no effect whatsoever, 24 or 48 or some other number would deliver the profound results chimed by the manufacturer," Dr. Biesman wrote in the report published in July 2013.

FHMD Is odd studies

Even the studies FHMD uses on its own web site contain some rather spooky revelations.

"Adverse events were limited to mild erythema with crusting" in three of the 12 subjects who coupleted the study, plus another one whose erythema and crusting were severe enough to cause the person to withdraw, according to a 2007 study published in the Journal of Drugs in Dermatology.

Apparently, instead of smooth, cover-girl legs, 30 percent of subjects were plagued with quite the opposite - a crusty rash.

Unlike the other two studies listed on PHMD's web site, at least this one appears to be published in a peer-reviewed journal and discloses that Radiancy ifinded the research. In our opinion, this is the only study of much substance released by PHMD.

Unfortunately, though, study subjects tried only no!no! so there was no control or alternative treatment studied. Unlike the typical study, results were simply compared to other studies on laser hair removal adverse effects.

Results also show that no!no! got rid ofjust 48 percent of leg hair initially and

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43.5 percent at 12 weeks. The bikini area fared worse at 5 percent and 15 percent.

The study compared results from other studies on long-pulsed laser and ruby laser use. But results appear meaningless because the no no! was not tested in the same areas - lips, necks, chins and armpits.

PHMD also includes a third study paper that apparently was not published in a peer-reviewed scientific publication and appears to lack the conventional statement offunding. It's peculiar that it contains a large photo of the no!no! Product at the bottom of the study, looking for all the world like an advertisement

Also, results showed a rather disappointing 27 cut in hair count after one week, then about 45 percent at 28 weeks. So, even after about seven months, subjects still were stuck with more than half-way hairy legs.

All three studies are interesting but simply lack the data to tell us that the no!no! actually works, said Dr. Theresa Pacheco, a physician and associate professor in the dermatology department at the University of Colorado Anschutz Medical Campus.

'Dr. Brian Biesman's study is much more detailed and objective and published in a peer-reviewed journal, which means that other hair experts vetted this study before publication," she added. She has no conflict of interest and no connections to PHMD, Tria or Dr. Biesnan

Dr. Pacheco said in an emil that the US Food and Drug Administration doesn't require in-depth studies for hair removal devices to enter the marketplace and be sold to consumers. So the company is taking the path of least resistance.

'The no no! device is taking the 'first to market advantage' to sell the devices," Dr. Pacheco added.

"Save your money," she said. 'Buy a razor."

Dr. Pacheco added that consumers should seek expert advice to find the best solutions among many treatments ranging from bleaching and prescription products like Vaniqa to various shaving/waving type methods to home devices like Tria' s Silk'n flash lamp to professional laser/light based devices.

'The no no! device per Dr. Biesimn' s study," she said, "did not remove hair or reduce or delay hair regrowth when compared to shaving."

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Consumer complaints

Some consumers report disappointing results, too, even saying they have been burned by no no!, though we admit these could have been caused by a malfunctioning unit or misuse. Online reviews noted troubles included stinky hair, burned hair, more luxuriant hair, clueless customer service reps and difficulty getting money refunded.

Here are a few samples:

Under the title "False advertisement, ineffective product," a consumer wrote that her calls requesting a refund kept getting disconnected:

"I was sucked in and bought your completely ineffective product.. .1 tried it for a 2 wks and it does NOT WORK ON thick, course African-American hair, despite (their) false advertisements to the contrary."

Here's another one from Amazon-con where nearly 61 percent of no !no! ratings were one star: 'When my hair started growing back it was thicker and more abundant than before. You can only imagine the stress!"

This customer was among those who had trouble getting a refund. "...the representative was rude and argumentative

I would highly recommend NOT TO BUY THIS PRODUCT- DOESN'T WORK AND CAN'T GET A REFUND!!!"

Main product peaking?

The fliture ofPHMD's no!no! is also uncertain, we believe. In an August 2011 filing, PHMD listed Gerimny as one of its main internationalmarkets. Analysts at Maxim noted in June 2012 that the vast majority of consumer segment revenue came from North America and Japan, with expected help from Germany. 'We expect a similar growth profile from the company's planned geographic expansion in Germany and Korea ...." Maxim added that summer. Similar musings continued four times this year, with Brazil added to the wish list. Maxim began to sound frustrated enough with the delays that it adjusted estimates in August. 'To account for the more gradual entry into Brazil, and the slower than expected ramp in Germany ... we are reducing our 3Q13 and 2013 revenue estiimtes to $58.5M and $234.6M, from $66.OM and $248nt4M," Maxim analysts wrote Aug. 8, 2013.

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The next day, PHMD execs said during the earnings call that the Germany launch had finally nude it to the early stage and was able to generate only about $1 million

"Qermany, all the early signs gives us a lot ofreason to be optimistic about that. In Bra* the news that we published so far in the quarter included finalizing the acquisition ofthe company down there that gives us presence in the local market. The comment we made earlier that we are expecting launch in the second half with pushing for the third quarter but definitely in the fourth quarter, we're still on that pathway," said Dennis McGrath, president and chief financial officer.

Most ofPHMD's sales are made in America, which provided 72 percent oftotal revenue last quarter and in Japan, which accounted for 16 percent from its sole distributor there, according to filings.

Yet PHN'ID contends it's looking for more growth in Japan We believe PHMD overstates the prospects for no! no! there.

Why? Hair removal probably isn't a huge concern in Japan, one might extrapolate from a Nasgoya University School of Medicine study of more than 600 women University researchers' clinical assessment determined a lower level of body hair among the Japanese.

Meanwhile, we think FIJJVID also may be seeing its key U.S. market product peaking.

To keep sales up, PHMD is busy spending millions running no! no! ads on everything from short comnrcials on broadcast stations to hour-long infonrcials on cable to the web to Plus-TV commercials shown on JetBlue Airways flights. Execs recently said PHMD backed off on some no!no! Product direct-to-consumer marketing in North America because cost per media increased.

The 2Q direct-to-consumer revenue fellto $30.3 million from $33.7 million for the prior year. Yet the overall media buying and advertising expenses rose to 27.5 percent of revenue in 2Q from 25.7 percent the prior year.

So the company's blowing through a higher percentage of ad dollars to sell the products.

Insider selling precedes huge buyback

If selling signifies lack of confidence inthe company, as we believe it does, PHMD must suffer from an inferiority complex.

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Insiders have gone on a huge selling spree since October 2012, especially CEO Rafaeli. He owned nearly 2 million shares as of June 11, 2013. But he's shaved those shares in trust down to about 966,700 in a short time, records show.

Director Katsumi Oneda also trimnd roughly 1.5 million shares down to a million, while President McGrath chopped his shares from about 323,000 to about 200,000, records indicate.

We submit that this selling indicates what's wrong with the stock buybacks - another $30 million repurchase is planned this year. The company appears to be using shareholders'cash to benefit just afew select insiders from whom stock is bought. We think it helps rich insiders rather than smaller investors as large investors buy blocks sold by insiders.

Key consumer segment: falling revenue

Consumer sales fell to $48.7 million in 2Q, a .8 percent sequential decline but a more concerning 3.5 percent drop from the year before.

Execs inexplicably blamed the drop on the Boston Marathon shootings and the Oklahoma tornadoes.

Blaming shootings and the weather for a sales drop is a stretch of monstrous proportions. But TheStreetSweeper believes the more likely explanation is that PHMD' s top product, no no!, is losing popularity in its key location of the U.S. and could continue to decline.

Here are three related financial factors that support the point.

* First, FHMD had to pour nearly $2 million extra into selling, general and administrative in 2Q. That's a chunk of change, especially since the company's most popular category still dropped behind the same quarter the previous year.

* Second, direct-to-consumer sales not only plummeted compared with the prior year 2Q, it also dropped 4.4 percent sequentially, too.

* Third, consumer revenue the year before increased 19.6 percent from 1Q to 2Q ($42.2 million v. $50.5 million). This compares with the comparative revenue decline to $48.7 million already noted in the same time period this year.

Adding to this witch's brew offinancials, consumer revenue historically

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dropped 23 percent and 7percent sequentially in the last quarters of2011 and 2012 - so this increases the chances of disappointing numbers boiling up in coming quarters. Even normally optimistic analysts are expecting a slight (more than 1 percent) sequential fall.

Analysts' annoyance with PHMD came out loud and clear during the last earnings calL

"..2013 was supposed to be a growth year and it's now looking like it's going to be aflattish revenue kind ofperforman cc," said an unidentified analyst "..so all those frustrations here, the stock it hasn't performed at all. And I'm just trying to figure out if there was a misstep at all on your end as far as assuming what kind of expectations we should have?"

President McGrath responded in part that the history is that before it jumps, "this business moves sideways for a quarter or two..."

(Emphasis added.)

80. The October 17, 2013 TheStreetSweeper.org report was the first time that information was significantly communicated to the investing public with reliance on an independent expert, which called into question the efficacy of the Company's flagship product.

81. On this news, PhotoMedex shares declined $0.50 per share or 3.24%, to close at

$14.91 per share on October 17, 2013 on heavy trading volume.

82. On November 6, 2013 before the market opened, the Company issued a press release, reporting the Company's third quarter financial and operating results for the quarter ending Septenber 30, 2012, in which it confirmed TheStreetSweeper's allegations that the

Company had overstated its prospects for the no!no! device in the Japanese market. The press release states in pertinent part as follows:

Revenues for the third quarter of 2013 were $45.9 million, a decrease of 19.0% compared with revenues for the third quarter of 2012 of $56.7 million The decline in revenues was primarily due to no consumer sales to the Company's distributor in Japan in the third quarter of2013 as this distributor implemented a change to its business model that affected most of the manufacturers it

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represents to retail channels, and determined to reduce inventory levels to mitigate investment risk during this transaction. According to third-party data, no no! product sales in Japan at the retail level during the third quarter of2013 were conparable to the third quarter of 2012. Also contributing to the decline in revenues was the scheduling of a Home Shopping Network 24-hour event in the fourth quarter of 2013 that occurred inthe third quarter of2012. Had the revenue contributions from these two events remained at the second quarter levels, the third quarter revenues would have been approximately $13 million higher.

Management expects revenues for the fourth quarter of 2013 to be more than $55 million without any expected contribution from Japan.

Net income for the third quarter of 2013 was $0.9 million or $0.04 per diluted per share, which included $1.2 million in stock-based compensation expense and $1.6 million in depreciation and amortization expense. This conpares with net income for the third quarter of2012 of $7.5 million or $0.35 per diluted share, which included $1.5 million in stock-based compensation expense and $1.4 million in depreciation and amortization expense.

Revenues for the nine months ended September 30, 2013 were $161.2 million, a decrease of 2.8% compared with revenues for the nine months ended September 30, 2012 of $165.9 million

Net income for the nine months ended September 30, 2013 was $15.2 million or $0.74 per diluted per share, which included $3.8 million in stock-based compensation expense and $4.5 million in depreciation and amortization expense. This compares with net income for the nine months ended September 30, 2012 of $16.6 million or $0.83 per diluted share, which included $4.8 million in stock- based compensation expense and $4.2 million in depreciation and amortization expense.

As of September 30, 2013 the Company had cash and cash equivalents of $9.0 million or $2.39 per diluted share, compared with $62.3 million as of December 31, 2012. During the third quarter of 2013 the Company repurchased 846,924 shares of its conmon stock under its Share Repurchase program at an average price of $16.05 per share, for a total of$13.7 million Since the beginning ofthe year, the Conpany has repurchased 1,171,682 shares of its common stock for a total of$19.0 million, and has $25.2 millionremaining available to repurchase shares under the $55 million board authorized program

Dr. Dolev Rafàeli, PhotoMedex CEO, commented, 'While a change in business model at our distributor in Japan impacted orders for the no no! during the quarter, we are pleased that product demand from Japanese consumers held Case 2:13-cv-06808-PD Document 18 fled 04/14/14 Page 64 of 99

steady. In addition, a major beauty event on HSN that occurred in last year's third quarter will take place this year in the fourth quarter. At this event last year, we sold a record number ofno no! products and we are looking forward to a similarly strong reception in December when we will offer the no no! Pro, which has a higher average selling price.

'During the quarter we acquired a Brazilian distributor and subsequently launched the no !no! brand and recorded our first sales. Retail advertising in Brazil began last week, and we are excited to begin ramping up this next major phase of our growth strategy," Dr. Rafaei continued. 'We continued to make progress in Germany with our no! no! brand and are on track to meet our expectations for 2014. Sales to Bed Bath & Beyond in the U.S. were as expected and in the coming months they will be upgrading from the no !no! Plus to the higher-priced 8800 .Neova® consumer revenues were up more than five-fold over the prior year a testament to the success of our marketing platfonn"

83. On November 6, 2013, Rafàei and McGrath presided over a conference callwith research analysts and investors in which they were hammered with questions regarding the situation in Japan and how they could not have known about the significant issues with Ya- Man beforehand, why the Company was continuing to repurchase stock when the exclusive Japanese distributor was no longer purchasing product from PhotoMedex and whether the Individual

Defendants would cease their insider sales. Rafaei and McGrath only offered unsatisfactory and contradictory explanations for the problems in Japan and never explained how, given the

Company's chimed ability to carefully track retail sales (which Rafàei specifically identified as the primary means in which sales ofPhotoMedex' s products were accomplished in Japan),

PhotoMedex could find itself in the position of having $46 million in Company product on its distributor's shelves with an unspecified amount more in retail channels (which Rafàei explicitly admitted could not be quantified during the November 6, 2013 call). Although McGrath claimed in the November 6, 2013 conference call that a recent market survey established that the

Company's products continued to move off ofretail shelves in a similar manner to past rates,

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neither McGrath nor Rafàei were able to offer a satisfactory explanation as to why Ya- Man retained inventory with a value amounting to in excess of six (6) months of annual sales (i. e.,

160,000 units), when Ya-Man supposedly turned inventory three (3) times per year, or why, if market data actually continued to reflect significant consumer demand, neither of the Individual

Defendants on behalf ofPhotoMedex could reliably explain how much unsold inventory was sitting on retailers shelves in Japan (or otherwise in the distribution charnel between Ya- Man and retailers, including with a master distributor to which Ya-Man sold the products before they were released to retailers) or why sales had fallen markedly in Japan since 2011. On the

Novenber 6, 2013 investor conference call, Rafaei also specifically acknowledged that "Ya-

Man is a public company" and admitted that "as a public company they advertise their ow results," thereby confirming that the Conpany, including both McGrath and Rafàei who were present and leading the entire conference call, knew that they had the opportunity and mans to monitor the financial performince of their sole distributor and business partner in Japan by monitoring its public filings which, as discussed above, established that Ya-Man was performing in an increasingly disastrous manner from a financial perspective.

84. On this news, PhotoMedex shares fell $1.13 per share, or 8.84%, from close price of$12.78 per share on November 5, 2013 to a close price of$11.6 5 per share on November

6, 2013, with heavy and record trading volume.

85. As a result of the series of disclosures regarding the true state of the Company's business and operations and the efficacy of its flagship product, the Company's shares declined

$2.65 or 17.2% from its closing price of$ 15.41 per share on October 16, 2013, to a closing price of$1 1.65 on November 6, 2013.

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86. Defendants' assertions in the November 6, 2013 conference call with research analysts and investors that their first notice ofprobleim in Japan and with their exclusive

Japanese distributor, Ya-Man, did occur until on or after September 16, 2013 are highly suspicious and defy credulity because, in the years 2010, 2011, 2012 and 2013, PhotoMedex had total sales in Japan to Ya-Manof$88 million ($29.5 million in20l0, $25.9 million in20ll,

$21.1 million in 2012 and $11.5 million in 2013) but, as of November, 2013, as detailed above,

Ya-Man had at least $46 million of such product based on retail prices in inventory and, as

Rafaei explained in the November 6, 2013 conference call, the Company had the ability to and did, in fact, monitor consumer sales at the retail level through a market research firm in Japan

Moreover, throughout the Class Period, PhotoMedex made specific statements regarding how many consumers had purchased its products and where such purchases occurred, thereby confirming that the Company carefully tracked actual consumer sales throughout the Class

Period. Thus, it simply is inconceivable that PhotoMedex had no prior notice before September

16, 2013 that a significant amount of the product that it had shipped to Ya-Man in Japan in the previous four (4) years (the approximate length of the relationship between PhotoMedex!

Radiancy and Ya-Man), and the value of virtually all of the product shipped by the Conpany in the first half of 2013 (based upon Rafàei's representations regarding average selling price of its product to Ya-Man during the November 6, 2013 as being, on average, $66.67 per product) remained unsold. As a result, each and every statement that Defendants made regarding sales in

Japan during the Class Period were false and misleading in nature because each statement omitted critical facts regarding the actual sales of the Company's products and, specifically, the flagship no!no! device, in Japan

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87. Due to the Defendants' misrepresentations and omissions, PhotoMedex shareholders invested millions of dollars in artificially inflated and overpriced shares during the

Class Period. Meanwhile, Rafàeli and McGrath made millions of dollars personally on sales of artificially inflated stock.

88. Following the close ofthe Class Period, on November 14, 2013,

TheStreetSweeper.org published a report reiterating its previous concerns and analyzing

PhotoMedex's disclosures onNovenber 6,2013. The report states in pertinent part as follows:

Japan loss jeopardizes multi-million

PHN'ID reported revenue of only $45.9 million last quarter. That is the lowest revenue since the PhotoMedex- Radiancy reverse merger in December 2011 and about $10 million below expectations.

The primary excuse? A failure to sell virtually any product in Japan, as the distributor's orders lurch to a complete stop.

How much inventory is sitting around the Japanese distributor's warehouse while everyone tries to figure out what to do? An astounding 160,000 units. These units typically sell for about $270 apiece.

That means $43.2 million worth ofproduct is at risk. That's obviously terrible news for a company with revenue of only $45.9 million

"From the Japan standpoint it's a complete zero," said an analyst who covers the company.

"I don't care what the company says," he added. "It's a zero."

And that $46 million-worth is only a fraction ofthe no!no! units in liirbo in Japan, the company's second-biggest market. PHMD executives admitted under analysts' grilling that they really didn't know how many units are in the possession of a middleman distributor between the key distributor, Ya-Man, and the retailer. They also don't know how many are gathering dust on Japanese retail store shelves. Those two unknowns together could be a million bucks or upwards of$50 trillion - no one knows. Even if the monetary loss ofPHN'ID turns out to be more controllable than we anticipate, the damage to PHMD's reputation could spin out of control

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The Japan distributor, Ya-Man, suddenly changed its business plan, PHMD executives explained, and stopped orders of no!no!, in both the third and fourth quarters, so Ya- Man could conserve cash

But TheStreetSweeper is skeptical PHMD said the distributor wants to eliminate its middleman distributor and go directly to retailers.

Yet, Ya-Man is seeking distributors.

The company website FAQs feature this questioit 'Plow can I become your international distributor?" Interested parties may then submit a request through the online form. So this part ofPHMD's claims makes no sense.

Ya-Man's website also contains many products but surprisingly it does not appear to contain PHMD's no!no! hair removal products.

Distributor reports less income than the likely cost of the no!no!

Fred Russell of Frederic E. Russell Investment Management pointed out another important question about the Japanese distributor that recently signed a two-year extension on its exclusive contract with PHMD.

"Why does this conpany have only one distributor in a big market like Japan?" Russell asked. 'That situation makes this company very vulnerable.

Write-down fears

'My biggest fear is there could be a ite-down because they're telling The Street they're transitioning from the (older no!no! model) 8800 to the no!no! pro," said the analyst who requested anonymity.

"When you're transitionthg to products and your biggest customers are also selling other products, newer products and you have inventory built up, you usually have some sort ofite-dowii," he said. Write-downs can be big trouble and have been at the heart of company failures.

TheStreetSweeper had already warned inthe Oct. 17 PHMD article -click on the

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link here - that PHMD may be overstating the prospects for no no! in Japan- Extrapolating from a Nagoya University School of Medicine study, we found that researchers' clinical assessment determined a lower level of body hair among the Japanese. So the interest in hair removal there would logically be limited.

Flawed stock buyback timing

Multiple questions revolve around the timing of Japan and other events.

PHMD boasted that it continued the second half of its stock buyback program, a roughly $13 million effort this past quarter that would normally please investors. But two issues sully this program

First, the company conducted the purchases close to when the Japan distribution problems began to drive down the stock price.

The company's president and financial officer, Dennis McGrath, explained that the stock price seemed inexpensive at the time and that the buying stopped on Sept. 16, just before the end of the month when executives say they discovered the distribution problem

Russell pointed out that the stock price was very high at that time. It was over $16 on Sept. 16, very near this year's high of$17 and change.

Second, just before the stock repurchase program ended, CEO Rafàei and a director, Katsuni Oneda, were happily selling thousands upon thousands of shares of stock. Rafaei said he retains about 1.5 million shares and the sales occurred under an automatic sales plan, a lOb-S.

"I have nothing to do with the execution of the plan and I don't control it. I set up the formula a long time ago and I let it roll and it happens and reports when it does," Rafàei said.

Regardless, Russell said, 'The timing was not wise."

So who would blame investors if they felt the conpany threw around their hard- earned dollars to repurchase stock at exorbitant prices that unfairly benefited some insiders?

'This company is really good at removing women's wrinkles," Russell said, referring to the company's heat-and-light anti-aging treatment. "But I'm not sure Case 2:13-cv-06808-PD Document 18 fled 04/14/14 Page 70 of 99

they are good at renuving the wrinkles in their business strategy."

(Emphasis added.)

89. Indeed, it appears that the no!no! device has peaked inthe United States. In its annual report for 2013 filed as Form 10-K with the SEC in March 2014, the Company disclosed that net revenues have decreased from $136 million in 2012 to $113 million in 2013 in the

United States, or more than 15%, notwithstanding the Company's total increased consumer marketing and selling expenditures from $102.7 million in20l2to$161.4 million in20l3. That result is unsurprising in light of the inherent and known lack of efficacy of the no!no! device, despite the Company's enormous expenditures to convince consumers otherwise.

VIII. ADDITIONAL FACTS GIVING RISE TO A STRONG AND COGENT INFERENCE OF SCIENTER

90. During the Class Period, the Company, Rafeli, and McGrath had both the motive and opportunity to conduct fraud. They had the motive to deceive investors as to the efficacy of the no no! device because it was the flagship and nain revenue and profit driver for the

Company. Ifthey had revealed to the investing public that the no!no! device lacked efficacy, the

Company's stock price, as well as its sales, would collapse, while exposing the Company to significant liability for consumer fraud. Indeed, in the past, Radiancy had received a demand letter alleging that the Company violated California consumer fraud laws with respect to the no!no! device inNovember 2011. Accordingly, to put it mildly, disclosure of truthfil information regarding the efficacy of the no no! device would have significant ramifications for the financial solvency of the Company.

91. The Company, Rafaei and McGrath also knew or at the very least, had ample

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reason to know that the efficacy of the no!no! device was highly questionable. Rafàei was the

CEO of Radiancy when the Tria Litigation was first initiated in 2010 alleging that Radiancy had falsely advertised the efficacy ofthe no!no! device.

92. As CW3 explained, Rafàei was specifically aware of numerous consumer complaints (principally from the United States) that Radiancy's chief product, the no!no! device, did not work, and was well aware that even Radiancy's own personnel doubted the product's efficacy. CW3 explained that, in light of significant and persistent criticism from consumers in the United States and elsewhere that the no! no! device did not work, Rafàei met alone at

Radiancy's headquarters in Israel between 2007 and 2009 with Sharon Dovev ('Dovev"),

Radiancy's Vice President of Marketing, as well as with Dovev and Sharon Ravid ("Ravid"), the

Vice President of Sales and two other Vice Presidents (for Operations and Quality Assurance, respectively) to analyze consumers' criticisms of and conplaints regarding the no! no! device in an effort to re-brand the product and re-educate consumers. As a result ofthese meetings in which Rafàeli was intimately involved, according to CW3, Dovev directed that new marketing materials be developed so that consumers would cease expecting the no!no! device to work as effectively as laser treatments, as had been falsely advertised by Radiancy, and, instead, would treat the device as being an alternative to wax treatments. Thus, well before the reverse merger and the Tria Litigation (and by no later than 2009), Rafàei was on notice as to severe issues concerning the efficacy of the no no! device and that the no !no! device could not be fairly represented to consumers or investors as conparable to laser treatments.

93. CW3 described the no!no! device as Rafàeli's 'baby" and explained that Rafàeli would personally challenge Radiancy personnel who questioned the efficacy of the product. In

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one memorable example, CW3 recounted how Rafàei ordered skeptical Radiancy personnel to his office during CW3 's tenure (between 2007 and 2009), and ordered a manager to apply the no no! device to her own leg to demonstrate that the no no! device removed hair on the location ofthe manager's leg to which it was applied. Somewhat amazingly, however, Rafàei insisted that the no!no! device be applied to a portion of the manager's leg that was hairless and then insisted that the product had worked, even though it clearly did not and could not have removed any hair from this portion ofthe manager's leg. Presumably, this bizarre demonstration by

Rafaei was part of a desperate attenpt ensure that Radiancy personnel ceased questioning the efficacy of this flagship product and understood that they were required to adopt the Company's deception In any event, as of2009, before the reverse merger and the Class Period, Rafaei had specific knowledge regarding problems with the efficacy of the no! no! device.

94. Defendants' knowledge regarding the fact that the no no! device neither eliminates nor reduces hair density or re-growth is confirmed by the fact that neither Radiancy nor PhotoMedex ever sought approval by the Food and Drug Administration ('PDA") of a premarket application or clearance by the FDA of a premarket notification under Section 510(k) ofthe Food, Drug and Cosmetic Act, which is required for any instrument that "is intended to affect the structure or any ifinction of the body of man" 21 U.S.C. § 321(h). CW3 explained that, in other instances, Radiancy and, specifically, Radiancy Clinical Manager, Julia Rothman, obtained FDA 510(k) clearance with respect to other Radiancy products. The fact that neither

Radiancy nor PhotoMedex ever sought such FDA 510(k) clearance with respect to its flagship no !no! device constitutes strong evidence that it was well known, at all pertinent times, that the no !no! device lacked efficacy in eliminating or reducing body hair any better than a razor, despite

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Defendants' specific representations to the contrary. CW2 also explained that the Company's failure to seek FDA 510(k) clearance strongly suggests that PhotoMedex is well aware that the no no! device neither permanently nor even semi-permanently alters the human body because, if the no!no! device actually worked as advertised and represented, FDA 510(k) clearance certainly would be required.

95. McGrath was the Chief Executive Officer ofPhotoMedex when Radiancy disclosed the pendency of the Tria Litigation as part of the reverse merger process in 2011. In

April2012, during the lawsuit and after the reverse merger, Tria filed the expert report by Dr.

Biesman under seal explaining how he reached the conclusion that the no! no! device was no more effective at removing hair than a razor. Moreover, consumer complaints about the no !no! device continued after the reverse merger. For example, the following are just a few samples from the Home Shopping Network website, which PhotoMedex frequently referred to as an important medium for marketing its no! no! hair removal device:

pam121255 IL: NONO IS A NO NO FOR ME... Review Date: 5/6/2012

Everything sounds good on HSN and the infomercials but all that glitters is not necessary gold. Summary of my experience- bums skin, jumps unless you are on a absolute smooth surface legs, arms, not good for face at at bumeed hair smell is gross, hair returned faster, darker, stiffer and thicker than with shaving, threading or waxing. I am returning today- a month is enough to know this product does not do what it states.

28 out of 33 found this review helpfiul

wendy0806 NJ: TERRIBLE PRODUCT Review Date: 3/19/2012

I feel that this was false advertisement. The product does not work at all and am sending it back. For the amount i spent on this, ican get laser hair removal for the

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same amount. Not to mention that if you put this to remove hair on the upper lip, you can nearly burn your lip off i do not recommend at all.

37 out of 46 found this review helpthl krisforaday CO: What can I say that hasn't been said Review Date: 3/9/2012

I read all the bad reviews, watched about 10 presentations, and decided to try this anyway in case it might work. I was ready to be very patient and learn to use it right. Here's the thing - nowhere do they ACCURATELY demo this. If not used on flat, tight skin, it doesn't maintain contact, and it bounces and pops kind of scary, and left long thin scabs all over my face. I pulled the skin as tight as I could and it still did it. Also automatically turns on high even if you start on low.

40 our of 44 found this review deeder4 TX: Really? Review Date: 1/9/2012

This product is a total flop. For the investment, I'd rather pay to go have it done. I've continued to use it hoping one day I would see a difference, but nothing. I think this is false advertising. These hosts just say what they want so we'll buy, and we do! LOL So they don't care Wit works for us or not. Save your money ladies, and don't end up like me.

32 out of 36 found this review

RoseT123 FL: The no no, NO NO WORK! Review Date: 10/30/2013

I had high hopes for this product but it didn't deliver on it's promise. I have fine facial hair and normal thickness body hair so I thought it would work easily on me but it didn't work at all. I thought the product was defective so I returned it and got another one, however the results were the same. It didn't remove any body hair at all and only a tiny amount of facial hair. Don't waste your money!

1 out of found this review helpful

Silvita25 MT: Are You KIDDING? Worst product ever! Review Date: 9/26/2013

I was so excited about this product & was so let down First of all it took a long time to even start seeing it work, the smell was awful. What was worst that it did nothin! I had to use other mans to get the desired effect. Believe me I am not a

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hairy person! HSN get rid of this product!

3 out of 4 found this review

96. It appears that as a result of the Tria Settlement, which Rafaei and McGrath undoubtedly approved given their positions and the small sue ofPhotoMedex as a Company, as well as the fact that both Rafàei and McGrath responded to questions regarding the Tria

Settlement during an August 8, 2012 conference call denying the materiality ofthe Tria

Settlement, thereby demonstrating their knowledge ofthe Tria Litigation and the terms of the

Tria Settlement, which, challenged the Company's advertising with respect to its core product and driver of revenues and profitability, and which resulted in the Company being required to curb its advertising practices with respect to the no!no! device. Indeed, as discussed above, in the August 2012 quarterly earnings call, both Rafàei and McGrath reaffirmed that the settlement had no material implications for the Company's business:

Rafaei: We've - we've announced in a press release after the settlement was signed that the - that anything contained in the agreement is not going to be affecting the Company and it's not going to be affecting the results so it's immaterial to the results ofthe Company.

McGrath: Let me just make a couple of other comments. The terms of the agreement are not material to the conpany in any case since the agreement prohibits us from disclosing any of the terms. We chose and honor that agreement. So we believe that the settlement terms did not have them through a diverse effect on the Company. We have - we continue to modify our message on a quarterly basis.

That litigation has been over a year in its making, we nude substantial changes to our messaging last year that as you can see our revenues have continued to increase. We don't think the settlement has a nuterial impact onus and our messaging is driven by what we see the consumers respond to. And when this commenced a year ago, we changed some things and our consumers responded extremely well to that and we'll continued to drive that process. It's a fundamental part of our marketing platforn to test and test and be deliberate

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about what's said, how it's said, and how it calls consumers to action-

97. As ofjust a few months before the announcement of the Tria Settlement, in

March 2012, the Company enployed only 183 fill-time employees. Given the small sue ofthe

Company and their respective positions as the top executives ofthe Company, it is highly

Sikely and simply implausible that Rafàeli and McGrath were unaware of the allegations in the

Tria Litigation, the findings contained in the expert report provided by Tria, the potential ramifications and significance ofthe Tria Litigation and the specific terms and requirements of the Tria Settlement.

98. The Company, Rafaeli, and McGrath also had the motive not to disclose the

Company's problems in Japan After the United States, Japan was the largest market for the no no! hair device until the third quarter of2013, when the Company revealed that its Japanese revenue had suddenly ceased in its entirety. The disclosure of any significant problems in the

Japanese market for the no! no! device would have (and, ultimately, did have) a significant impact on the Conpany's share price. And, given the significance of the Japanese market to

PhotoMedex' s bottom line and the fact that Ya- Man was the Company's sole Japanese distributor, and Defendants' access to market data regarding sales to consumers in Japan and their specific representations to the investing public regarding the number of units of the no!no! device actually sold to consumers during the Class Period, it is inconceivable and highly implausible that PhotoMedex executives were not consistently monitoring the Japanese marketplace -- indeed, PhotoMedex repeatedly cited that having Ya-Man as its sole distributor was a large source of risk to its position in the Japanese market (but never disclosed the existence ofthe problems being experienced in the Japanese market until the Company disclosed, without

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prior notice, that all sales in Japan had effectively ceased through Ya- Man). As detailed above,

according to records from the Tokyo Stock Exchange, Ya-Man' s net sales and income had

dropped precipitously during the Class Period with no disclosure by Defendants of any

difficulties in the Japanese market. None of the Defendants disclosed any potential problems

with Ya-Man during the Class Period until the Company disclosed that the bottom literally had

fallen out in November 2013 and that over $46 million in product was sitting on Ya-Man's

shelves unsold (and perhaps more elsewhere), even as the Company continued to repeatedly

reiterate the "ample opportunity for expansioif' in Japan to investors in its quarterly reports while

leaving its risk descriptions unchanged.

99. During the Class Period, the Company conducted a $25 million stock repurchase

program followed by a $30 million program a year later at near annual high prices. Given the

market capitalization of the Conpany (approximately $250-275 million), a share repurchase

program of$5 S million is quite significant in nature. Of course, share repurchase programs

increase share price by increasing demand for sales and increase a company's earnings per share.

See Bens, Nagar, Skinner and Wong, Employee Stock Options, EPS Dilution and Stock

Repurchases, 36 Journal ofAccounting and Economics at No. 1-3 (2003); Maxwell Murphy, The

Pros and Cons of Stock Buybacks (Wall Street Journal) (February 27, 2012),

httpi'online.wsj.com'news/articles/SB1000142405297020382490457721389103 5614390

("Most academic research shows that share prices typically increase when buybacks are

announced, which benefits short-term owners [and] [f]or those interested in long-term value

creation, which should be the focus of managements and boards, the evidence convincingly

shows that buybacks usually do not help'); Voss, Major Themes in Economics at 5 5-74 (Spring

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2012),Wpi/biisiness.uni.edu/econonics./'Ilieriy - s/voss.pd ("[u]ndervaluation is consistently touted as the underlying reason for a repurchase" but "[e]vidence originating from the topic of managerial incentives, specifically the increase earnings per share hypothesis and the managerial stock incentives hypothesis, seems to explain best the popularity of repurchases"). Meanwhile, as detailed below, both McGrath and Rafaei were selling significant percentages oftheir shares during the Class Period.

100. According to the insider trading reports filed on Form 4s with the SEC as outlined inthe table below, Rafàei sold 1,028,750 shares for $15,864,944.80 during the Class Period.

This is 51.55% of his holdings going into the Class Period, or 40.04% ofhis total post-merger holdings. These Class Period sales are results oftwo (2) SEC Rule lObS-i plans: (1) every sales transaction from October 4, 2012 to March 3, 2013, inclusive, was a result ofa lObS- 1 plan established on June 7, 2012; while (2) every sales transaction from May 20, 2013 to September 3,

2013, inclusive, was a result of lOb-S- 1 plan set on May 20, 2013.

Date Shares Price Value Shares Remaining

12/13/2011 2,569,445

10/4/2012 19,900 $15.02 $298,840.29 2,549,545 10/5/2012 2,240 $15.00 $33,600.45 2,547,305

10/9/2012 852 $15.00 $12,780.00 2,546,453

4Rafàei also set a lObS- 1 plan on September 10, 2013, which resulted in the post-Class Period transactions from January 13, 2014 to April 1, 2014, inclusive, with $6,473,808.31 proceeds in sales of another 442,559 shares. Thus, since the reverse merger and to date, Rafàei has sold or otherwise disposed of 2,045,301 shares ofConpany stock - in other words, eighty percent (80%) ofhis stock in PhotoMedex.

5 Shares acquired by Rafaeli as part of the reverse merger.

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Class Period Begins 12/14/2012 50,000 Gift N/A 2,496,453

12/20/2012 167,000 Gift N/A 2,329,453

12/20/2012 334,000 Gift N/A 1,995,453

1/10/2013 805 $15.00 $12,075 1,994,648 1/15/2013 172,516 $15.00 $2,588,205.79 1,822,132

2/16/2013 45,214 $15.00 $678,210.00 1,776,918 2/7/2013 4,786 $15.00 $71,790.00 1,722,132

3/1/2013 49,400 $15.00 $741,000.00 1,722,732

3/1/2013 200 $15.01 $3,002.00 1,722,532

3/1/2013 400 $15.02 $6,008.00 1,722,132 3/4/2013 75,000 $15.08 $1,131,000.00 1,647,132

3/5/2013 40,429 $15.10 $610,583.02 1,606,703

3/13/2013 140,000 $15.28 $2,139,116.00 1,466,703

6/19/2013 10,200 $16.51 $168,368.34 1,456,503 6/20/2013 50,000 $15.69 $784,525.00 1,406,503

6/21/2013 52,600 $15.47 $813,937.66 1,353,903

6/28/2013 7,104 $16.00 $113,664.00 1,346,799 7/1/2013 100,000 $15.59 $1,559,340.00 1,246,799

7/23/2013 37,600 $16.16 $607,552.08 1,209,199

7/25/2013 42,202 $16.02 $675,928.33 1,166,997 7/29/2013 10,198 $16.04 $163,573.88 1,156,799 7/312013 15,600 $16.02 $249,985.32 1,141,199

8/1/2013 21,800 $15.92 $347,093.06 1,119,399

8/2/2013 7,500 $15.61 $117,101.25 1 1 111,899 8/5/2013 11,771 $15.83 $186,358.47 1,100,128

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8/6/2013 10,400 $15.81 $164,440.64 1,089,728 8/8/2013 44,800 $15.02 $672,909.44 1,044,928

8/19/2013 3,729 $14.90 $55,562,10 1,041,199

8/21/2013 13,008 $16.01 $208,247.67 1,028,191 9/3/2013 61,488 $16.19 $995,367.74 966,703

101. According to the insider trading reports filed on Form 4s with the SEC as outlined in the table below, McGrath sold 101,795 shares for $1,500,574.41 during the Class Period. This is 33.70% of his holdings going into the Class Period, or 32.14% of his totalpost-nrger holdings. The Class Period and pre-Class Period sales are results of a lObS-i plan set on June

11,2012 .6

Date Shares Price Value Shares Remaining

12/13/2011 316,688 10/4/2012 14,632 $15.01 $219,629.25 302,056 Class Period Begins

12/17/2012 50,500 $14.34 $724,094.25 251,556 1/15/2013 17,699 $15.00 $265,485.00 233,857

1/24/2013 33,596 $15.21 $510,995.16 200,261

102. The fact that the insider stock sales at issue by Rafàei and McGrath occurred pursuant to 1 ObS -1 plans serves no basis as a defense to the strong inference of scienter created

60n December 16, 2013, McGrath sold 54,125 shares of PhotoMedex stock for proceeds of$663,03 1.25.

7 Shares held by McGrath after the reverse merger. Since the reverse merger and to date, McGrath has sold 170,552 shares of his PhotoMedex stock - My-four percent (54%) of his post- reverse merger holdings.

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by these sales because, at the time that they entered into their initial lObs- 1 plans on June 7, 2012 and June 11, 2012, respectively, both Rafàeli and McGrath were in possession of material, non- public information regarding the Tria Litigation, including the expert report produced by Tria establishing that the no no! device is no more effective than a razor. Moreover, it bears noting that these lObs- 1 plans were adopted shortly before the Tria Settlement was announced and

Defendants issued their false and misleading statements regarding the Tria Settlement while continuing to misrepresent the efficacy ofthe flagship no no! device in investor communications.

Likewise, when Rafàei adopted the subsequent 1 ObS- 1 plans, respectively, on May 20, 2013 and

September 10, 2013, as outlined above, he was iii possession ofmaterial, non-public information regarding the business operations and prospects of PhotoMedex, which he failed to disclose to the investing public. Finally, a 1 ObS- 1 plan cannot serve as a defense to a charge of insider trading when it is not adopted in good faith, and the facts pled above establish that neither

Rafaei nor McGrath acted in good faith or could claim that these plans for future stock were adopted in good faith.

103. As noted above, McGrath himself has identified Rafaei as being the consummate marketer for PhotoMedex while identiit3iing himself as being the person at the Company with financial reporting expertise. hftp://wwwbiziournakcom' phi1ade1phia/printediiion/

2012/0 1/06/photondex-bouncing-thack-froimbrink-ofhtni?. McGrath and Rafàei also led each and every conference call with investors during the Class Period and are intimately familiar with all of the Company's business operations in the small enterprise that is PhotoMedex. Given their acknowledged roles at the Conpany and the size of PhotoMedex in general, the facts give rise to a strong inference of the Individual Defendants' knowledge and scienter with respect to

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the false and misleading statements and accompanying material omissions at issue in this case.

LX. LOSS CAUSATION

104. The market for PhotoMedex common stock was open, well-developed, and efficient at all relevant times. During the Class Period, as detailed herein, Defendants engaged in a scheme to deceive the market and course of conduct that artificially inflated the price of

PhotoMedex common stock and operated as a fraud or deceit on Class Period purchasers of

PhotoMedex shares by failing to disclose or misrepresenting: (i) that the effectiveness of the

Company's key product, the no no! device, rested on flimsy, weak studies; (ii) that a more credible study raised serious doubts as to the touted effectiveness of the Conpany's key product, and in fact showed that the product works no better than shaving; and (iii) that the Conpany had materially overestimated the success and concealed the risks ofthe no no! device in the Japanese market.

105. As a result of Defendants' materially false and misleading statements and material omissions as alleged herein, PhotoMedex common stock traded at artificially inflated prices during the Class Period, reaching as high as $16.92 on June 5, 2013.

106. Lead Plaintiff and the Class purchased or otherwise acquired PhotoMedex common stock relying upon market information relating to PhotoMedex and the integrity ofthe market price ofPhotoMedex common stock, thus causing economic loss and the damages complained of herein when the truth and/or the effects thereof were conpletely revealed and the artificial inflation was removed from the price ofPhotoMedex common stock.

107. Defendants' wrongful conduct, as alleged herein, directly and proximately caused the economic loss suffered by Lead Plaintiff and the Class.

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108. But for Defendants' misrepresentations and omissions, Lead Plaintiff and the other members ofthe Class would not have purchased PhotoMedex common stock at the artificially inflated prices at which they were purchased.

109. On October 17, 2013, TheStreetSweeper.org published a report entitled

'PhotoMedex: Just say No No!" raising serious risks and concerns regarding, among other things, the ineffectiveness of the no no! device, as evidenced by the more reliable critical clinical test, and the Company's prospects in Japan- As a direct result of that disclosure and as the market began absorbing the information despite the barrage ofmisinformition Defendants had published since the reverse-merger, the price of PhotoMedex began dropping first filling from

$15.41 to $14.91 on October 17, 2013 on unusually heavy volume of 526,200 shares, and then slipping to $12.78 on November 5, 2013, the day before the second wave of bad news hit regarding the Company. In the span of a little over two (2) weeks, the share price had declined more than 17%.

110. Then on Novenber 6, 2014, the Company issued a second release, disclosing that the Japanese market had tanked, and giving more credibility to and corroborating the October 17,

2013 TheStreetSweeper.org report. On that news, the share price fell a further 8.8%, on trading volume of over 1 million shares, for an aggregate decline of 21.8% for the October 17, 2013 to

Novenber 6, 2014 period. These decreases were the result ofthe revelations of facts that had previously been concealed and/or misrepresented and caused the price ofthe Company's conmon stock to be artificially inflated, and this price decrease cannot be attributed either to general market or industry-wide events.

111. In contrast to the sharp decline in the price of PhotoMedex contmn stock during

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the period from October 17, 2013 to November 6, 2013, the Advanced Medical Equipment &

Technology Sector (NEC) declined a mere 1.2%, while the NASDAQ Health Care Index (JXHC) declined by 2.8%. Nor were the share prices of the three public companies cited as competitors in PhotoMedex's 2013 annual report filed on Form 10-K in March 2014 affected during the

October 17, 2013 to November 6, 2013 period: Syneron Medical Ltd. (NASDAQ: ELOS) grew

3.1%; Cynosure Inc. (NASDAQ: CYNO) grew by 2.7%; and Valeant Pharmaceuticals, Inc.

(NYSE: VRX) declined by 4.9%. The chart below illustrates the different price changes of conmon shares of PhotoMedex, Syneron Medical Ltd., Cynosure Inc., and Valeant

Pharmaceuticals, Inc., and the NASDAQ Health Care Index from October 17, 2013 to November

6,2013:

•1

6 4%

o

.... . -In

14

-1;

Fl! 1.

112 As the chart below illustrates, the market reacted inexorably during the October

17, 2013 to November 6, 2013 period to punish the share price of PhotoMedex conmon stock as

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a result of the disclosures:

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$17

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113. As a result, members ofthe Class who purchased PhotoMedex conmon shares during the Class Period and continue to hold those shares after the Class Period corrective disclosures have sustained economic injury resulting from the decline in value resulting from the revelations on October 17, 2013 and November 6, 2013. Members ofthe Class who purchased

PhotoMedex conmon stock during the Class Period and sold those shares after the end of the

Class Period have suffered economic injury caused by Defendants' misrepresentations and/or omissions during the Class Period and did not filly come to light until November 6, 2013.

114. Thus, the damages suffered by Lead Plaintiff and other members of the Class were direct and proximate results of Defendants' fraudulent scheme to artificially inflate the price of

PhotoMedex common stock, the disclosures of which caused the subsequent significant declines in the value of PhotoMedex common stock.

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115. The foregoing allegations describe Lead Plaintiffs theory of damages, demonstrate that Lead Plaintiffs damages were caused by the scheme to defraud as alleged herein, and negate any inference that Lead Plaintiff and the Class' losses were the result of general market conditions or other factors wholly unrelated to the false and misleading information complained of herein

X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET

116. The presumption ofreliance established by the fraud-on-the-market doctrine applies to this action

117. At all relevant times, the market for PhotoMedex conmon stock was efficient for, inter alice, the following reasons:

a. PhotoMedex common stock met the requirements for listing, and was listed and actively traded on NASDAQ, a highly efficient and technologically advanced equities market, prior to and during the Class Period;

b. As a regulated issuer, PhotoMedex filed periodic public reports with the SEC;

C. PhotoMedex regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similarly reporting services, and participated in open conference calls with stock analysts and investors;

d. According the Company's Form 10-K filed with the SEC on March 18, 2013, as of June 29, 2012, there were 21,881,182 shares of PhotoMedex conmon stock outstanding, and 21,043,947 shares as of March 15, 2013;

e. The trading volume of PhotoMedex comimn shares was substantial during the Class Period, averaging approxinately 730,000 shares traded per

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week, or more than 3% of the outstanding shares as of March 15, 2013;

PhotoMedex was covered by various securities analysts, who wrote reports which were available through various automated data retrieval services; and

g. The market price ofPhotoMedex common shares reacted rapidly to new information entering the market.

118. As demonstrated herein, there are empirical facts showing causation between corporate events or releases and an immediate response in the price of PhotoMedex conmon stock.

119. As a result ofthe foregoing, the market for PhotoMedex contmn stock promptly digested current information regarding PhotoMedex from all publicly available sources and reflected such information in PhotoMedex' s stock prices.

120. Lead Plaintiff and all other members of the Class purchased shares of

PhotoMedex common stock at prices set by the market and did so in reliance on the integrity of those prices. Under these circumstances, all purchasers of PhotoMedex common stock during the Class Period suffered similar injury through their purchase of PhotoMedex common stock at artificially inflated prices, and thus, a presumption ofreiance applies.

XI. INAPPLICABILITY OF THE SAFE HARBOR

121. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any ofthe false statements pled herein because the specific statements pled herein were neither identified as "forward- looking statements" when made, nor accompanied by maningfii], cautionary language idening important factors that could cause actual results to differ materially from those in the specific statements. To the extent that the

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statutory safe harbor applies to any ofthe statements pled herein, Defendants are liable for those statements because, at the time each of those forward- looking statements was made, the speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was made by or with the approval of an executive officer of the Company who knew that the statement was false or misleading when made.

XII. CLASS ACTION ALLEGATIONS

122. Lead Plaintiff brings this action as a class action pursuant to Rule 23 of the

Federal Rides of Civil Procedure on behalf of all persons who purchased PhotoMedex common shares during the Class Period (the 'Class"). Excluded from the Class are Defendants, directors and officers and other employees of PhotoMedex, their families and affiliates, any entities in which any of the Defendants have a controlling interest, the legal representatives, heirs, successors, predecessors in interest, affiliates or assigns of any ofthe Defendants, and the

Judge(s) to whom this case is assigned.

123. This action may properly be maintained as a class action as a result of the following facts:

a. During the Class Period, hundreds of thousands of shares ofPhotoMedex common stock were issued and outstanding and were actively traded on the NASDAQ, a liquid, efficient and impersonal trading market. The meirbers of the Class for whose benefit this action is brought are located throughout the United States, and are so numerous that joinder of all members of the putative Class is impracticable. Hundreds of thousands ofPhotoMedex shares were publicly traded during the Class Period and, upon information and belief, there are hundreds or thousands of members of the Class;

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b. Lead Plaintiffs claims are typical of the claim of the other members of the Class, and Lead Plaintiff and all menbers of the Class sustained damages as a result of

Defendants' wrongful conduct complained ofherein

C. Lead Plaintiff is a representative party that will fairly and adequately protect the interests of the other members ofthe Class, and has retained counsel conpetent and experienced in class action securities litigation Lead Plaintilfhas conducted an extensive investigation in support of this action and has interviewed numerous former PhotoMedex employees, who have confirmed the securities fraud committed by Defendants. Lead Plaintiff has no interests antagonistic to, or in conflict with, the Class it seeks to represent;

d. A class action is superior to all other available methods for the fair and efficient adjudication of the claims asserted herein, because joinder of all members is impracticable. Furthermore, because the damages suffered by the individual Class members may be relatively small, the expense and burden of individual litigation mike it virtually impossible for the Class members to separately redress the wrongs done to them. The likelihood of individual Class members prosecuting separate claims is remote;

e. Lead Plaintiff anticipates no unusual difficulties in the management ofthis action as a class action; and

The questions of law and fact common to the members ofthe Class predominate over any questions affecting any individual members ofthe Class.

124. The questions of law and fact which are conmon to the Class include, among others:

a. Whether the federal securities laws were violated by the Defendants' acts

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as alleged in this Complaint;

b. Whether the documents, press releases, reports and/or statements disseminated to the investing public and to PhotoMedex shareholders during the Class Period omitted or misrepresented material facts about the financial condition, business prospects of

PhotoMedex, including (i) that the effectiveness of the Conpany' s key product, the no no! device rested on flimsy, weak studies; (ii) that a more credible study raised serious doubts as to the touted effectiveness of the Company's key product and, in fact, showed that the product works no better than shaving; and (iii) whether the Conpany had materially overestiimted the success and concealed the risks of the no!no! device's prospects and that ofPhotoMedex inthe

Japanese market;

C. Whether Defendants failed to correct previously issued statements that they knew to be false or they recklessly disregarded the truth or falsity of such statements;

d. Whether Defendants failed to disclose material, adverse information at a time when they were in possession of such information;

e. Whether Defendants acted with knowledge or reckless disregard for the truth in misrepresenting and omitting material facts;

Whether, during the Class Period, the market price of PhotoMedex common stock and other securities was artificially inflated due to the material misrepresentations and omissions complained of herein;

g. Whether Defendants participated in and pursued the common course of conduct complained of herein and

it Whether the members of the Class have sustained damages and, if so, what

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is the proper measure thereof

COUNT I (For Violation of Section 10(b) of the Exchange Act and Rule lOb-S Against PhotoMedex, Rafael, and McGrath)

125. Lead Plaintiff repeats and realleges each and every allegation contained above as if filly set forth herein This claim is asserted against PhotoMedex, Rafàeli, and McGrath

126. During the Class Period, PhotoMedex, Rafàeli, and McGrath, and each of then carried out a plan, scheme and course of conduct which was intended to and, throughout the

Class Period, did: (i) deceive the investing public, including Lead Plaintilfand other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of PhotoMedex conmon stock; and (iii) cause Lead PlainLiff and other members of the Class to purchase

PhotoMedex stock at artificially inflated prices. In ifirtherance of this unlawful scheme, plan and

course of conduct, Defendants, and each of thern, took the actions set forth herein -

127. PhotoMedex, Rafàeli, and McGrath: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices and a course ofbusiness which operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high market prices for PhotoMedex securities in violation of

§ 10(b) of the Exchange Act and Rule lOb-S. PhotoMedex, Rafaeli, and McGrath are sued as primary participants in the wrongful and illegal conduct charged herein The Individual

Defendants also are sued herein as controlling persons of PhotoMedex, as alleged herein

128. In addition to the duties of fill disclosure imposed on PhotoMedex, Rafaeli, and

McGrath as a result of their making of affirmative statements and reports, or participation in the

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making of affirmative statements and reports to the investing public, they each had a duty to pronptly disseminate truthfil information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as enbodied in SEC Regulation S-X (17 C.F.R

§210.1 et seq.) and S-K (17 C.F.R §229.10 et seq.) and other SEC regulations, including accurate and truthilil information with respect to the Company's operations, financial condition and performance so that the market prices of the Company's publicly traded securities would be based on truthfil, complete and accurate information-

129. PhotoMedex, Rafàeli, and McGrath, individually and in concert, directly and indirectly, by the use ofmeans or instrumentalities of interstate commerce and/or of the nails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, business practices, performance, operations and future prospects ofPhotoMedex as specified herein- PhotoMedex, Rafàeli, and McGrath employed devices, schemes and artifices to defraud, while in possession of material, adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of PhotoMedex's value and performance and substantial growth, which included the making o1 or the participation in the making o1 untrue statements ofmaterial facts and omitting to state material facts necessary in order to make the statements made about PhotoMedex and its business, operations and future prospects, in light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course ofbusiness which operated as a fraud and deceit upon the purchasers of

PhotoMedex's securities during the Class Period.

130. Rafaei and McGrath's primary liability, and controlling person liability, arises

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from the following facts: (i) each of the them was a high-level executive and/or director at the

Company during the Class Period; (ii) each of the then by virtue ofhis responsibilities and activities as a senior executive officer and/or director of the Company, was privy to and participated in the creation, development and reporting of the Company's operational and financial projections and/or reports; (iii) each ofthem enjoyed significant personal contact and familiarity with each other and were advised of and had access to other members ofthe

Company's management team, internal reports, and other data and information about the

Company's financial condition and performance at all relevant times; and (iv) each ofthem was aware ofthe Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.

131. PhotoMedex, Rafàeli, and McGrath had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were readily available to them. PhotoMedex, Rafàeli, and McGrath's material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing PhotoMedex' s operating condition, business practices and fliture business prospects from the investing public and supporting the artificially inflated price of its stock. As demonstrated by their overstatements and misstatements of the Company's financial condition and performance throughout the Class Period, Rafàei and McGrath, if they did not have actual knowledge of the misrepresentations and omissions alleged, were severely reckless in failing to obtain such knowledge or deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading.

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132. As a result of the dissemination of the materially false and misleading infomiation and failure to disclose material facts, as set forth above, the market price of PhotoMedex securities was artificially inflated during the Class Period. In ignorance of the fact that the market price ofPhotoMedex shares was artificially inflated, and relying directly or indirectly on the false and misleading statements made by PhotoMedex, Rafàeli, and McGrath, upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by PhotoMedex, Rafaeli, and McGrath but not disclosed in public statements by them during the Class Period, Lead Plaintilfand the other members ofthe Class acquired PhotoMedex securities during the Class Period at artificially inflated high prices and were damaged thereby.

133. At the time of said misrepresentations and omissions, Lead Plaintiff and other members of the Class were ignorant of their falsity, and believed them to be true. Had Lead

Plaintiff and the other members ofthe Class and the marketplace known ofthe true perforimnce, business practices, fliture prospects and intrinsic value of PhotoMedex, which were not disclosed by PhotoMedex, Rafàeli, and McGrath, Plaintiff and other members of the Class would not have purchased or otherwise acquired PhotoMedex securities during the Class Period, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid.

134. By virtue of the foregoing PhotoMedex, Rafàeli, and McGrath each violated

§ 10(b) of the Exchange Act and Rule 1 0b- 5 promulgated thereunder.

135. As a direct and proxinate result of PhotoMedex, Rafaeli, and McGrath's wrongful conduct, Lead Plaintiff and the other menbers of the Class suffered damages in

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connection with their purchases ofthe Company's securities during the Class Period.

COUNT II

(For Violations of §20(a) of the Exchange Act Against the Individual Defendants)

136. Lead Plaintiff repeats and realleges each and every allegation contained above as if filly set forth herein This claim is asserted against PhotoMedex, Rafàeli, and McGrath

137. The Individual Defendants were and acted as controlling persons of PhotoMedex within the meaning of2O(a) of the Exchange Act as alleged herein- By virtue of their high-level positions with the Company, participation in and/or awareness of the Company's operations and/or intimate knowledge ofthe Company's actual performance, the Individual Defendants had the power to influence and control and did influence and control directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which Lead Plaintiff contends are false and misleading. Each ofthe Individual

Defendants was provided with or had unlimited access to copies ofthe Company's reports, press releases, public filings and other statements alleged by Lead Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

138. In addition, each of the Individual Defendants had direct involvement in the day- to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

139. Both Rafàei and McGrath participated directly in each and every one of the false

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and misleading statements and material omissions at issue in this case and did so with apparent cuplability, based upon their positions, knowledge and Class Period statements and omissions.

Both Individual Defendants, as explained herein, knowingly and substantially participated in the wrongdoing at issue and failed to act with the apparent intent to further the fraud at issue or prevent its discovery.

140. Asset forth above, PhotoMedex, Rafaeli, and McGrath each violated §10(b) and

Rule 1 Ob- S by their acts and omissions as alleged in this Complaint. By virtue of their controlling positions, the Individual Defendants are liable pursuant to §20(a) of the Exchange

Act. Asa direct and proximate result of these Defendants' wrongful conduct, Lead Plaintiff and other mmbers ofthe Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

WHEREFORE, Lead Plaintifl on behalf of itself and the other mmbers ofthe Class, demands judgment against Defendants as follows:

a. Determining that this action is properly maintainable as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure;

b. Certifying Lead Plaintiff as the Class Representative and his counsel as

Lead Class Counsel;

C. Declaring and detenting that Defendants violated the federal securities laws by reason of their conduct as alleged herein

d. Awarding monetary damages against all of the Defendants;

e. Awarding Lead Plaintiff the costs, expenses, and disbursements incurred in prosecuting this action, including reasonable attorneys' fees and other recoverable expenses of litigation and

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Awarding Lead Plaintiff and the other members of the Class such other and further relief as the Court may deem appropriate and just under all of the circumstances.

JURY DEMAND

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Lead Plaintiff demands a trial by jury in this action for all claims so triable against all Defendants.

Dated: April 14, 2014 SHEPHERD, FINKELMAN, MILLER & SHAH, LLP

Is! James C. Shah Scott it Shepherd James C. Shah Eric L. Young 35 East State St. Media, PA 19063 Telephone: (610) 891-9880 Facsimile: (866) 300-7367 Ent& sshepherd(ásfins1aw.corn jshah(ds frnslaw. Cofli evoung(2i1, slim Jaw. corn

James E Miller Karen Leser- Grenon SHEPHERD, FINKELMAN, MILLER & SHAH, LLP 65 Main St. Chester, CT 06412 Telephone: (860) 526-1100 Facsimile: (866) 300-7367 Email:- jniller(àsfirEJaw.com klese.r(à), sftnslaw.corn

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Kohn C. Tang SHEPHERD, FINKELMAN, MILLER & SHAH, LLP 875 Third Ave., Suite 800 New York, NY 10022 Telephone: (212) 419-0156 Facsimile: (866) 300-7367

Ent& kiang(is fins law . com

Attorneys for Lead Plaintiff

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CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing was served by electronic and first class mail upon counsel for Defendants on this date at the addresses set forth below:

William P. Quinn, Jr. Karen Pielsak Pohlmann Laura Hughes Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, PA 19103-2921 Ent& wguinn(dmorgan1ewis.corn kpolihrnnn(ámorgan1ewis. Corn 1ehughes(2iniorgan1ewis.corn

Dated: April l4, 2014 /s/ James C. Shah