_______________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_____________________________

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~September~~March 3031, ~~2009~~2010 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number: 000-30406

HEALTHTRONICS, INC.
(Exact name of registrant as specified in its charter)

	GEORGIA				58-2210668
	(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

9825 Spectrum Drive, Building 3, Austin, Texas 78717
(Address of principal executive office) (Zip code)

(512) 328-2892
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES __ NO __

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

Large accelerated filer __

Accelerated filer X

Non-accelerated filer __
(do not check if a smaller
reporting company)

Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES __ NO X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class Common Stock, no par value Number of Shares Outstanding at ~~November~~May 1, ~~2009~~2010 45,~~420~~572,~~552~~663

PART I

FINANCIAL INFORMATION

Item 1 - Financial Statements

-2-

HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands, except per share data)	Three Months Ended March 31,
($ in thousands, except per share data)	2009			2008			2009			2008
	2010			2009
Revenues	$	4748,~~283~~389		$	4443,~~771~~612		$	~~135,051~~		$	~~121,305~~
Cost of revenues (exclusive of depreciation and
amortization shown separately below)		22,~~452~~468			1921,~~954~~307			~~65,015~~			~~54,257~~
Gross profit		2425,~~831~~921			2422,~~817~~305			~~70,036~~			~~67,048~~
Operating expenses
Selling, general and administrative		76,~~290~~317			4,~~600~~556			~~16,706~~			~~14,186~~
Depreciation and amortization		34,~~737~~009			3,~~073~~478			~~10,613~~			~~8,770~~
Total operating expenses		1110,~~027~~326			78,~~673~~034			~~27,319~~			~~22,956~~
Operating income		1315,~~804~~595			1714,~~144~~271			~~42,717~~			~~44,092~~
Other income (expenses):
Interest and dividends		1336			~~806~~50			95			~~1,098~~
Interest expense		(~~299~~506	)		(~~182~~290	)		~~(887~~	)		~~(591~~	)
		(286	)		624			(792	)		507
		(470	)		(240	)
Income from operations before provision
Income from continuing operations before
for income taxes		13,518			17,768			41,925			44,599
provision for income taxes		15,125			14,031
Provision for income taxes		~~1,348~~315			~~889~~313			~~1,967~~			~~1,730~~
Consolidated net income		1214,~~170~~810			1613,~~879~~718			~~39,958~~			~~42,869~~
Less: Net income attributable to noncontrolling interest		(1412,~~472~~489	)		(1513,~~552~~328	)		~~(41,541~~	)		~~(40,380~~	)
Net income (loss) attributable to HealthTronics, Inc.	$	(2,302	)	$	1,327		$	(1,583	)	$	2,489
Net income attributable to HealthTronics, Inc.	$	2,321		$	390
Basic earnings per share attributable to HealthTronics, Inc.:
Net income (loss) attributable to HealthTronics, Inc.	$	(0.06	)	$	0.04		$	(0.04	)	$	0.07
Net income attributable to HealthTronics, Inc.	$	0.05		$	0.01
Weighted average shares outstanding		4143,~~043~~665			3735,~~503~~892			~~37,666~~			~~36,666~~
Diluted earnings per share attributable to HealthTronics, Inc.:
Net income (loss) attributable to HealthTronics, Inc.	$	(0.06	)	$	0.04		$	(0.04	)	$	0.07
Net income attributable to HealthTronics, Inc.	$	0.05		$	0.01
Weighted average shares outstanding		4144,~~043~~038			3735,~~604~~966			~~37,666~~			~~36,734~~

See accompanying notes to condensed consolidated financial statements.

-3-

HEALTHTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

($ in thousands)	~~September~~March 3031, ~~2009~~2010			December 31, ~~2008~~2009
ASSETS
Current assets:
Cash and cash equivalents	$	115,~~154~~618		$	228,~~854~~412
Accounts receivable, less allowance for doubtful
accounts of $2,462 in 2009 and $2,485 in 2008		31,289			27,687
accounts of $2,577 in 2010 and $2,722 in 2009		31,216			32,580
Other receivables		~~948~~1,476			1,~~410~~207
Prepaid expenses and other current assets		34,~~650~~640			23,~~895~~306
Inventory		1311,~~382~~216			812,~~843~~498
Total current assets		6054,~~423~~166			6358,~~689~~003
Property and equipment:
Equipment, furniture and fixtures		5761,~~866~~696			5560,~~050~~696
Building and leasehold improvements		89,~~332~~170			89,~~254~~139
		66,198			63,304
		70,866			69,835
Less accumulated depreciation and
amortization		(3539,~~246~~592	)		(3036,~~535~~954	)
Property and equipment, net		3031,~~952~~274			32,~~769~~881
Other investments		1,~~876~~850			1,~~819~~850
Goodwill		103,~~000~~282			93103,~~620~~282
Intangible assets, net		4948,~~636~~110			4048,~~278~~993
Other noncurrent assets		53,~~778~~628			24,~~211~~110
	$	~~251~~242,~~665~~310		$	~~234~~249,~~386~~119

See accompanying notes to condensed consolidated financial statements.

-4-

HEALTHTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)

($ in thousands, except share data)	~~September~~March 3031, ~~2009~~2010			December 31, ~~2008~~2009
LIABILITIES
Current liabilities:
Current portion of long-term debt	$	461,~~958~~931		$	2,~~490~~556
Accounts payable		53,~~815~~406			64,~~468~~679
Accrued expenses		1211,~~855~~078			913,~~316~~130
Total current liabilities		6516,~~628~~415			1820,~~274~~365
Long-term debt, net of current portion		242,~~069~~895			4345,~~897~~963
Other long term obligations		21,~~853~~865			13,~~765~~373
Deferred income taxes		56,~~430~~503			36,~~355~~002
Total liabilities		7567,~~980~~678			6775,~~291~~703
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 30,000,000 shares authorized: none outstanding
Common stock, no par value, 70,000,000 authorized: 47,310,616
Common stock, no par value, 70,000,000 shares authorized: 47,561,034 shares
issued and 45,418,667 outstanding in 2009 and
issued and 45,573,358 shares outstanding in 2010 and 47,556,430 shares
39,494,314 issued and 37,618,206 outstanding in 2008		226,209			211,667
issued and 45,584,108 shares outstanding in 2009		227,190			226,722
Accumulated deficit		(89,~~435~~447	)		(8791,~~852~~768	)
Treasury stock, at cost, 1,891,949 shares in 2009 and 1,876,108 shares in 2008		(4,464	)		(4,443	)
Treasury stock, at cost, 1,987,676 shares in 2010 and 1,972,322 shares in 2009		(4,609	)		(4,564	)
Total HealthTronics, Inc. shareholders' equity		~~132~~133,~~310~~134			~~119~~130,~~372~~390
Noncontrolling interest		4341,~~375~~498			4743,~~723~~026
Total Equity		175,685			167,095
Total equity		174,632			173,416
	$	~~251~~242,~~665~~310		$	~~234~~249,~~386~~119

See accompanying notes to condensed consolidated financial statements.

-5-

HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Period ended ~~September~~March 3031, ~~2009~~2010 (Unaudited)

($ in thousands, except share data)	Issued Common Stock					Accumulated			Treasury Stock						Non- Controlling
	Shares		Amount			Deficit			Shares			Amount			Interest			Total
Balance, December 31, 2008		39,494,314	$	211,667		$	(87,852	)		(1,876,108	)	$	(4,443	)	$	47,723		$	167,095
Balance, December 31, 2009		47,556,430	$	226,722		$	(91,768	)		(1,972,322	)	$	(4,564	)	$	43,026		$	173,416
Net income (loss)		--		--			(1,583	)		--			--			41,541		$	39,958
Net income		--		--			2,321			--			--			12,489		$	14,810
Distributions paid to
noncontrolling interest		--		--			--			--			--			(4714,~~077~~262	)	$	(4714,~~077~~262	)
Sale of subsidiary interest to
noncontolling interest		--		--			--			--			--			~~4,585~~698		$	~~4,585~~698
Purchase of subsidiary interest from
noncontrolling interest		--		(~~1,041~~77	)		--			--			--			(~~3,397~~453	)	$	(~~4,438~~530	)
Stock issued for acquisitions		7,398,396		13,217			--			--			--			--		$	13,217
Purchase of treasury stock		--		--			--			(15,354	)		(45	)		--		$	(45	)
Purchase of treasury stock		--		--			--			(15,841	)		(21	)		--		$	(21	)
Share-based compensation		4,604		545			--			--			--			--		$	545
Share-based compensation		417,906		2,366			--			--			--			--		$	2,366
Balance, March 31, 2010		47,561,034	$	227,190		$	(89,447	)		(1,987,676	)	$	(4,609	)	$	41,498		$	174,632
Balance, September 30, 2009		47,310,616	$	226,209		$	(89,435	)		(1,891,949	)	$	(4,464	)	$	43,375		$	175,685

See accompanying notes to condensed consolidated financial statements.

-6-

HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
($ in thousands)	~~2009~~2010			~~2008~~2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Fee and other revenue collected	$	~~137~~50,~~095~~125		$	~~122~~42,~~053~~207
Cash paid to employees, suppliers of goods and others		(8033,~~917~~163	)		(6925,~~375~~885	)
Cash paid for acquisition related costs		(9,922	)		--
Interest received		36			50
Interest received		96			374
Interest paid		(489	)		(338	)
Interest paid		(869	)		(560	)
Taxes paid		(198	)		(259	)
Taxes paid		(1,171	)		(1,187	)
Net cash provided by operating activities		16,311			15,775
Net cash provided by operating activities		44,312			51,305
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of entities, net of cash acquired		~~(3,427~~--	)		(~~17,270~~29	)
Purchases of equipment and leasehold improvements		(51,~~712~~707	)		(82,~~762~~214	)
Proceeds from sales of assets		~~404~~402			~~8,755~~39
Other		~~(57~~--	)		~~(236~~23	)
Net cash used in investing activities		(81,~~792~~305	)		(172,~~513~~181	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable		121,~~672~~784			~~13,547~~203
Payments on notes payable, exclusive of interest		(105,~~144~~665	)		(104,~~561~~686	)
Distributions to noncontrolling interest		(4714,~~103~~041	)		(4218,~~797~~183	)
Contributions by noncontrolling interest, net of buyouts		~~(2,624~~167	)		~~(534~~7	)
Purchase of treasury stock		(2145	)		(~~211~~18	)
Net cash used in financing activities		(4717,~~220~~800	)		(4022,~~556~~677	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(112,~~700~~794	)		(69,~~764~~083	)
Cash and cash equivalents, beginning of period		228,~~854~~412			2522,~~198~~854
Cash and cash equivalents, end of period	$	115,~~154~~618		$	1813,~~434~~771

See accompanying notes to condensed consolidated financial statements.

-7-

HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
($ in thousands)	~~2009~~2010			~~2008~~2009
Reconciliation of net income to net cash provided by operating activities:
Net income	$	3914,~~958~~810		$	4213,~~869~~718
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization		104,~~613~~009			83,~~770~~478
Provision for uncollectible accounts		~~285~~272			~~(42~~120	)
Provision for deferred income taxes		~~2,076~~501			~~918~~721
Non-cash share based compensation		~~2,366~~545			~~2,470~~776
Other		~~241~~(216	)		~~(910~~73	)
Changes in operating assets and liabilities,
net of effect of purchase transactions
Accounts receivable		1,~~002~~093			(~~493~~1,124	)
Other receivables		~~509~~(269	)		~~1,106~~(162	)
Inventory		21,~~461~~283			~~596~~216
Other assets		(1,~~058~~113	)		(~~694~~1,801	)
Accounts payable		(41,~~511~~273	)		(21,~~534~~692	)
Accrued expenses		(93,~~630~~331	)		(~~751~~1,932	)
Total adjustments		41,~~354~~501			82,~~436~~057
Net cash provided by operating activities	$	4416,~~312~~311		$	5115,~~305~~775

See accompanying notes to condensed consolidated financial statements.

-8-

HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~September~~March 3031, ~~2009~~2010 (Unaudited)

1. General

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the accounting principles for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These condensed consolidated financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the statement of financial position as of ~~September~~March 3031, ~~2009~~2010 and the results of operations and cash flows for the periods presented. Such adjustments are of a normal recurring nature unless otherwise noted herein. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year. The notes to consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 filed with the Securities and Exchange Commission should be read in conjunction with this Quarterly Report on Form 10-Q. There have been no significant changes in the information reported in those notes, other than from normal business activities and as discussed herein. In December 2007, the Financial Accounting Standards Board (“FASB”) issued accounting guidance contained within ASC 810, Consolidation, (“ASC 810”), regarding noncontrolling interests, (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements). As a result of the adoption of ASC 810, certain reclassifications have been made to 2008 information to be consistent with the 2009 presentation. ASC 810 requires companies to report a noncontrolling interest in a subsidiary as equity. Additionally, companies are required to include amounts attributable to both the parent and the noncontrolling interest in the consolidated net income and provide disclosure of net income attributable to the parent and to the noncontrolling interest on the face of the consolidated statement of income.

2. Debt

Senior Credit Facility ~~Our~~In ~~senior~~March 2005, we refinanced our then existing revolving credit facility iswith a $175 million senior credit facility comprised of a five- year $6050 million ~~revolving~~revolver ~~line of credit~~ due in March 2010 and a $125 million senior secured term loan B ~~due~~(“term ~~2011.~~loan WeB”), ~~entered~~due ~~into this senior credit facility in March 2005 and amended it in April and October 2008~~2011. ~~The~~This loan ~~bears~~bore interest at a variable rate equal to LIBOR + 1.25 to 2.25% or prime + .25 to 1.25%. OnWe repaid the term loan B in July ~~31,~~of 2006, wein ~~used~~full. aIn ~~portion~~April of ~~the~~2008, ~~proceeds~~we ~~from~~increased the ~~sale~~revolving line of ~~our~~credit ~~specialty~~from ~~vehicle~~$50 ~~manufacturing~~million ~~segment~~ to ~~repay~~$60 ~~the~~million. ~~term~~In ~~loan~~December B2009, inwe ~~full~~amended and restated our senior credit facility. AsThe amended and restated credit agreement extended the maturity date of ~~September~~the 30revolver to December 31, ~~2009~~2012, weincreased ~~have~~the ~~drawn~~borrowing rate, eliminated the interest coverage ratio covenant and replaced it with a fixed charge coverage ratio covenant, increased the dollar limit on stock repurchases by us from $4410 million onto ~~the~~$20 ~~revolver.~~million ~~Although~~(but wemaking ~~plan~~repurchases subject to ~~either~~our ~~extend~~maintaining ~~the~~a ~~maturity~~total ~~date~~leverage ratio of 2.00 to 1.00), and other minor amendments. Except as described above, the terms of our original senior credit facility orremain ~~enter~~in ~~into~~effect aunder ~~new~~the ~~credit~~amended ~~facility~~and ~~prior~~restated tocredit ~~its~~agreement. ~~maturity~~As inof March 31, 2010, we have ~~reflected~~drawn ~~all~~$40.5 ~~amounts~~million ~~outstanding~~on ~~as current in~~ the ~~accompanying condensed consolidated balance sheet~~revolver. Our senior credit facility contains covenants that, among other things, limit our ability to incur debt, create liens, make investments, sell assets, pay dividends, make capital expenditures, make restricted payments, enter into transactions with affiliates, and make acquisitions. In addition, our facility requires us to maintain certain financial ratios. We were in compliance with the covenants under our senior credit facility as of ~~September~~March 3031, ~~2009~~2010.

-9-

HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~September~~March 3031, ~~2009~~2010 (Unaudited)

Other As of ~~September~~March 3031, ~~2009~~2010, we had notes totaling $54.3 million related to equipment purchased by our limited partnerships, which indebtedness we believe will be repaid from the cash flows of the partnerships. They bear interest at either a fixed rate of five to ~~nine~~eight percent or LIBOR or prime plus a certain premium and are due over the next four years.

Basic earnings per share (“EPS”) is based on weighted average shares outstanding without any dilutive effects considered. Diluted EPS reflects dilution from all contingently issuable shares, including options, non-vested stock awards, and warrants. A reconciliation of such EPS data is as follows:

($ in thousands, except per share data)	Basic earnings per share			Diluted earnings per share
Nine Months Ended September 30, 2009
Three Months Ended March 31, 2010
Net loss attributable to HealthTronics, Inc.	$	(1,583	)	$	(1,583	)
Net income attributable to HealthTronics, Inc.	$	2,321		$	2,321
Weighted average shares outstanding		3743,~~666~~665			3743,~~666~~665
Effect of dilutive securities		--			--373
Shares for EPS calculation		3743,~~666~~665			3744,~~666~~038
Net loss per share attributable to HealthTronics, Inc.	$	(0.04	)	$	(0.04	)
Net income per share attributable to HealthTronics, Inc.	$	0.05		$	0.05
Nine Months Ended September 30, 2008
Three Months Ended March 31, 2009
Net income attributable to HealthTronics, Inc.	$	~~2,489~~390		$	~~2,489~~390
Weighted average shares outstanding		3635,~~666~~892			3635,~~666~~892
Effect of dilutive securities		--			6874
Shares for EPS calculation		3635,~~666~~892			3635,~~734~~966
Net income per share attributable to HealthTronics, Inc.	$	0.0701		$	0.0701

We did not include in our computation of diluted EPS unexercised stock options and non-~~10-~~vested stock awards to purchase 2,855,000 and 2,712,000 shares of our common stock as of March 31, 2010 and 2009, respectively, because the effect would be antidilutive.

HEALTHTRONICS, INC4. ANDStock-Based SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009 (Unaudited)Compensation

($ in thousands, except per share data)	Basic earnings per share			Diluted earnings per share
Three Months Ended September 30, 2009
Net loss attributable to HealthTronics, Inc.	$	(2,302	)	$	(2,302	)
Weighted average shares outstanding		41,043			41,043
Effect of dilutive securities		--			--
Shares for EPS calculation		41,043			41,043
Net loss per share attributable to HealthTronics, Inc.	$	(0.06	)	$	(0.06	)
Three Months Ended September 30, 2008
Net income attributable to HealthTronics, Inc.	$	1,327		$	1,327
Weighted average shares outstanding		37,503			37,503
Effect of dilutive securities		--			101
Shares for EPS calculation		37,503			37,604
Net income per share attributable to HealthTronics, Inc.	$	0.04		$	0.04

On January 1, 2006, we adopted ASC 718, Stock Compensation (“ASC 718”), (formerly SFAS 123(R), Share-Based Payment), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock option grants based on estimated fair values. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award’s portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption of ASC 718, we accounted for share-based awards to employees and directors using the intrinsic value method. Under the intrinsic value method, share-based compensation expense was only recognized by us if the exercise price of the stock option was less than the fair market value of the underlying stock at the date of grant. We have elected to use the modified prospective application method such that ASC 718 applies to new awards, the unvested portion of existing awards and to awards modified, repurchased or canceled after the effective date.

~~We did not include in our computation of diluted EPS unexercised stock options and non~~-~~vested stock awards to purchase 3,160,000 and 2,997,000 shares of our common stock as of September 30, 2009 and 2008, respectively, because the effect would be antidilutive.~~10-

4HEALTHTRONICS, INC. ~~Segment~~AND ~~Reporting~~SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

InUnder ASC 718, nonvested stock awards are awards that the ~~fourth~~employee ~~quarter~~has ofnot ~~2008,~~yet ~~our~~earned ~~Medical~~the ~~Products~~right ~~division~~to ~~relocated~~sell ~~from~~and ~~Kennesaw,~~are ~~Georgia~~subject to ~~our~~forfeiture ~~corporate~~if ~~headquarters~~the interms ~~Austin,~~of ~~Texas~~service are not satisfied. ~~Concurrent~~These ~~with~~awards ~~this~~should ~~relocation~~be measured based on the market prices of otherwise identical (i.e., weidentical ~~made~~except ~~certain~~for ~~changes~~the ~~within~~vesting ~~our~~condition) ~~Medical~~common ~~Products~~stock ~~management~~at ~~team~~the sogrant ~~that~~date. ~~these~~A ~~operations~~nonvested ~~now~~equity ~~report~~share awarded to ~~the~~an ~~President~~employee ofshall ~~our~~be ~~Urology~~measured ~~Services~~at ~~operations~~its fair value as if it were vested and issued on the grant date. ~~After~~The ~~making~~vesting ~~these~~restrictions ~~changes~~are taken into account by recognizing compensation cost only for awards for which the employee has rendered the requisite service (i.e., wevested). ~~redesigned~~As ~~our~~of ~~internal~~March ~~financial~~31, ~~reporting~~2010, ~~materials~~total ~~provided~~unrecognized share-based compensation cost related to ~~our~~unvested ~~chief~~stock ~~operating~~options ~~decision~~was ~~maker~~approximately $1.1 million, aswhich ~~well~~is asexpected ~~our~~to ~~executive~~be ~~management~~recognized ~~team~~over a weighted average period of approximately 2.0 Asyears. We also had $1.8 million of ~~the~~unrecognized ~~first~~compensation ~~quarter~~costs related to nonvested stock awards as of March 31, 2010, which is expected to be recognized over a weighted average period of approximately 1.5 years. For the quarter ended March 31, 2010 and 2009, we dohave ~~not~~included ~~have~~approximately ~~any~~$531,000 ~~operating~~and ~~segments~~$776,000, ~~except~~respectively, ~~our~~for ~~Urology~~share-based ~~Services~~compensation ~~operations,~~cost ~~that~~in ~~meet~~the accompanying condensed consolidated statements of income. Share-based compensation expense recognized during the ~~quantitative~~quarterly ~~requirements~~periods ended March 31, 2010 and 2009 is related to awards granted prior to, but not yet fully vested as of ~~ASC~~January ~~280~~1, ~~Segment~~2006 ~~Reporting~~and ~~(“ASC~~awards ~~280”)~~granted subsequent to December 31, ~~(formerly~~2005. ~~Statement~~We have historically and continue to estimate the fair value of ~~Financial~~stock ~~Accounting~~options ~~Standards~~using the Black-Scholes-Merton (“~~SFAS~~Black Scholes”) ~~131~~option-pricing model. For our performance-based nonvested stock awards, ~~Disclosures~~we ~~about~~relied ~~Segments~~upon a closed-form barrier option valuation model, which is a derivation of anthe ~~Enterprise~~Black Scholes model, to determine the fair value of the awards and ~~Related~~utilized ~~Information)~~a lattice model to analyze the appropriate service period. For our service-based nonvested stock awards, fair value is based on the fair value at the grant date.

5. Stock-Based CompensationInventory

OnAs ~~January~~of 1,March ~~2006~~31, we2010 ~~adopted ASC 718, Stock Compensation (“ASC 718”), (formerly SFAS 123(R), Share-Based Payment), which requires the measurement~~ and ~~recognition~~December of compensation expense for all share-based payment awards made to employees and directors including stock option grants based on estimated fair values. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award’s portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption of ASC 71831, ~~we accounted for share-based awards to employees and directors using the intrinsic value method. Under the intrinsic value method~~2009, ~~share-based~~inventory ~~compensation~~consisted ~~expense was only recognized by us if the exercise price~~ of the ~~stock option was less than the fair market value of the underlying stock at the date of grant.~~following:

-11-

($ in thousands)	March 31, 2010		December 31, 2009
Raw Materials	$	7,230	$	7,381
Work in process		346		414
Finished Goods		3,640		4,703

	$	11,216	$	12,498

~~HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009 (Unaudited)~~-11-

~~Under ASC 718~~HEALTHTRONICS, ~~nonvested stock awards are awards that the employee has not yet earned the right to sell and are subject to forfeiture if the terms of service are not satisfied~~INC. ~~These~~AND ~~awards~~SUBSIDIARIES ~~should~~NOTES beTO ~~measured~~CONDENSED ~~based~~CONSOLIDATED onFINANCIAL ~~the~~STATEMENTS ~~market~~March prices of otherwise identical (i.e., identical except for the vesting condition) common stock at the grant date. A nonvested equity share awarded to an employee shall be measured at its fair value as if it were vested and issued on the grant date. The vesting restrictions are taken into account by recognizing compensation cost only for awards for which the employee has rendered the requisite service (i.e., vested). As of September 30, 2009, total unrecognized share-based compensation cost related to unvested stock options was approximately $577,000, which is expected to be recognized over a weighted average period of approximately 1.2 years. We also had $2.1 million of unrecognized compensation costs related to nonvested stock awards as of September 30, 2009, which is expected to be recognized over a weighted average period of approximately 1.5 years. For the nine months ended September 30, 2009 and 2008, we have included approximately $2.3 million and $2.5 million, respectively, for share-based compensation cost in the accompanying condensed consolidated statements of income. Share-based compensation expense recognized during the quarterly periods ended September 30, 2009 and 2008 is related to awards granted prior to, but not yet fully vested as of January 1, 2006 and awards granted subsequent to December 31, ~~2005.~~2010 ~~We have historically and continue to estimate the fair value of stock options using the Black-Scholes-Merton~~ (~~“Black Scholes”~~Unaudited) option-pricing model. For our performance-based nonvested stock awards, we relied upon a closed-form barrier option valuation model, which is a derivation of the Black Scholes model, to determine the fair value of the awards and utilized a lattice model to analyze the appropriate service period. For our service-based nonvested stock awards, fair value is based on the fair value at the grant date.

6. InventoryNew Pronouncements

AsIn January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of ~~September~~Levels 301 and 2 and more disaggregation for the different types of financial instruments. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. We did not have any significant transfers in or out of Level 1 and Level 2 fair value measurements during the three months ended March 31, ~~2008~~2010. In October 2009, ~~inventory~~the ~~consisted~~FASB updated FASB Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) that amended the criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will eliminate the ~~following:~~residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements. In June 2009, the FASB issued accounting guidance contained within ASC 810, Consolidation (“ASC 810”), regarding the consolidation of variable interest entities (formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). ASC 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods beginning after November 15, 2009. Our adoption of this ASC on January 1, 2010 had no material impact on our consolidated financial statements. In June 2009, the FASB issued ASC 860, Transfers and Servicing (“ASC 860”), (formerly SFAS No. 166, Accounting for Transfers of Financial Assets). ASC 860 requires more information about transfers of financial assets and where companies have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods beginning after November 15, 2009. We adopted this standard on January 1, 2010. The adoption of this standard had no material impact on our financial statements.

($ In thousands)	September 30, 2009		December 31, 2008
Raw Materials	$	7,392	$	5,993
Work in process		525		--
Finished Goods		5,465		2,850
	$	13,382	$	8,843

-12-

~~-12-~~HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

~~HEALTHTRONICS~~In May 2009, ~~INC~~the FASB issued ASC 855, Subsequent Events (“ASC 855”), (formerly SFAS No. ~~AND~~165, ~~SUBSIDIARIES~~Subsequent ~~NOTES~~Events). TOASC ~~CONDENSED~~855 ~~CONSOLIDATED~~should ~~FINANCIAL~~be ~~STATEMENTS~~applied ~~September~~to 30the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply to both interim financial statements and annual financial statements. The objective of ASC 855 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, ~~2009~~this ~~(Unaudited~~Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and, 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009. We adopted ASC 855 during the second quarter of 2009 and its application did not affect our consolidated financial position, results of operations, or cash flows. We evaluated subsequent events through the date the accompanying financial statements were issued.

7. New PronouncementsAcquisitions

InOn ~~October~~July 27, 2009, ~~the~~we ~~FASB~~completed ~~updated~~our ~~FASB~~acquisition ~~ASC~~of ~~605~~Endocare, ~~Revenue~~Inc. ~~Recognition~~ (“~~ASC 605~~Endocare”), ~~that~~pursuant ~~amended~~to the ~~criteria~~Agreement ~~for~~and ~~separating~~Plan ~~consideration~~of inMerger ~~multiple-deliverable~~(“Merger ~~arrangements.~~Agreement”), ~~The~~dated ~~amendments~~as ~~establish a selling price hierarchy for determining the selling price~~ of aJune ~~deliverable.~~7, ~~The~~2009, ~~selling~~among ~~price~~us, ~~used~~HT ~~for~~Acquisition, ~~each deliverable will be based on vendor-specific objective evidence if available~~Inc., ~~third–party~~a ~~evidence if vendor~~wholly-~~specific~~owned ~~objective~~subsidiary ~~evidence~~of ~~is not available~~ours, orand ~~estimated~~Endocare. ~~selling~~Endocare ~~price if neither vendor-specific objective evidence nor third-party evidence~~ is ~~available.~~a ~~The~~medical ~~amendments~~device ~~will~~company ~~eliminate~~focused ~~the~~on ~~residual~~developing, ~~method~~manufacturing ~~of allocation~~ and ~~require~~selling ~~that~~cryoablation ~~arrangement~~products ~~consideration~~which behave ~~allocated at~~ the ~~inception~~potential ~~of the arrangement~~ to ~~all~~assist ~~deliverables~~physicians ~~using the relative selling price method. The relative selling price method allocates any discount~~ in ~~the~~improving ~~arrangement~~and ~~proportionally~~extending tolife ~~each~~by ~~deliverable~~use ~~on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified~~ in ~~fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating~~ the ~~requirements~~treatment of ~~this~~cancer ~~update~~ and ~~have~~other ~~not yet determined the impact on our consolidated financial statements~~tumors. In ~~June~~accordance ~~2009,~~with the ~~FASB~~terms ~~issued~~and ~~Accounting~~conditions ~~Standards~~of ~~Codification~~the ~~(“ASC”)~~Merger ~~105~~Agreement, ~~Generally~~Endocare ~~Accepted~~shareholders ~~Accounting~~had ~~Principles (“ASC 105”), (formerly SFAS No. 168, The FASB Accounting Standards Codification and~~ the ~~Hierarchy~~option ofto ~~Generally~~receive ~~Accepted Accounting Principles). ASC 105 establishes~~ the ~~FASB~~following ~~ASC~~consideration asfor ~~the~~each ~~single~~share ~~source~~ of ~~authoritative~~Endocare ~~nongovernmental~~common ~~U.S.~~stock ~~generally~~they ~~accepted~~owned: ~~accounting principles~~ (~~“GAAP”~~i). ~~The standard is effective for interim and annual periods ending after September 15, 2009~~$1.35 ~~The~~in ~~adoption of ASC 105 did not have a material impact on our financial statements. In June 2009~~cash, ~~the~~without ~~FASB issued accounting guidance contained within ASC 810~~interest, ~~Consolidation~~or (~~“ASC 810”~~ii), ~~regarding~~0.7764 ~~the consolidation~~ of ~~variable~~a ~~interest~~share ~~entities~~of ~~(formerly~~our ~~SFAS~~common ~~No. 167~~stock, ~~Amendments~~in toeach ~~FASB~~case ~~Interpretation~~subject ~~No.~~to ~~46(R) )~~proration. ~~ASC~~The ~~810~~aggregate isamount ~~intended~~of tocash ~~improve~~paid ~~financial~~was ~~reporting~~approximately ~~by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities~~$4.2 ~~This~~million ~~standard is effective for interim~~ and ~~annual~~the ~~periods~~aggregate ~~ending~~number ~~after~~of ~~November~~shares ~~15, 2009. The adoption~~ of ~~this standard is not expected to have a material impact on~~ our ~~financial~~common ~~statements.~~stock ~~In June 2009, the FASB~~ issued ~~ASC~~was ~~860,~~approximately ~~Transfers and Servicing (“ASC 860”), (formerly SFAS No~~7.3 ~~166,~~million ~~Accounting for Transfers of Financial Assets)~~shares. ~~ASC~~Based ~~860~~upon ~~requires~~our ~~more~~allocation ~~information about transfers~~ of ~~financial assets and where companies have continuing exposure to~~ the ~~risk~~purchase ~~related~~price, towe ~~transferred~~recognized ~~financial assets~~$6.8 Itmillion ~~eliminates the concept~~ of agoodwill ~~qualifying~~related ~~special~~to purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods ending after November 15, 2009. We will adopt this ~~standard on January 1~~transaction, ~~2010.~~none ~~The adoption~~ of ~~this~~which ~~standard~~ is ~~not~~tax ~~expected to have a material impact on our financial statements~~deductible. InOn ~~May~~September 25, 2009, ~~the~~we ~~FASB~~acquired ~~issued~~US ~~ASC~~Surgical ~~No. 855~~Services, ~~Subsequent~~LLC ~~Events~~ (“~~ASC~~US ~~855~~Surgical”), ~~(formerly~~for ~~SFAS No. 165~~$400,000 ~~Subsequent~~in ~~Events).~~cash ~~ASC 855 should be applied to the accounting for~~ and ~~disclosure~~an ofearn-out ~~subsequent~~provision ~~events.~~pursuant ~~This Statement does not apply~~ to ~~subsequent~~which ~~events~~we orcould ~~transactions~~pay ~~that~~up ~~are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply~~ to ~~both~~$1,350,000 ~~interim~~in ~~financial~~additional ~~statements and annual financial statements~~consideration. ~~The~~Randy ~~objective~~Wheelock, ofwho ~~ASC 855~~ is tothe ~~establish~~brother ~~general standards~~ of ~~accounting~~Argil ~~for~~Wheelock, ~~and~~one ~~disclosures~~ of ~~events that occur after~~ the ~~balance~~members ~~sheet~~of ~~date~~our ~~but~~Board ~~before~~of ~~financial statements are issued or are available to be issued. In particular~~Directors, ~~this~~was ~~Statement~~one ~~sets~~of ~~forth: 1)~~ the ~~period~~two ~~after~~50% ~~the~~owners ~~balance sheet date during which management~~ of aUS ~~reporting~~Surgical. ~~entity~~Thus, ~~should~~in ~~evaluate~~exchange ~~events or transactions that may occur~~ for ~~potential~~his ~~recognition~~50% orownership ~~disclosure~~interest in ~~the~~US ~~financial~~Surgical, ~~statements;~~Randy 2)Wheelock ~~the~~was ~~circumstances~~paid ~~under~~$200,000 ~~which~~in ancash ~~entity~~and ~~should~~will ~~recognize~~be ~~events~~entitled orto ~~transactions~~50% ~~occurring~~of ~~after~~any ~~the~~earn-out ~~balance~~consideration ~~sheet~~paid. ~~date~~In addition, in ~~its~~connection ~~financial~~with ~~statements;~~this ~~and~~acquisition, 3)we ~~the~~entered ~~disclosures~~into ~~that~~a anconsulting ~~entity~~agreement ~~should~~with ~~make~~Randy ~~about~~Wheelock ~~events~~pursuant orto ~~transactions~~which ~~that~~he ~~occurred~~will ~~after~~provide ~~the~~consulting ~~balance~~services ~~sheet~~to ~~date.~~us ~~ASC 855 is effective~~ for ~~interim or annual financial periods ending after June~~ 15, ~~2009.~~months Wefollowing ~~adopted~~closing ~~ASC~~in ~~855~~exchange ~~during~~for ~~the~~a ~~second~~payment ~~quarter~~ of ~~2009 and its application did not affect our consolidated financial position~~$10,000 ~~results~~per ~~of operations, or cash flows~~month. ~~We evaluated subsequent events through the date the accompanying financial statements were issued, which was November 4, 2009.~~

-13-

HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~September~~March 3031, ~~2009~~2010 (Unaudited)

InOur ~~April~~unaudited ~~2009,~~proforma ~~the~~combined ~~FASB~~income ~~issued~~data ASC 825, Financial Instruments (“ASC 825”), (formerly FASB Staff Position 107-1, Interim Disclosures about Fair Value of Financial Instruments). ASC 825 requires disclosures about fair value of financial instruments for ~~interim~~the ~~reporting~~ periods ofended ~~publicly traded companies as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods beginning after~~ March 1531, 2009~~. The adoption of this ASC did not affect our consolidated financial position~~, ~~results~~assuming ~~of operations, or cash flows. In June 2008,~~ the ~~FASB~~acquisitions ~~issued~~were ASC 260, Earnings Per Share (“ASC 260”), (formerly FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities). ASC 260 concluded that instruments containing rights to nonforfeitable dividends granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing basic earnings per share (EPS) under the two-class method. This ASC is effective ~~for financial statements issued for fiscal years beginning after December 15, 2008, with prior period retrospective application. Our adoption of this ASC on~~ January 1, 2009 had no material impact on our consolidated financial statements. In April 2008, the FASB issued ASC 350-30, General Intangibles Other Than Goodwill (“ASC 350-30”), (formerly FSP No. 142-3, Determination of ~~the~~each Useful Life of Intangible Assets). ASC 350-30 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15period, ~~2008, and interim periods within those fiscal years. Early adoption~~ is prohibited. The adoption of ASC 350-30 did not have a material impact on our financial position or results of operations. In December 2007, the FASB issued ASC No. 805, Business Combinations (“ASC 805”), (formerly SFAS 141R, Business Combinations). ASC 805 will significantly change current practices regarding business combinations. Among the more significant changes, ASC 805 expands the definition of a business and a business combination; requires the acquirer to recognize the assets acquired, liabilities assumed and noncontrolling interests (including goodwill), measured at fair value at the acquisition date; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination; and requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset. ASC 805 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The impact of adopting ASC 805 will continue to be dependent on the future business combinations that we may pursue after its effective date. We expensed approximately $1.2 million in the third quarter of 2009 and approximately $1.9 million year to date in 2009, of costs related to acquisitions.follows:

-14-

($ in thousands, except per share data)	Three Months Ended March 31, 2009
Total revenues	$	49,474
Total expenses		(50,272	)
Net income (loss) attributable to HealthTronics, Inc.	$	(798	)
Diluted earnings per share	$	(0.02	)

HEALTHTRONICS, INC8. ANDFair SUBSIDIARIESValue NOTESof TOFinancial CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009 (Unaudited)Instruments

InThe ~~December~~carrying ~~2007,~~amounts the FASB issued accounting guidance contained within ASC 810, Consolidation (“ASC 810-10-65”), (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements) regarding noncontrolling interests. ASC 810-10-65 establishes accounting and ~~reporting~~estimated ~~standards~~fair ~~for~~values ~~the noncontrolling interest in a subsidiary and for the deconsolidation~~ of aour ~~subsidiary.~~significant Itfinancial ~~clarifies~~instruments ~~that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported~~ as ~~equity in the consolidated financial statements. The adoption~~ of ~~ASC~~March ~~810-10-65~~31, ~~revised~~2010 ~~our presentation of consolidated financial statements~~ and ~~further~~December ~~impact~~31, ~~will~~2009 ~~continue~~are toas ~~be dependent on our future changes in ownership in subsidiaries after the effective date.~~follows:

8. Acquisitions

	March 31, 2010				December 31, 2009
( $ in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	5,618	$	5,618	$	8,412	$	8,412

Financial liabilities:
Debt	$	44,826	$	44,826	$	48,519	$	48,519
Other long-term obligations		1,865		1,760		3,373		3,305

OnThe ~~July~~following ~~27,~~methods ~~2009,~~and weassumptions ~~completed~~were ~~our~~used ~~acquisition~~by ofus ~~Endocare,~~in ~~Inc.~~estimating ~~(“Endocare”),~~our ~~pursuant~~fair tovalue ~~the~~disclosures ~~Agreement~~for financial instruments. Cash and ~~Plan~~Cash ofEquivalents ~~Merger~~The ~~(“Merger~~carrying ~~Agreement”),~~amounts ~~dated~~for ascash ofand ~~June~~cash 7,equivalents ~~2009,~~approximate ~~among~~fair ~~us,~~value HTbecause ~~Acquisition,~~they ~~Inc.,~~mature ain ~~wholly-owned~~less ~~subsidiary~~than of90 ~~ours,~~days and ~~Endocare.~~do ~~Endocare~~not ispresent aunanticipated ~~medical~~credit ~~device~~concerns. ~~company~~Debt ~~focused~~The oncarrying ~~developing,~~amount ~~manufacturing~~of ~~and~~our ~~selling~~debt ~~cryoablation~~approximates ~~products~~fair ~~which~~value ~~have~~because ~~the~~it ~~potential~~has toa ~~assist~~floating ~~physicians~~interest inrate ~~improving~~which ~~and~~reflects ~~extending~~market ~~life~~changes byin ~~use~~interest inrates ~~the~~and ~~treatment~~contains ofvariable ~~cancer~~interest ~~and~~premiums ~~other~~based ~~tumors.~~on Incertain ~~accordance~~debt ~~with~~compliance ~~the~~ratios. ~~terms~~Other ~~and~~Long-Term ~~conditions~~Obligations ofAt ~~the~~March ~~Merger~~31, ~~Agreement~~2010, ~~Endocare~~we ~~shareholders~~ had ~~the~~$1,500,000 ~~option~~in tolong ~~receive~~term ~~the~~deferred ~~following~~rent ~~consideration~~related ~~for~~to ~~each~~leaseholds ~~share~~at ofour ~~Endocare~~new ~~common~~corporate ~~stock~~office ~~they~~space ~~owned:~~in ~~(i)~~Austin, $1Texas.35 inWe ~~cash,~~are ~~without~~amortizing ~~interest,~~this ordeferred ~~(ii)~~rent ~~0.7764~~at of a ~~share~~rate of ~~our common stock~~$22,569 inper ~~each~~month. ~~case~~At ~~subject~~March to31, ~~proration.~~2010, ~~The~~we ~~aggregate~~had ~~amount~~a oflong ~~cash~~term ~~paid~~obligation ~~was~~totaling ~~approximately~~ $~~4.2~~270,000 ~~million~~for ~~and~~restructuring ~~the~~costs ~~aggregate~~related ~~number~~to ofthe ~~shares~~vacating of ~~our~~a ~~common~~leased ~~stock issued was approximately 7~~property.3 ~~million~~Lease ~~shares.~~payments, ~~Based~~net ~~upon our allocation~~ of the ~~purchase~~projected ~~price~~sublease income, wetotaling ~~recognized~~approximately $~~6.8 million of goodwill related to this transaction~~500,000 ~~none~~will ofcontinue ~~which~~until isFebruary ~~tax deductible~~2013. OnAt ~~October~~March 1031, ~~2008~~2010, we ~~entered~~had ~~into~~ a ~~Stock~~long ~~Purchase~~term ~~Agreement~~obligation ~~with~~of ~~Atlantic Urological Associates (“AUA”)~~$95,000 ~~pursuant~~related to ~~which~~payments ~~we purchased the outstanding shares~~ of ~~capital stock of Ocean Radiation Therapy~~$10,534 ~~Inc.,~~ a ~~wholly-owned~~month ~~subsidiary~~until ofDecember ~~AUA~~2011 ~~(“Ocean”),~~as consideration for a ~~purchase~~noncompetition ~~price~~agreement ~~of approximately $35 million in cash. Ocean provides image guided radiation therapy (“IGRT”) technical services to AUA’s IGRT cancer treatment center. The Ocean entity was formed concurrent~~ with ~~and as~~ a ~~result~~previous employee of ~~the~~our ~~purchase~~Endocare division. ~~Ocean’s~~Leases ~~only~~have ~~asset~~been ~~was~~recorded ~~the IGRT services agreement valued~~ at ~~approximately~~fair ~~$35 million which is recorded in intangible assets~~value. We ~~have~~ estimated ~~that~~the ~~this~~fair ~~service~~value ~~agreement~~of ~~has~~our along 20term ~~year~~obligations ~~useful~~based ~~life~~on ~~and~~discounted wecash ~~are~~flows, ~~amortizing~~which ~~that~~is ~~asset~~a ~~over~~level ~~that~~three ~~life~~analysis.

-1514-

HEALTHTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~September~~March 3031, ~~2009~~2010 (Unaudited)

OnLimitations ~~July~~Fair ~~15,~~value ~~2008,~~estimates weare ~~acquired~~made ~~UroPath,~~at ~~LLC (“UroPath”) for $7.5 million in cash. Founded in 2003, UroPath is~~ a ~~leading~~specific ~~provider~~point ~~of anatomical pathology laboratory services~~ in ~~the U.S. with locations in Florida~~time, ~~Texas,~~based ~~and Pennsylvania. Based~~ on ~~our~~relevant ~~allocation~~market ofinformation the purchase price, we recorded approximately $7.4 million of goodwill related to this transaction, all of which is tax deductible. On April 17, 2008, we completed the acquisition of Advance Medical Partners, Inc. (“AMPI”) pursuant to the Stock Purchase Agreement dated March 18, 2008 between us, Litho Management, Inc., AMPI and ~~the~~information ~~stockholders~~about ~~of AMPI. Founded in 2003, AMPI is a leading provider of urological cryosurgery services in~~ the ~~U.S.~~financial ~~with operations in 46 states~~instrument. WeFair ~~acquired~~value ~~the~~estimates ~~outstanding~~are shares of capital stock of AMPI (other than shares already held by us) for an aggregate purchase price of approximately $13 million, consisting of $6.9 million in cash and approximately 1.8 million shares of our common stock, plus a two-year earn-out based on ~~the~~existing ~~achievement~~balance ofsheet ~~EBITDA.~~financial Weinstruments ~~determined~~without ~~the~~attempting ~~value of our common stock by using an average closing price for the two trading days prior~~ to ~~and~~estimate ~~after~~ the ~~public~~value ~~announcement~~ of ~~the~~anticipated ~~merger.~~future ~~The~~business ~~first earn-out payment was paid in May 2009, totaling $219,000 in cash~~ and ~~134,356 shares of HealthTronics stock valued at $219,000. Based upon our allocation of~~ the ~~purchase~~value ~~price, we recognized $12.7 million~~ of ~~goodwill~~assets ~~related to this transaction, none of which is tax deductible. On September 25, 2009, we acquired US Surgical Services, LLC (“US Surgical”) for $400,000 in cash~~ and anliabilities ~~earn-out~~that ~~provision~~are ~~pursuant~~not toconsidered ~~which~~financial ~~we could issue up to $1,350,000 in shares of our common stock~~instruments. ~~The~~In ~~actual number of shares issued~~addition, ~~if any, cannot be determined until it is determined whether~~ the ~~earn-out~~tax ~~provision~~ramifications ~~requirements~~related ~~are~~to ~~met. Randy Wheelock, who is~~ the ~~brother~~realization of ~~Argil Wheelock, one of~~ the ~~members~~unrealized ofgains ~~our Board of Directors, was one of the two 50% owners of US Surgical. Thus, in exchange for his 50% ownership interest in US Surgical, Randy Wheelock was paid $200,000 in cash~~ and ~~will~~losses becan ~~entitled~~have ~~to 50% of any earn-out consideration paid. In addition, in connection with this acquisition, we entered into~~ a ~~consulting~~significant ~~agreement~~effect ~~with~~on ~~Randy~~fair ~~Wheelock~~value ~~pursuant~~estimates toand ~~which~~have henot ~~will~~been ~~provide~~considered ~~consulting services to us for 15 months following closing~~ in exchange for a payment of $10,000 per month. In 2008, we purchased three partnerships, increased our ownership in three existing partnerships and purchased a small service company for an aggregate purchase price of approximately $6.4 million. We recorded approximately $7.2 million of goodwill related to these transactions, all of which is tax deductible. Our unaudited proforma combined income data for the ~~periods~~aforementioned ~~ended September 30, 2009 and 2008, assuming the acquisitions were effective January 1 of each period, is as follows:~~estimates.

-16-9. Variable Interest Entities

~~HEALTHTRONICS~~We have determined that one of our consolidated partnerships, ~~INC.~~acquired ~~AND~~in ~~SUBSIDIARIES~~the ~~NOTES~~HSS TOmerger ~~CONDENSED~~and ~~CONSOLIDATED~~in ~~FINANCIAL~~which ~~STATEMENTS~~we ~~September~~have 30a 20% interest, ~~2009~~has certain related party relationships with two Variable Interest Entities (~~Unaudited~~VIE), and in accordance with ASC 810, has consolidated those entities. As a result of consolidating the VIEs, of which the partnership is the primary beneficiary, we have recognized noncontrolling interest of approximately $800,000 on our consolidated balance sheets at March 31, 2010 and December 31, 2009, which represents the difference between the assets and the liabilities recorded upon the consolidation of the VIEs. The liabilities recognized as a result of consolidating the VIEs do not represent additional claims on our general assets. Rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Reflected on our consolidated balance sheet as of March 31, 2010 and December 31, 2009 are $4.7 million and $4.3 million, respectively, of VIE assets, representing all of the assets of the VIEs. The VIEs assist the partnership in providing urological services, minimally invasive prostate treatments, and other services in the Greater New York metropolitan area.

	Nine Months Ended September 30,
($ in thousands, except per share data)	2009			2008
Total revenues	$	147,260		$	152,364
Total expenses		(154,997	)		(151,651	)
Net income (loss) attributable to HealthTronics, Inc.	$	(7,737	)	$	713
Diluted earnings per share	$	(0.17	)	$	0.02

10. Subsequent Events

9On May 5, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Endo Pharmaceuticals Holdings Inc. ~~Fair~~(“Endo”) ~~Value~~and HT Acquisition Corp., a wholly-owned subsidiary of ~~Financial~~Endo ~~Instruments~~(“Purchaser”), pursuant to which Endo will acquire us. Pursuant to the terms of the Merger Agreement, and subject to the conditions thereof, Endo (through Purchaser) has agreed to commence a cash tender offer (the “Offer”) to purchase all of our issued and outstanding shares of common stock (the “Shares”) at a price of $4.85 per Share, net to the seller in cash (less any required withholding taxes and without interest) (the “Offer Price”). The Offer will expire at 5 p.m. New York City time on July 1, 2010, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (such time, the “Offer Closing”).

~~The carrying amounts and estimated fair values of our significant financial instruments as of September 30, 2009 and December 31, 2008 are as follows:~~-15-

	September 30, 2009				December 31, 2008
( $ in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	11,154	$	11,154	$	22,854	$	22,854
Warrants/common stock		--		--		290		290
Financial liabilities:
Debt	$	49,027	$	49,027	$	46,387	$	46,387
Other long-term obligations		2,853		2,803		1,765		1,727

HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

The ~~following~~Offer, ~~methods~~if ~~and~~successful, ~~assumptions~~will ~~were~~be ~~used~~followed by a merger (the “Merger”) of Purchaser with and into us, inwith ~~estimating~~us ~~our~~as ~~fair~~the ~~value~~surviving ~~disclosures~~corporation ~~for~~and ~~financial~~a ~~instruments~~wholly-owned subsidiary of Endo. ~~Cash~~In ~~and~~the ~~Cash~~Merger, ~~Equivalents~~any ~~The~~Shares ~~carrying~~not ~~amounts~~tendered ~~for~~into ~~cash~~the ~~and~~Offer, ~~cash~~other ~~equivalents~~than ~~approximate~~Shares ~~fair~~held ~~value~~by ~~because~~us, ~~they~~Endo, ~~mature~~Purchaser inor ~~less~~shareholders ~~than~~who 90have ~~days~~validly exercised their appraisal rights under the Georgia Business Corporation Code, will be cancelled and doautomatically ~~not~~converted ~~present~~into ~~unanticipated~~the ~~credit~~right ~~concerns.~~to ~~Debt~~receive the same per share consideration paid to shareholders in the Offer. The ~~debt~~consummation ~~has~~of the Offer is subject to the satisfaction or waiver of certain conditions, including a ~~floating~~minimum ~~rate~~of ~~and~~the ~~approximately~~majority ~~$47~~of ~~million~~outstanding isShares ~~due~~on ina ~~less~~fully ~~than~~diluted ~~one~~basis ~~year.~~having ~~Therefore~~been tendered into the Offer, the ~~carrying~~expiration ~~value~~or termination of the ~~debt~~waiting atperiod ~~September~~under ~~30,~~the ~~2009~~Hart ~~and~~Scott ~~December~~Rodino 31Antitrust Improvements Act, ~~2008~~and ~~approximates~~other ~~fair~~customary ~~value~~conditions. ~~Other~~Pursuant ~~Long-Term~~to ~~Obligations~~the AtMerger ~~September~~Agreement ~~30,~~and ~~2009~~subject to certain exceptions, we ~~had~~granted ~~$1,333,000~~to inPurchaser ~~long~~an ~~term~~irrevocable ~~deferred~~option ~~rent~~(the ~~related~~“Top-Up Option”) to ~~leaseholds~~purchase, at ~~our~~a ~~new~~per ~~corporate~~Share ~~office~~price ~~space~~equal into ~~Austin~~the Offer Price, ~~Texas.~~newly-issued WeShares ~~are~~in ~~amortizing~~an ~~this~~amount ~~deferred~~up ~~rent~~to atthe alowest ~~rate~~number of ~~$18~~Shares that,~~136~~ ~~per~~when ~~month~~added ~~through~~to ~~December~~the ~~2009.~~number ~~Beginning~~of ~~January~~Shares ~~2010,~~owned ~~when~~by Purchaser at the ~~lease~~time ~~amendment~~of ~~for~~exercise of the ~~increased~~Top-Up ~~space~~Option, ~~takes~~will ~~effect,~~constitute weone ~~will~~Share ~~amortize~~more than 90% of the ~~remaining~~total ~~balance~~Shares atoutstanding on a ~~rate~~fully-diluted ofbasis. ~~$22,569~~The price per ~~month~~share to be paid for the Top-Up shares will be the Offer Price. AtThe ~~September~~Merger 30Agreement contains certain termination rights of Endo and us and provides that, ~~2009~~upon the termination of the Merger Agreement under certain circumstances, we ~~had~~would be required to pay Endo a ~~long~~termination ~~term~~fee ~~obligation~~equal ~~totaling~~to $~~171,000~~8 ~~for~~million. ~~restructuring~~Concurrently ~~costs~~with ~~related~~the toexecution ~~the~~and ~~vacating~~delivery of athe ~~leased~~Merger ~~property~~Agreement, Endo and Purchaser entered into an agreement with each of James S.B. ~~Lease~~Whittenburg, ~~payments~~Richard ~~will~~A. ~~continue~~Rusk, ~~until~~Clint ~~October~~B. 3Davis, ~~2010~~Scott A. WeHerz ~~estimated~~and ~~the~~Laura ~~fair~~A. ~~value~~Miller pursuant to which each of ~~lease~~them ~~payments~~has ~~based~~irrevocably onagreed ~~discounted~~to ~~cash~~tender ~~flows,~~the ~~which~~shares isof aour ~~level~~common ~~three~~stock ~~analysis.~~beneficially Atowned ~~September~~by ~~30,~~them ~~2009,~~in wethe ~~had~~Offer. aAlso ~~long-term~~concurrently ~~obligation~~with the execution and delivery of $1the Merger Agreement,~~350,000~~ ~~representing~~Endo ~~our~~and ~~best~~Purchaser ~~estimate~~entered ofinto an ~~earn-out~~executive ~~payment~~employment ~~due~~agreement inwith ~~December~~each of ~~2010~~Messrs. ~~relating~~Whittenburg, toRusk, anDavis, ~~acquisition~~and Herz, which agreements will not become effective until the Offer Closing.

-1716-

~~HEALTHTRONICS,~~Item ~~INC.~~2 ~~AND~~— ~~SUBSIDIARIES~~Management’s ~~NOTES~~Discussion TOand ~~CONDENSED~~Analysis ~~CONSOLIDATED~~of ~~FINANCIAL~~Financial ~~STATEMENTS~~Condition ~~September~~and ~~30,~~Results ~~2009~~of ~~(Unaudited)~~Operations

Warrants In November, 2006, we announced our decision to discontinue our involvement in the clinical trials of the Ablatherm device manufactured by EDAP TMS S.A. (“EDAP”). This decision resulted in our forfeiting the exclusive rights to distribute such device in the United States, when and if a PreForward-~~Market~~Looking ~~Approval~~Statements of such device is granted by the FDA and forfeits our rights to vest in additional warrants to EDAP common stock. During 2007, we exercised these warrants and in the third quarter of 2009 we sold these shares. The stock had been valued based on a quoted market price, which was a level one analysis. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the aforementioned estimates.

The statements contained in this report that are not purely historical are forward-18looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions or strategies regarding the future. You should not place undue reliance on forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those in the forward-looking statements. In addition to any risks and uncertainties specifically identified below and in the text surrounding forward-looking statements in this report, you should review the risk factors described in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, for factors that could cause our actual results to differ materially from those presented. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “will”, “would”, “should”, “plans”, “likely”, “expects”, “anticipates”, “intends”, “believes”, “estimates”, “thinks”, “may”, and similar expressions, are forward-looking statements. The following important factors, in addition to those referred to above, could affect the future results of the health care industry in general, and us in particular, and could cause those results to differ materially from those expressed in such forward-looking statements:

~~Item~~• 2uncertainties —in ~~Management~~our establishing or maintaining relationships with physicians and hospitals; • the impact of current and future laws and governmental regulations; • uncertainties inherent in third party payors’s ~~Discussion~~attempts to limit health care coverages and ~~Analysis~~levels of ~~Financial~~reimbursement; ~~Condition~~• the effects of competition and ~~Results~~technological changes; • the availability (or lack thereof) of ~~Operations~~acquisition or combination opportunities; • the integration of acquired business; and • general economic, market or business conditions.

~~Forward-Looking~~ General ~~Statements~~

~~The~~We ~~statements~~provide ~~contained~~healthcare inservices ~~this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933~~ and ~~Section~~medical ~~21E of the Securities Exchange Act of 1934~~devices, ~~including~~primarily statements regarding our expectations, hopes, intentions or strategies regarding the future. You should not place undue reliance on forward-looking statements. All forward-looking statements included in this report are based on information available to ~~us on~~ the ~~date~~urology ~~hereof, and we assume no obligation to update any such forward-looking statements~~marketplace. ItLithotripsy ~~is important to note that our actual results could differ materially from those in the forward-looking statements~~services. InWe ~~addition~~provide tolithotripsy ~~any risks and uncertainties specifically identified below and in the text surrounding forward-looking statements in this report~~services, ~~you~~which ~~should~~is ~~review~~a ~~the~~medical ~~risk~~procedure ~~factors~~where ~~described~~a indevice ~~our~~called ~~most~~a ~~recent~~lithotripter ~~Annual~~transmits ~~Report~~high onenergy ~~Form~~shockwaves ~~10-K~~through ~~and other filings with~~ the ~~Securities~~body ~~and Exchange Commission, for factors that could cause our actual results~~ to ~~differ~~break ~~materially~~up ~~from~~kidney ~~those presented~~stones. ~~Statements~~Our ~~that~~lithotripsy services are ~~predictive~~provided inprincipally ~~nature,~~through ~~that~~limited ~~depend~~partnerships ~~upon~~and orother ~~refer~~entities ~~to future events or conditions, or~~ that ~~include~~we ~~words such as “will”~~manage, ~~“would”,~~which ~~“should”,~~use ~~“plans”,~~lithotripters. ~~“likely”,~~In ~~“expects”~~2009, ~~“anticipates”,~~physicians ~~“intends”,~~who ~~“believes”, “estimates”, “thinks”, “may”, and similar expressions,~~ are ~~forward-looking~~affiliated ~~statements.~~with ~~The~~us ~~following~~used ~~important~~our ~~factors,~~lithotripters ~~in addition~~ to ~~those~~perform ~~referred~~approximately ~~to above~~50,000 ~~could~~procedures ~~affect~~in the ~~future~~U.S. ~~results~~We ofdo ~~the~~not ~~health~~render ~~care~~any ~~industry~~medical inservices. ~~general~~Rather, ~~and~~the usphysicians ~~in particular, and could cause those results to differ materially from those expressed in such forward-looking statements:~~do.

• uncertainties in our establishing or maintaining relationships with physicians and hospitals; • the impact of current and future laws and governmental regulations; • uncertainties inherent in third party payors’ attempts to limit health care coverages and levels of reimbursement; • the effects of competition and technological changes; • the availability (or lack thereof) of acquisition or combination opportunities; and • general economic, market or business conditions.-17-

~~Segment~~Item ~~Reporting~~ 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

InWe ~~the~~have ~~fourth~~two ~~quarter~~types of ~~2008~~contracts, ~~our~~retail ~~Medical~~and ~~Products~~wholesale, ~~division~~that ~~relocated~~we ~~from~~enter ~~Kennesaw,~~into ~~Georgia~~in toproviding our ~~corporate~~lithotripsy ~~headquarters~~services. Retail contracts are contracts where we contract with the hospital and private insurance payors. Wholesale contracts are contracts where we contract only with the hospital. The two approaches functionally differ in ~~Austin~~that, ~~Texas~~under a retail contract, we generally bill for the entire non-physician fee for all patients other than governmental pay patients, for which the hospital bills the non-physician fee. ~~Concurrent~~Under a wholesale contract, the hospital generally bills for the entire non-physician fee for all patients. In both cases, the billing party contractually bears the costs associated with ~~this~~the ~~relocation~~billing service, including pre-certification, as well as non-collection. The non-billing party is generally entitled to its fees regardless of whether the billing party actually collects the non-physician fee. Accordingly, under the wholesale contracts where we ~~made~~are ~~certain~~the ~~changes~~non-billing ~~within~~party, ~~our~~the ~~Medical~~hospital ~~Products~~generally ~~management~~receives ~~team~~a sogreater ~~that~~proportion ~~these~~of ~~operations~~the ~~now~~total ~~report~~non-physician fee to compensate for its billing costs and collection risk. Conversely, under the ~~President~~retail contracts where we generally provide the billing services and bear the collection risk, we receive a greater portion of ~~our~~the ~~Urology~~total ~~Services~~non-physician ~~operations~~fee. ~~After~~Although ~~making~~the ~~these~~non-physician ~~changes~~fee under both retail and wholesale contracts varies widely based on geographical markets and the identity of the third party payor, we ~~redesigned~~estimate that nationally, on average, our ~~internal~~share ~~financial~~of ~~reporting~~the ~~materials~~non-physician ~~provided~~fee towas roughly $2,100, respectively, for both 2010 and 2009. At this time, we do not anticipate a material shift between our ~~chief~~retail ~~operating~~and ~~decision~~wholesale ~~maker~~arrangements, asor ~~well~~a asmaterial change in our ~~executive~~share ~~management~~of ~~team~~the non-physician fee. As the general partner of limited partnerships or the ~~first~~manager ~~quarter~~of other types of ~~2009~~entities, we doalso ~~not~~provide ~~have~~services ~~any~~relating to operating ~~segments~~our lithotripters, ~~except~~including ~~our~~scheduling, ~~Urology~~staffing, ~~Services~~training, ~~operations~~quality assurance, ~~that~~regulatory ~~meet~~compliance, ~~the~~and ~~quantitative~~contracting ~~requirements~~with payors, hospitals, and surgery centers. Prostate treatment services. We provide treatments for benign and cancerous conditions of ~~ASC~~the ~~280~~prostate. In treating benign prostate disease, ~~Segment~~we ~~Reporting~~deploy three technologies: (1) photo-selective vaporization of the prostate (“~~ASC~~PVP”), ~~280~~(2) trans-urethral needle ablation (“TUNA”), and (~~formerly~~3) ~~Statement~~trans-urethral microwave therapy (“TUMT”) in certain partnerships. All three technologies apply an energy source which reduces the size of ~~Financial~~the ~~Accounting~~prostate ~~Standards~~gland. For treating prostate and other cancers, we use a procedure called cryosurgery, a process which uses lethal ice to destroy tissue such as tumors for therapeutic purposes. In April 2008, we acquired Advanced Medical Partners, Inc. (“~~SFAS~~AMPI”), ~~131~~which significantly expanded our cryosurgery partnership base. In July 2009, ~~Disclosures~~we ~~about~~acquired ~~Segments~~Endocare, ofInc. an(“Endocare”), ~~Enterprise~~which manufactures both the medical devices and ~~Related~~related ~~Information~~consumables utilized by our cryosurgery operations, and also provides cryosurgery treatments. Our prostate treatment services are provided principally by us using equipment that we lease from limited partnerships and other entities that we manage. Benign prostate disease and cryosurgery cancer treatment services are billed in the same manner as our lithotripsy services under either retail or wholesale contracts. We also provide services relating to operating the equipment, including scheduling, staffing, training, quality assurance, regulatory compliance, and contracting. Radiation therapy services. We provide image guided radiation therapy (“IGRT”) technical services for cancer treatment centers. Our IGRT technical services may relate to providing the technical (non-physician) personnel to operate a physician practice group’s IGRT equipment, leasing IGRT equipment to a physician practice group, providing services related to helping a physician practice group establish an IGRT treatment center, or managing an IGRT treatment center.

-1918-

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

~~General~~Anatomical Wepathology ~~provide~~services. ~~healthcare~~We ~~services~~also ~~and~~provide ~~medical~~anatomical ~~devices,~~pathology services primarily to the urology community. ~~Lithotripsy services.~~ We ~~provide~~have ~~lithotripsy~~one ~~services,~~pathology ~~which~~lab islocated a medical procedure where a device called a lithotripter transmits high energy shockwaves through the body to break up kidney stones. Our lithotripsy services are provided principally through limited partnerships and other entities that we manage, which use lithotripters. In 2008, physicians who are affiliated with us used our lithotripters to perform approximately 50,000 procedures in ~~the U.S. We do not render any medical services. Rather~~Georgia, ~~the~~Claripath ~~physicians do. We have two types of contracts~~Laboratories, ~~retail and wholesale,~~ that weprovides ~~enter~~laboratory ~~into~~detection inand ~~providing~~diagnosis ~~our lithotripsy~~ services. ~~Retail~~to ~~contracts~~urologists ~~are~~throughout ~~contracts where we contract with~~ the ~~hospital~~United ~~and private insurance payors~~States. ~~Wholesale~~In ~~contracts~~addition, ~~are contracts where we contract only with the hospital. The two approaches functionally differ~~ in ~~that,~~July ~~under a retail contract~~2008, we ~~generally~~acquired ~~bill~~Uropath ~~for the entire non-physician fee for all patients other than governmental pay patients~~LLC, ~~for~~ which ~~the~~managed ~~hospital~~pathology ~~bills~~laboratories ~~the~~located ~~non-physician~~at ~~fee.~~Uropath ~~Under~~sites ~~a wholesale contract, the hospital generally bills~~ for ~~the entire non-~~physician ~~fee~~practice ~~for~~groups ~~all~~located ~~patients.~~in ~~In both cases~~Texas, ~~the~~Florida ~~billing~~and ~~party contractually bears the costs associated with the billing service, including pre-certification, as well as non-collection~~Pennsylvania. ~~The~~Through ~~non-billing party is generally entitled to its fees regardless of whether the billing party actually collects the non-physician fee. Accordingly~~Uropath, ~~under the wholesale contracts where~~ we ~~are~~continue ~~the~~to ~~non-billing~~provide ~~party,~~administrative ~~the~~services ~~hospital~~to ~~generally receives a greater proportion of the total non~~in-~~physician~~office ~~fee~~pathology tolabs ~~compensate~~ for ~~its~~practice ~~billing~~groups ~~costs~~ and ~~collection risk. Conversely, under the retail contracts where we generally~~ provide ~~the~~pathology ~~billing~~ services ~~and~~to ~~bear~~physicians ~~the collection risk, we receive a greater portion of the total non-physician fee. Although the non-physician fee under both retail~~ and ~~wholesale~~practice ~~contracts~~groups ~~varies~~with ~~widely~~our ~~based~~lab onequipment ~~geographical markets~~ and ~~the~~personnel ~~identity~~at ~~of the third party payor, we estimate that nationally, on average,~~ our ~~share~~Uropath oflaboratory ~~the non-physician fee was roughly $2,100, respectively, for each of the first nine months of 2009 and 2008~~sites. AtMedical ~~this~~products ~~time~~manufacturing, wesales ~~do not anticipate a material shift between our retail~~ and ~~wholesale arrangements, or a material change in our share of the non-physician fee~~maintenance. ~~As the general partner of limited partnerships or the manager of other types of entities~~We, wethrough ~~also provide services relating to operating~~ our ~~lithotripters,~~Endocare ~~including scheduling~~acquisition, ~~staffing,~~manufacture ~~training, quality assurance, regulatory compliance,~~ and ~~contracting~~sell ~~with~~medical ~~payors,~~devices ~~hospitals,~~focused ~~and~~on ~~surgery~~minimally ~~centers.~~invasive ~~Prostate~~technologies ~~treatment services. We provide treatments~~ for ~~benign~~tissue and ~~cancerous~~tumor ~~conditions~~ablation ofthrough ~~the prostate. In treating benign prostate disease~~cryoablation, we deploy three technologies: (1) photo-selective vaporization of the prostate (“PVP”), (2) trans-urethral needle ablation (“TUNA”), and (3) trans-urethral microwave therapy (“TUMT”) in certain partnerships. All three technologies apply an energy source which ~~reduces~~is the ~~size~~use of ~~the prostate gland. For treating prostate and other cancers, we use a procedure called cryosurgery, a process which uses~~ lethal ice to destroy tissue, such as tumors, for therapeutic purposes. InWe ~~April~~develop ~~2008,~~and wemanufacture ~~acquired~~these ~~Advanced~~devices ~~Medical~~for ~~Partners,~~the ~~Inc.~~treatment ~~(“AMPI”),~~of ~~which~~prostate ~~significantly~~and ~~expanded~~renal ~~our~~cancers ~~cryosurgery~~and ~~partnership~~we ~~base.~~believe Inthat ~~July~~our ~~2009,~~proprietary wetechnologies ~~acquired~~have ~~Endocare,~~broad ~~Inc.~~applications ~~(“Endocare”),~~across ~~which~~a ~~manufactures~~number ~~both~~of ~~the~~markets, ~~medical~~including ~~devices~~the ~~and~~ablation ~~related~~of ~~consumables~~tumors ~~utilized~~in bythe ~~our~~lung ~~cryosurgery~~and ~~operations,~~liver and ~~also~~palliative ~~provides~~intervention ~~cryosurgery treatments. Our prostate~~ (treatment ~~services~~of ~~are~~pain ~~provided~~associated ~~principally~~with bymetastases). usWe ~~using~~also ~~equipment~~manufacture ~~that~~the werelated ~~lease~~spare ~~from~~parts ~~limited partnerships~~ and ~~other~~consumables ~~entities~~for ~~that~~these ~~we manage~~devices. ~~Benign~~We ~~prostate~~also ~~disease~~sell and ~~cryosurgery~~maintain ~~cancer~~lithotripters ~~treatment~~and ~~services~~related ~~are~~spare ~~billed~~parts inand ~~the~~consumables. ~~same~~Revenue ~~manner~~Recognition ~~as our lithotripsy services under either retail or wholesale contracts.~~ We ~~also~~recognize ~~provide~~revenue ~~services~~primarily ~~relating~~from ~~to operating~~ the ~~equipment,~~following ~~including scheduling, training, quality assurance, regulatory compliance, and contracting.~~sources:

~~-20-~~• Fees for urology treatments . A substantial majority of our revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. For lithotripsy and prostate treatment services, we, through our partnerships and other entities, facilitate the use of our equipment and provide other support services in connection with these treatments at hospitals and other health care facilities. The professional fee payable to the physician performing the procedure is generally billed and collected by the physician. We recognize revenue for these services when the services are provided. IGRT technical services are billed monthly and the related revenues are recognized as the related services are provided.

~~Item~~• 2Fees —for ~~Management’s~~managing ~~Discussion~~the operation of our lithotripters and ~~Analysis~~prostate oftreatment ~~Financial~~devices. ~~Condition~~Through our partnerships and ~~Results~~otherwise ofdirectly ~~Operations~~by us, we provide services related to operating our lithotripters and prostate treatment equipment and receive a management fee for performing these services. We recognize revenue for these services as the services are provided.

~~Radiation~~• ~~therapy~~Fees ~~services. We provide image guided radiation therapy (“IGRT”) technical services~~ for ~~cancer~~maintenance ~~treatment centers. Our IGRT technical~~ services may relate to providing the technical (non-physician) personnel to operate a physician practice group’s IGRT equipment, leasing IGRT equipment to a physician practice group, providing services related to helping a physician practice group establish an IGRT treatment center, or managing an IGRT treatment center. ~~Anatomical pathology services.~~ We ~~also~~ provide ~~anatomical~~equipment ~~pathology~~maintenance services ~~primarily~~ to ~~the~~our ~~urology~~partnerships ~~community.~~as Wewell ~~have~~as ~~one~~outside ~~pathology~~parties. ~~lab~~These ~~located in Georgia, Claripath Laboratories, that provides laboratory detection and diagnosis~~ services toare ~~urologists~~billed ~~throughout~~either ~~the~~on ~~United~~a ~~States.~~time ~~In addition, in July 2008, we acquired Uropath LLC, which managed pathology laboratories located at Uropath sites for physician practice groups located in Texas, Florida~~ and ~~Pennsylvania.~~material ~~Through~~basis ~~Uropath,~~or ~~we continue to manage in-office pathology labs for practice groups and provide pathology services to physicians and practice groups with our lab equipment and personnel~~ at ~~our~~a ~~Uropath~~fixed ~~laboratory~~contractual ~~sites. Medical products manufacturing~~rate, ~~sales~~payable ~~and maintenance. We~~monthly, ~~through our Endocare acquisition~~quarterly, ~~manufacture~~or and sell medical devices focused on minimally invasive technologies for tissue and tumor ablation through cryoablation, which is the use of lethal ice to destroy tissue, such as tumors, for therapeutic purposesannually. WeRevenues ~~develop~~from ~~and~~these ~~manufacture~~services ~~devices~~are ~~for~~recorded ~~the~~when ~~treatment of prostate and renal cancers and we believe that our proprietary technologies have broad applications across a number of markets, including~~ the ~~ablation of tumors in the lung and liver and palliative intervention (treatment of pain associated with metastases). We also manufacture the~~ related ~~spare~~maintenance ~~parts~~services ~~and consumables. We also sell and maintain lithotripters and related spare parts and consumables. We~~ are ~~the exclusive U~~performed.~~S. distributor of the Revolix branded laser. Revenue Recognition We recognize revenue primarily from the following sources:~~

• Fees for ~~urology~~equipment ~~treatments~~sales, consumable sales and licensing applications . AWe ~~substantial~~manufacture ~~majority~~and ofsell ~~our~~medical ~~revenue~~devices isfocused ~~derived~~on ~~from~~minimally ~~fees~~invasive technologies for tissue and tumor ablation through cryosurgery, and their related toconsumables. ~~lithotripsy~~We ~~treatments~~also ~~performed~~sell ~~using~~and ~~our~~maintain lithotripters. ~~For~~and ~~lithotripsy~~manufacture and ~~prostate~~sell ~~treatment~~consumables ~~services,~~related ~~we,~~to ~~through~~the ~~our~~lithotripters. ~~partnerships~~We distribute the Revolix laser and ~~other~~consumables ~~entities~~related to the laser. With respect to some lithotripter sales, ~~facilitate~~in addition to the ~~use~~original ofsales ~~our~~price, ~~equipment~~we ~~and~~receive ~~provide~~a ~~other~~licensing ~~support~~fee ~~services~~from inthe ~~connection~~buyer ~~with~~of ~~these~~the ~~treatments~~lithotripter atfor ~~hospitals~~each ~~and~~patient ~~other~~treated ~~health~~with ~~care~~such ~~facilities~~lithotripter. ~~The~~In ~~professional~~exchange for this licensing fee, ~~payable~~we toprovide the ~~physician~~buyer ~~performing~~of the ~~procedure~~lithotripter iswith ~~generally~~certain ~~billed~~consumables. All the sales for equipment and ~~collected~~consumables byare recognized when the ~~physician~~related items are delivered. WeRevenues ~~recognize~~from ~~revenue~~licensing ~~for~~fees ~~these~~are ~~services~~recorded when the ~~services~~patient ~~are~~is ~~provided~~treated. ~~IGRT~~In ~~technical~~some ~~services~~cases, ~~are~~we ~~billed~~lease ~~monthly~~certain ~~and~~equipment ~~the~~to ~~related~~our ~~revenues~~partnerships as well as third parties. Revenues from these leases are recognized ason ~~the~~a ~~related~~monthly ~~services~~basis or as procedures are ~~provided~~performed.

~~-21-~~• Fees for anatomical pathology services . We provide anatomical pathology services primarily to the urology community. Revenues from these services are recorded when the related laboratory procedures are performed.

~~Item~~Recent 2Developments —Endo ~~Management’s~~Pharmaceuticals ~~Discussion~~Transaction On May 5, 2010, we entered into an Agreement and ~~Analysis~~Plan of ~~Financial~~Merger ~~Condition~~(the “Merger Agreement”) with Endo Pharmaceuticals Holdings Inc. (“Endo”) and ~~Results~~HT Acquisition Corp., a wholly-owned subsidiary of ~~Operations~~Endo (“Purchaser”), pursuant to which Endo will acquire us. Pursuant to the terms of the Merger Agreement, and subject to the conditions thereof, Endo (through Purchaser) has agreed to commence a cash tender offer (the “Offer”) to purchase all of our issued and outstanding shares of common stock (the “Shares”) at a price of $4.85 per Share, net to the seller in cash (less any required withholding taxes and without interest) (the “Offer Price”). The Offer will expire at 5 p.m. New York City time on July 1, 2010, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (such time, the “Offer Closing”). The Offer, if successful, will be followed by a merger (the “Merger”) of Purchaser with and into us, with us as the surviving corporation and a wholly-owned subsidiary of Endo. In the Merger, any Shares not tendered into the Offer, other than Shares held by us, Endo, Purchaser or shareholders who have validly exercised their appraisal rights under the Georgia Business Corporation Code, will be cancelled and automatically converted into the right to receive the same per share consideration paid to shareholders in the Offer. The consummation of the Offer is subject to the satisfaction or waiver of certain conditions, including a minimum of the majority of outstanding Shares on a fully diluted basis having been tendered into the Offer, the expiration or termination of the waiting period under the Hart Scott Rodino Antitrust Improvements Act, and other customary conditions.

• Fees for managing the operation of our lithotripters and prostate treatment devices. Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and prostate treatment equipment and receive a management fee for performing these services.-20-

•Item ~~Fees~~2 ~~for~~— ~~maintenance~~Management’s ~~services~~Discussion .and WeAnalysis ~~provide~~of ~~equipment~~Financial ~~maintenance~~Condition ~~services to our partnerships as well as outside parties. These services are billed either on a time~~ and ~~material~~Results ~~basis~~of ~~or at a fixed contractual rate, payable monthly, quarterly, or annually. Revenues from these services are recorded when the related maintenance services are performed.~~Operations

•Pursuant ~~Fees~~to ~~for~~the ~~equipment~~Merger ~~sales~~Agreement and subject to certain exceptions, ~~consumable~~we ~~sales~~granted ~~and~~to ~~licensing~~Purchaser ~~applications~~an .irrevocable Weoption ~~manufacture~~(the ~~and~~“Top-Up ~~sell~~Option”) ~~medical~~to ~~devices~~purchase, ~~focused~~at a per Share price equal to the Offer Price, newly-issued Shares in an amount up to the lowest number of Shares that, when added to the number of Shares owned by Purchaser at the time of exercise of the Top-Up Option, will constitute one Share more than 90% of the total Shares outstanding on ~~minimally~~a ~~invasive~~fully-diluted ~~technologies~~basis. The price per share to be paid for ~~tissue~~the Top-Up shares will be the Offer Price. The Merger Agreement contains certain termination rights of Endo and ~~tumor~~us ~~ablation~~and ~~through~~provides ~~cryosurgery~~that, ~~and~~upon ~~their~~the ~~related~~termination ~~consumables~~of the Merger Agreement under certain circumstances, we would be required to pay Endo a termination fee equal to $8 million. WeConcurrently ~~also~~with ~~sell~~the execution and ~~maintain~~delivery ~~lithotripters~~of the Merger Agreement, Endo and ~~manufacture~~Purchaser entered into an agreement with each of James S.B. Whittenburg, Richard A. Rusk, Clint B. Davis, Scott A. Herz and ~~sell~~Laura ~~consumables~~A. ~~related~~Miller pursuant to which each of them has irrevocably agreed to tender the ~~lithotripters~~shares of our common stock beneficially owned by them in the Offer. WeAlso ~~distribute~~concurrently with the ~~Revolix~~execution ~~laser~~and delivery of the Merger Agreement, Endo and ~~consumables~~Purchaser ~~related~~entered tointo an executive employment agreement with each of Messrs. Whittenburg, Rusk, Davis, and Herz, which agreements will not become effective until the ~~laser~~Offer Closing. ~~With~~Endocare ~~respect~~Transaction toOn ~~some~~July ~~lithotripter~~27, ~~sales~~2009, inwe ~~addition~~completed our acquisition of Endocare, Inc., pursuant to the ~~original~~Agreement ~~sales~~and ~~price~~Plan of Merger (“Merger Agreement”), wedated ~~receive~~as of June 7, 2009, among us, HT Acquisition, Inc., a ~~licensing~~wholly-owned ~~fee~~subsidiary ~~from~~of ours, and Endocare. Endocare is a medical device company focused on developing, manufacturing and selling cryoablation products that have the ~~buyer~~potential to assist physicians in improving and extending life by use in the treatment of cancer and other tumors. In accordance with the ~~lithotripter~~terms and conditions of the Merger Agreement, Endocare shareholders had the option to receive the following consideration for each ~~patient~~share ~~treated~~of ~~with~~Endocare ~~such~~common ~~lithotripter~~stock they owned: (i) $1.35 Inin ~~exchange~~cash, ~~for~~without ~~this~~interest, ~~licensing~~or ~~fee~~(ii) 0.7764 of a share of our common stock, in each case subject to proration. In the acquisition, we ~~provide~~paid approximately $4.2 million in cash and issued approximately 7.3 million shares of our common stock to acquire Endocare. General We continue to look at strategic acquisition opportunities and believe conditions in the ~~buyer~~market favor our strong financial position, national platform of urologist relationships, and diversification within the ~~lithotripter~~urologist ~~with~~services ~~certain~~space. ~~consumables~~Critical Accounting Policies and Estimates Management has identified the following critical accounting policies and estimates: Impairments of goodwill and other intangible assets are both a critical accounting policy and estimate that require judgment and are based on assumptions of future operations. ~~All~~We are required to test for impairments at least annually or if circumstances change that would reduce the ~~sales~~fair value of a reporting unit below its carrying value. We test for ~~equipment~~impairment of goodwill during the fourth quarter. As of March 31, 2010, we have two reporting units, urology services and ~~consumables~~anatomical ~~are~~pathology services. The fair value of each reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. Because we have recognized ~~when~~goodwill based solely on our controlling interest, the ~~related~~fair ~~items~~value ~~are~~of ~~delivered~~each reporting unit also relates only to our controlling interest. ~~Revenues~~If ~~from~~the ~~licensing~~carrying ~~fees~~amount ~~are~~of ~~recorded~~a ~~when~~reporting unit exceeds its fair value, the ~~patient~~second step of the goodwill impairment test is ~~treated~~performed to measure the amount of impairment loss, if any. InThe ~~some~~second ~~cases~~step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, wean ~~lease~~impairment ~~certain~~loss ~~equipment~~is recognized in an amount equal to ~~our~~that ~~partnerships~~excess. The implied fair value of goodwill is determined in the same manner as ~~well~~the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as ~~third~~if ~~parties~~the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. ~~Revenues~~Both ~~from~~the ~~these~~income ~~leases~~approach ~~are~~and ~~recognized~~the onmarket approach require significant assumptions to determine the fair value of each reporting unit. The significant assumptions used in the income approach include estimates of our future revenues, profits, capital expenditures, working capital requirements, operating plans, industry data and other relevant factors. The significant assumptions utilized in the market approach include the determination of appropriate market comparables, the estimated multiples of revenue, EBIT and EBITDA a ~~monthly~~willing ~~basis~~buyer oris aslikely ~~procedures~~to ~~are~~pay, ~~performed~~and the estimated control premium a willing buyer is likely to pay.

• Fees for anatomical pathology services . We provide anatomical pathology services primarily to the urology community. Revenues from these services are recorded when the related laboratory procedures are performed.-21-

~~Recent~~Item ~~Developments~~2 We— ~~continue~~Management’s toDiscussion ~~look at strategic acquisition opportunities~~ and ~~believe~~Analysis ~~conditions in the market favor our strong financial position, national platform~~ of ~~urologist~~Financial ~~relationships,~~Condition and ~~diversification~~Results ~~within the urologist services space. On July 27, 2009, we completed our acquisition~~ of Endocare, pursuant to the Agreement and Plan of Merger (“Merger Agreement”), dated as of June 7, 2009, among us, HT Acquisition, Inc., a wholly-owned subsidiary of ours, and Endocare. Endocare is a medical device company focused on developing, manufacturing and selling cryoablation products which have the potential to assist physicians in improving and extending life by use in the treatment of cancer and other tumors. In accordance with the terms and conditions of the Merger Agreement, Endocare shareholders had the option to receive the following consideration for each share of Endocare common stock they owned: (i) $1.35 in cash, without interest, or (ii) 0.7764 of a share of our common stock, in each case subject to proration. In the acquisition, we paid approximately $4.2 million in cash and issued approximately 7.3 million shares of our common stock to acquire Endocare.Operations

A second critical accounting policy and estimate which requires judgment of management is the estimated allowance for doubtful accounts and contractual adjustments. We have based our estimates on historical collection amounts, current contracts with payors, current changes of the facts and circumstances relating to these matters and certain negotiations with related payors. A third critical accounting policy is consolidation of our investments in partnerships or limited liability companies (LLCs) where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The consolidated financial statements include our accounts, our wholly-~~22-~~owned subsidiaries, and entities more than 50% owned and limited partnerships or LLCs where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The related agreements provide us with broad powers. The other parties do not participate in the management of the entity and do not have the substantial ability to remove us. Investment in entities in which our investment is less than 50% ownership and we do not have significant control are accounted for by the equity method if ownership is between 20%–50%, or by the cost method if ownership is less than 20%. We have reviewed each of the underlying agreements and determined we have effective control; however, if it was determined this control did not exist, these investments would be reflected on the equity method of accounting. Although this would change individual line items within our consolidated financial statements, it would have no effect on our net income and/or total stockholders’ equity attributable to common shareholders. Three months ended March 31, 2010 compared to the three months ended March 31, 2009 Our total revenues for the three months ended March 31, 2010 increased $4,777,000 as compared to the same period in 2009 primarily driven by revenues of $4,386,000 from our new Endocare subsidiary. Revenues from our lithotripsy operations increased slightly in the first quarter of 2010 as compared to the same period in 2009, and revenues from our prostate business increased $1,604,000 in the first quarter of 2010 as compared to the same period in 2009. Prostate revenues from cryosurgery treatments increased $1,017,000 and, along with increased laser revenues of $403,000, were the primary driver of the total increase in prostate revenues for the quarter ended March 31, 2010 as compared to the same quarter in 2009. Lithotripsy procedure revenues on a same store basis in the first quarter of 2010 remained consistent with the same period in 2009. Manufacturing and consumable revenues for the period ended March 31, 2010 increased $2,564,000 from the same period in 2009. This increase is entirely driven by sales to external customers from our new Endocare subsidiary. Contract service revenues remained consistent in the first quarter of 2010 with the same period in 2009. Revenues from our laboratory operations increased $756,000 in the quarter ended March 31, 2010 over the same period in 2009. This increase primarily resulted from volume growth predominately at our Georgia location.

~~Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations~~-22-

~~Critical~~Item ~~Accounting~~2 ~~Policies~~— ~~and Estimates~~ Management has identified the following critical accounting policies and estimates: Impairments of goodwill and other intangible assets are both a critical accounting policy and estimate that require judgment and are based on assumptions of future operations. We are required to test for impairments at least annually or if circumstances change that would reduce the fair value of a reporting unit below its carrying value. We test for impairment of goodwill during the fourth quarter. Prior to 2009 we had two reporting units, urology services and medical products. The fair value of each reporting unit was estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. Because we have recognized goodwill based solely on our controlling interest, the fair value of each reporting unit also relates only to our controlling interest. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s ~~goodwill~~Discussion with the carrying value of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and ~~liabilities~~Analysis of ~~that~~Financial ~~unit~~Condition ~~as if the reporting unit had been acquired in a business combination~~ and ~~the~~Results ~~fair value~~ of the reporting unit was the purchase price paid to acquire the reporting unit. Both the income approach and the market approach require significant assumptions to determine the fair value of each reporting unit. The significant assumptions used in the income approach include estimates of our future revenues, profits, capital expenditures, working capital requirements, operating plans, industry data, and other relevant factors. The significant assumptions utilized in the market approach include the determination of appropriate market comparables, the estimated multiples of revenue, EBIT and EBITDA a willing buyer is likely to pay, and the estimated control premium a willing buyer is likely to pay. For a discussion of our 2008 and 2007 goodwill impairments and the specific assumptions used in the income and market approaches in the 2008 and 2007 analyses, see footnote C to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. A second critical accounting policy and estimate which requires judgment of management is the estimated allowance for doubtful accounts and contractual adjustments. We have based our estimates on historical collection amounts, current contracts with payors, current changes of the facts, and circumstances relating to these matters and certain negotiations with related payors. A third critical accounting policy is consolidation of our investments in partnerships or limited liability companies (“LLCs”) where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The consolidated financial statements include our accounts, our wholly-owned subsidiaries, and entities more than 50% owned and limited partnerships or LLCs where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The related governing agreements provide us with broad powers. The other parties do not participate in the management of the entity and do not have the substantial ability to remove us. Investment in entities in which our investment is less than 50% ownership and we do not have significant control are accounted for by the equity method if ownership is between 20%–50%, or by the cost method if ownership is less than 20%. We have reviewed each of the underlying agreements and determined we have effective control; however, if it was determined this control did not exist, these investments would be reflected on the equity method of accounting. Although this would change individual line items within our consolidated financial statements, it would have no effect on our net income and/or total stockholders’ equity.Operations

~~-23-~~Our cost of revenues increased $1,161,000 in the first quarter of 2010 as compared to the same period in 2009. The primary causes of this increase relate to the cost of revenues attributable to our new Endocare subsidiary, the costs from which totaled $424,000, growth in our lab operations, which had increased costs totaling $408,000 in the first quarter of 2010 as compared to the same period in 2009, and costs at our partnerships which increased $452,000 in 2010 as compared to the same quarter in 2009. The increase in partnership costs was approximately 2% and related primarily to compensation related expenses. Our selling, general and administrative costs for the quarter ended March 31, 2010 increased $1,761,000 over the same period in 2009. This increase was primarily driven by approximately $1,213,000 in increased costs for our new Endocare subsidiary sales and marketing efforts and $604,000 for increase sales and marketing efforts at our Lab in 2010 as compared with the same quarter in 2009. Net income attributable to noncontrolling interest for the three month period ended March 31, 2010 decreased $839,000 compared to the same period in 2009, primarily related to decreases in net income at our cryosurgical and laser partnerships, which were restructured in the fourth quarter of 2009 as a result of the new heathcare regulations. Provision for income taxes in the first quarter of 2010 was consistent with the income tax provision for the first quarter of 2009, in spite of increased pretax income. For the next several years, we will only be an alternative minimum tax payer as we will utilize our existing net operating loss carryforwards to offset any current taxes payable. Accordingly, we expect our effective tax rate and our provision for income taxes, relative to pretax income, in future periods to decrease as compared to 2009. Liquidity and Capital Resources Cash Flows Our cash and cash equivalents were $5,618,000 and $8,412,000 at March 31, 2010 and December 31, 2009, respectively. Beginning in 2009, our subsidiaries began distributing available cash on a monthly basis, after establishing reserves for estimated capital expenditures and working capital. Prior to 2009, they generally distributed all of their available cash quarterly, which lead to an accumulated cash balance at the end of each quarter. For the periods ended March 31, 2010 and 2009, our subsidiaries distributed cash of approximately $14,041,000 and $18,183,000, respectively, to noncontrolling interest holders.

~~Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations~~-23-

~~Nine~~Item months ended September 30, 2009 compared to the nine months ended September 30, 2008 Our total revenues for the nine months ended September 30, 2009 increased $13,746,000 as compared to the same period in 2008. Revenues from our lithotripsy business increased $1,292,000 for the first nine months of 2009 as compared to the same period in 2008, and revenues from our prostate business increased $3,414,000 for the first nine months of 2009 as compared to the same period in 2008. Prostate revenues from our AMPI operations were a significant driver of the increased prostate revenues in 2009, as we acquired AMPI in April 2008. Lithotripsy revenues on a same store basis in 2009 were consistent with revenues from the same period in 2008. Manufacturing and consumable revenues for the period ending September 30, 2009 increased $1,714,000 from the same period in 2008. This increase is entirely driven by sales to external customers from our new Endocare subsidiary. Contract service revenues increased $152,000 in the first nine months of 2009 over the same period in 2008. Revenues from our laboratory operations increased $3,330,000 for the nine months ended September 30, 2009 as compared to the same period in 2008. This increase resulted primarily from our Uropath operations, as we acquired Uropath in July 2008. Our IGRT operations resulted in $3,491,000 of increased revenues in 2009 primarily from our Ocean acquisition in late 2008. Our cost of revenues increased $10,758,000 (20%) in the first nine months of 2009 as compared to the same period in 2008. The primary causes of this increase relate to: 1) increased cost of revenues attributable to our AMPI and IGRT operations totaling $3,512,000 due to a full nine months of operations in 2009, 2) ~~increased~~— ~~costs related to our lab operations totaling $3,773,000 related primarily to a full nine months of Uropath activities, and 3) our new Endocare subsidiary~~Management’s ~~operations,~~Discussion the costs from which have totaled $4,347,000 since we acquired Endocare. Approximately $2.6 million of Endocare’s costs of revenue related to incremental cost of goods sold from our write up of Endocare’s inventory to fair value as part of our purchase accounting. Our selling, general and ~~administrative~~Analysis costs for the nine months ended September 30, 2009 increased $2,520,000 over the same period in 2008. This increase was primarily driven by acquisition costs related to our Endocare acquisition, which are now required to be expensed when incurred. Net income attributable to noncontrolling interest for the nine month period ended September 30, 2009 increased $1,161,000 compared to the same period in 2008, as a result of ~~increases~~Financial inCondition ~~income at our existing partnerships~~ and ~~from~~Results ~~having a full nine months~~ of ~~activity from our AMPI partnerships. Noncontrolling interest in our AMPI operations increased $794,000 in the first nine months of 2009 as compared to the same period in 2008.~~Operations

~~-24-~~Cash provided by our operating activities, after noncontrolling interest, was $16,311,000 for the period ended March 31, 2010 and $15,775,000 for the period ended March 31, 2009. From 2009 to 2010, fee and other revenue collected increased by $7,918,000 due primarily to increased revenues from our acquisitions as well as timing of the collections of accounts receivable. Cash paid to employees, suppliers of goods and others increased by $7,278,000 in 2010. This fluctuation is primarily attributable to increased operating expenses from our acquisitions and timing of payments, primarily related to certain Endocare related severance payments and our annual bonus program payments. Cash used by our investing activities for the three months ended March 31, 2010, was $1,305,000. We purchased equipment and leasehold improvements totaling $1,707,000 in the first quarter of 2010. Cash used by our investing activities for the period ended March 31, 2009, was $2,181,000. We purchased equipment and leasehold improvements totaling $2,214,000 in the first quarter of 2009. Cash used in our financing activities for the three months ended March 31, 2010, was $17,800,000, primarily due to distributions to noncontrolling interests of $14,041,000 and payments on notes payable of $5,665,000 partially offset by borrowings on notes payable of $1,784,000. Cash used in our financing activities for the three months ended March 31, 2009, was $22,677,000, primarily due to distributions to noncontrolling interests of $18,183,000 and payments on notes payable of $4,686,000 partially offset by borrowings on notes payable of $203,000. Accounts receivable as of March 31, 2010 has decreased $1,364,000 from December 31, 2009. This decrease relates primarily to the timing of collections. Inventory as of March 31, 2010 totaled $11,216,000 and decreased $1,282,000 from December 31, 2009. Senior Credit Facility In March 2005, we refinanced our then existing revolving credit facility with a $175 million senior credit facility comprised of a five year $50 million revolver due in March 2010 and a $125 million senior secured term loan B (“term loan B”), due 2011. This loan bore interest at a variable rate equal to LIBOR + 1.25 to 2.25% or prime + .25 to 1.25%. We repaid the term loan B in July 2006 in full. In April 2008, we increased the revolving line of credit from $50 million to $60 million. In December 2009, we amended and restated our senior credit facility. The amended and restated credit agreement extended the maturity date of the revolver to December 31, 2012, increased the borrowing rate, eliminated the interest coverage ratio covenant and replaced it with a fixed charge coverage ratio covenant, increased the dollar limit on stock repurchases by us from $10 million to $20 million (but making repurchases subject to our maintaining a total leverage ratio of 2.00 to 1.00), and other minor amendments. Except as described above, the terms of our original senior credit facility remain in effect under the amended and restated credit agreement.

~~Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations~~-24-

~~Provision~~Item for income taxes in the first nine months of 2009 increased $237,000 compared to the same period in 2008 although our taxable net income during the same periods significantly decreased. Our income tax expense for 2009 reflects $1,967,000 of expense even though we have a loss for financial statement purposes because we recorded a full valuation allowance for all deferred tax assets since we are in a cumulative loss position for the last three years due to non-cash goodwill impairments recorded in prior years. For the next several years, we will only be an alternative minimum tax payer as we will utilize our existing net operating loss carryforwards to offset any current taxes payable. Three months ended September 30, 2009 compared to the three months ended September 30, 2008 Our total revenues for the three months ended September 30, 2009 increased $2~~,512,000~~ as— ~~compared~~Management’s toDiscussion the same period in 2008 primarily driven by revenues of $2,675,000 from our new Endocare subsidiary. Revenues from our lithotripsy business decreased $409,000 (1%) for the third quarter of 2009 as compared to the same period in 2008, and ~~revenues~~Analysis ~~from our prostate business decreased $672,000 in the third quarter~~ of ~~2009~~Financial asCondition ~~compared to the same period in 2008. Prostate revenues from cryosurgery treatments decreased $470,000 for the quarter ended September 30, 2009~~ and ~~were~~Results ~~the primary driver~~ of the total decrease in prostate revenues in the quarter. Revenues from our cryo operations have been consistent for the last three quarters. Litho procedure revenues on a same store basis were down 2.6% in 2009 as compared to the same period in 2008. Manufacturing and consumable revenues for the period ended September 30, 2009 increased $1,802,000 from the same period in 2008. This increase is entirely driven by sales to external customers from our new Endocare subsidiary. Contract service revenues remained consistent in the third quarter of 2009 with the same period in 2008. Revenues from our laboratory operations increased $652,000 in the period ended September 30, 2009 over the same period in 2008. This increase resulted primarily from our Uropath operations, which had increased revenues of $520,000 in the third quarter of 2009 as compared with the same period in 2008. Our IGRT operations resulted in $1,116,000 of increased revenues in 2009 primarily from our Ocean acquisition in late 2008. Our cost of revenues increased $2,498,000 (12.5%) in the third quarter of 2009 as compared to the same period in 2008. The primary causes of this increase relate to the cost of revenues attributable to our new Endocare subsidiary, the costs from which totaled $4,347,000, our IGRT operations the costs from which increased $671,000, and our lab operations, which had increased costs totaling $634,000 in the third quarter of 2009, $722,000 of which was attributable to our new Uropath operations. Approximately $2.6 million of Endocare’s costs related to incremental cost of goods sold from our write up of Endocare’s inventory as part of our purchase accounting. Offsetting these increases, we had approximately $1,387,000 in cost savings in our cryosurgery operations primarily related to lower consumable costs, which is consistent with lower revenues, and significant synergies from eliminating duplicate AMPI corporate functions. Our selling, general and administrative costs for the quarter ended September 30, 2009 increased $2,690,000 over the same period in 2008. This increase was primarily driven by acquisition costs related to our Endocare acquisition, which are now required to be expensed when incurred, as well as approximately $1.5 million in increased costs for Endocare’s sales and marketing efforts.Operations

~~-25-~~As of March 31, 2010 we have drawn $40.5 million on the revolver. Our senior credit facility contains covenants that, among other things, limit our ability to incur debt, create liens, make investments, sell assets, pay dividends, make capital expenditures, make restricted payments, enter into transactions with affiliates, and make acquisitions. In addition, our facility requires us to maintain certain financial ratios. Our assets and the stock of our subsidiaries collateralize the revolving credit facility. We were in compliance with the covenants under our senior credit facility as of March 31, 2010. Other Other long term debt. As of March 31, 2010, we had notes totaling $4.3 million related to equipment purchased by our limited partnerships. These notes are paid from the cash flows of the related partnerships. They bear interest at either a fixed rate ranging from five to eight percent or LIBOR or prime plus a certain premium and are due over the next four years. Other long term obligations. At March 31, 2010, we had an obligation of $253,000 related to payments of $21,067 per month until June 2010, and then $10,534 per month until December 2011, as consideration for a noncompetition agreement with a previous employee of our Endocare division and an obligation totaling $13,000 related to payments of $3,333 per month until July 15, 2010 as consideration for a noncompetition agreement with a previous employee. General The following table presents our contractual obligations as of March 31, 2010 (in thousands):

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long term debt(1)	$	44,826	$	1,931	$	42,396	$	113	$	386
Operating leases (2)		10,231		2,974		4,242		2,519		496

Other contracts (3)		266		171		95		--		--

Total	$	55,323	$	5,076	$	46,733	$	2,632	$	882

Net income attributable to noncontrolling interest for the three month period ended September 30, 2009 decreased $1,080,000 compared to the same period in 2008, primarily related to a decrease in income at one of our existing partnerships combined with repurchases of noncontrolling interests. Provision for income taxes in the third quarter of 2009 increased $459,000 compared to the same period in 2008 although our taxable net income during the same periods significantly decreased. Our income tax expense for 2009 reflects $1,348,000 of expense even though we have a loss for financial statement purposes because we recorded a full valuation allowance for all deferred tax assets since we are in a cumulative loss position for the last three years due to non-cash goodwill impairments recorded in prior years. For the next several years, we will only be an alternative minimum tax payer as we will utilize our existing net operating loss carryforwards to offset any current taxes payable. Liquidity and Capital Resources Cash Flows Our cash and cash equivalents were $11,154,000 and $22,854,000 at September 30, 2009 and December 31, 2008, respectively. Beginning in 2009, our subsidiaries began distributing available cash on a monthly basis, after establishing reserves for estimated capital expenditures and working capital. Prior to 2009, they generally distributed all of their available cash quarterly, which lead to an accumulated cash balance at the end of each quarter. For the periods ended September 30, 2009 and 2008, our subsidiaries distributed cash of approximately $47,103,000 and $42,797,000, respectively, to noncontrolling interest holders. Cash provided by our operating activities, after noncontrolling interest, was $44,312,000 for the period ended September 30, 2009 and $51,305,000 for the period ended September 30, 2008. From 2008 to 2009, fee and other revenue collected increased by $15,042,000 due primarily to increased revenues from our acquisitions as well as timing of the collections of accounts receivable. Cash paid to employees, suppliers of goods and others increased by $11,542,000 in 2009. This fluctuation is primarily attributable to increased operating expenses from our acquisitions and timing of payments. Cash paid for acquisition related costs totaled $9,922,000 in 2009, primarily related to our Endocare acquisition. Per ASC No. 805, Business Combinations (“ASC 805”), (formerly SFAS 141R, Business Combinations), these acquisition related costs are now included in operating activities beginning January 1, 2009. In prior years, prior to the implementation of ASC 805, these costs were included in purchase of entities which is an investing activity. Cash used by our investing activities for the nine months ended September 30, 2009, was $8,792,000. We purchased equipment and leasehold improvements totaling $5,712,000 in the first nine months of 2009. We used $3,427,000 to acquire Endocare and certain smaller acquisitions. Cash used by our investing activities for the period ended September 30, 2008, was $17,513,000. We used approximately $17 million to acquire our interest in AMPI and Uropath, as well as increase other partnership interests in certain litho partnerships. In addition, we purchased equipment and leasehold improvements totaling $8,762,000 in 2008, $3.1 million of which were for additional Revolix lasers.


	(1)	Represents long term debt as discussed above.
	(2)	Represents operating leases in the ordinary course of our business.
	(3)	Represents non-compete obligations of $266, as described above.

-2625-

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

Cash used in our financing activities for the nine months ended September 30, 2009, was $47,220,000, primarily due to distributions to noncontrolling interests of $47,103,000 and payments on notes payable of $10,144,000 partially offset by borrowings on notes payable of $12,672,000. Cash used in our financing activities for the nine months ended September 30, 2008, was $40,556,000, primarily due to distributions to noncontrolling interests of $42,797,000 and payments on notes payable of $10,561,000 partially offset by borrowings on notes payable of $13,547,000. Accounts receivable as of September 30, 2009 has increased $3,602,000 from December 31, 2008. This increase relates primarily to our Endocare acquisition, which increased accounts receivable by approximately $2.7 million, and approximately $1 million increase at our Uropath and Claripath labs related to significant growth across our lab operations. Inventory as of September 30, 2009 totaled $13,382,000 and increased $4,539,000 from December 31, 2008, entirely related to our Endocare acquisition. Senior Credit Facility Our senior credit facility is comprised of a five-year $60 million revolving line of credit due March 2010 and a $125 million senior secured term loan B due 2011. We entered into this senior credit facility in March 2005 and amended it in April and October 2008. The loan bears interest at a variable rate equal to LIBOR + 1.25 to 2.25% or prime + .25 to 1.25%. On July 31, 2006, we used a portion of the proceeds from the sale of our specialty vehicle manufacturing segment to repay the term loan B in full. As of September 30, 2009, we had drawn $44 million on the revolver. Although we plan to either extend the maturity date of our senior credit facility or enter into a new credit facility prior to its maturity in March 2010, we have reflected all amounts outstanding as current in the accompanying condensed consolidated balance sheet. Our senior credit facility contains covenants that, among other things, limit our ability to incur debt, create liens, make investments, sell assets, pay dividends, make capital expenditures, make restricted payments, enter into transactions with affiliates, and make acquisitions. In addition, ~~our facility requires us to maintain certain financial ratios. We were in compliance with~~ the ~~covenants~~scheduled ~~under~~principal ~~our~~repayments ~~senior~~for ~~credit~~all ~~facility as of September 30, 2009. Other Other~~ long term debt. As of September 30, 2009, we had notes totaling $5 million related to equipment purchased by our limited partnerships. These notes are paid from the cash flows of the related partnerships. They bear interest at either a fixed rate ranging from five to nine percent or LIBOR or prime plus a certain premium and are due over the next four years. Other long term obligations. At September 30, 2009, we had an obligation totaling $30,000 related to payments of $3,333 a month until June 15, 2010 as ~~consideration for a noncompetition agreement with a previous employee. As part~~ of ~~our~~March ~~acquisition of Endocare in July of 2009~~31, ~~we had an obligation totaling $316,000 related to payments of $10,533 a month from January~~ 2010 ~~through~~are ~~December~~payable ~~2011~~ as ~~consideration for a consulting and noncompetition agreement.~~follows:

-27-

($ in thousands)
2010	$	1,931
2011		1,188
2012		41,208
2013		77
2014		36
Thereafter		386

Total	$	44,826

~~Item~~Our 2primary —sources ~~Management’s~~of ~~Discussion~~cash are cash flows from operations and ~~Analysis~~borrowings under our senior credit facility. Our cash flows from operations and therefore our ability to make scheduled payments of ~~Financial~~principal, ~~Condition~~or to pay the interest on, or to refinance, our indebtedness, or to fund planned capital expenditures, will depend on our future performance, which is subject to general economic, financial competitive, legislative, regulatory and ~~Results~~other factors discussed under “Risk Factors” under Part I of ~~Operations~~our 2009 Annual Report on Form 10-K. Likewise, our ability to borrow under our senior credit facility will depend on these factors, which will affect our ability to comply with the covenants in our facility and our ability to obtain waivers for, or otherwise address, any noncompliance with the terms of our facility with our lenders. We intend to increase our urology services operations primarily through forming new operating partnerships in new markets, expanding our IGRT customer base and by acquisitions. We seek opportunities to grow our operations by expanding our anatomical pathology lab operations and acquisitions. We intend to fund the purchase price for future acquisitions and developments using borrowings under our senior credit facility and cash flows from our operations. In addition, we may use shares of our common stock in such acquisitions where we deem appropriate. Based upon the current level of our operations and anticipated cost savings and revenue growth, we believe that cash flows from our operations and available cash, together with available borrowings under our senior credit facility, will be adequate to meet our future liquidity needs both for the short term and for at least the next several years. However, there can be no assurance that our business will generate sufficient cash flows from operations, that we will realize our anticipated revenue growth and operating improvements or that future borrowings will be available under our senior credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. Inflation Our operations are not significantly affected by inflation because we are not required to make large investments in fixed assets. However, the rate of inflation will affect certain of our expenses, such as employee compensation and benefits.

On November 8, 2005, Endocare entered into a commercialization agreement with CryoDynamics, LLC to design and develop a cryoablation system utilizing nitrogen gas. The parties will jointly own all inventions made or conceived by CryoDynamics in performing the commercialization agreement. To assist CryoDynamics in its research and development efforts, Endocare advances CryoDynamics $42,500 per month until such time as either party enters into a license agreement based upon the nitrogen system with an independent third party that results in CryoDynamics receiving an amount sufficient to repay the advances and fund CryoDynamics’ monthly operating expenses of $42,500. The commercialization agreement will continue until the later of (a) December 31, 2015, or (b) expiration of the parties’ obligations to pay royalties or until the commercialization agreement is terminated because of breach, insolvency or bankruptcy. Since repayment of amounts advanced under the commercialization agreement is contingent upon the successful development, commercialization and licensing of the technology and is not reasonably assured, these advances are expensed as incurred. General The following table presents our contractual obligations as of September 30, 2009 (in thousands):-26-

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long term debt(1)	$	49,027	$	46,958	$	1,665	$	19	$	385
Operating leases (2)		10,438		2,452		4,149		2,770		1,067
Other contracts (3)		3,024		698		1,178		1,020		128
Total	$	62,489	$	50,108	$	6,992	$	3,809	$	1,580

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

	(1)	Represents long term debt as discussed above.
	(2)	Represents operating leases in the ordinary course of our business.
	(3)	Represents non-compete obligations of $346 and payments due per the terms of a commercialization agreement totaling $2,678, as described above.

Recently Issued Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more disaggregation for the different types of financial instruments. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. We did not have any significant transfers in or out of Level 1 and Level 2 fair value measurements during the three months ended March 31, 2010 and 2009.

In October 2009, the FASB updated FASB Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) that amended the criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third–party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.

In June 2009, the FASB issued accounting guidance contained within ASC 810, Consolidation (“ASC 810”), regarding the consolidation of variable interest entities (formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). ASC 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods beginning after November 15, 2009. Our adoption of this ASC on January 1, 2010 had no material impact on our consolidated financial statements.

In June 2009, the FASB issued ASC 860, Transfers and Servicing (“ASC 860”), (formerly SFAS No. 166, Accounting for Transfers of Financial Assets). ASC 860 requires more information about transfers of financial assets and where companies have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods beginning after November 15, 2009. We adopted this standard on January 1, 2010. The adoption of this standard had no material impact on our financial statements.

~~In addition, the scheduled principal repayments for all long term debt as of September 30, 2009 are payable as follows:~~-27-

($ in thousands)
2010	$	46,958
2011		1,266
2012		399
2013		19
2014		-
Thereafter		385
Total	$	49,027

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

~~-28-~~In May 2009, the FASB issued ASC 855, Subsequent Events (“ASC 855”), (formerly SFAS No. 165, Subsequent Events). ASC 855 should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply to both interim financial statements and annual financial statements. The objective of ASC 855 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and, 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009. We adopted ASC 855 during the second quarter of 2009 and its application did not affect our consolidated financial position, results of operations, or cash flows. We evaluated subsequent events through the date the accompanying financial statements were issued.

~~Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations~~-28-

~~Our~~Item ~~primary~~3 sources of cash are cash flows from operations and borrowings under our senior credit facility which is due in March 2010. Our cash flows from operations and therefore our ability to make scheduled payments of principal, or to pay the interest on, or to refinance, our indebtedness, or to fund planned capital expenditures, will depend on our future performance, which is subject to general economic, financial competitive, legislative, regulatory, and other factors discussed under “Risk Factors” in our most recent Annual Report on Form 10-K. Likewise, our ability to borrow under our senior credit facility will depend on these factors, which will affect our ability to comply with the covenants in our facility and our ability to obtain waivers for, or otherwise address, any noncompliance with the terms of our facility with our lenders. We intend to increase our urology services operations primarily through forming new operating partnerships in new markets, expanding our IGRT customer base, and by acquisitions. We seek opportunities to grow our medical products operations by expanding our anatomical pathology lab operations and acquisitions. We plan to strengthen cryoablation’s position in the prostate and renal cancer markets, and further develop and increase the acceptance of our technology in the interventional radiology and oncology markets for treatment of liver and lung cancers and palliative intervention (treatment of pain associated with metastases). At the same time, we seek to achieve penetration across additional markets with our proprietary cryoablation technology. We intend to fund the purchase price for future acquisitions and developments using borrowings under our senior credit facility and cash flows from our operations. In addition, we may use shares of our common stock in such acquisitions where we deem appropriate. Based upon the current level of our operations and anticipated cost savings and revenue growth, we believe that cash flows from our operations and available cash, together with available borrowings under our senior credit facility, will be adequate to meet our future liquidity needs both for the short term and for at least the next several years. However, there can be no assurance that our business will generate sufficient cash flows from operations, that we will realize our anticipated revenue growth and operating improvements or that future borrowings will be available under our senior credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. Inflation Our operations are not significantly affected by inflation because we are not required to make large investments in fixed assets. However, the rate of inflation will affect certain of our expenses, such as employee compensation and benefits. Recently Issued Accounting Pronouncements In October 2009, the FASB updated FASB ASC 605, Revenue Recognition (“ASC 605”) that amended the criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third–~~party~~ ~~evidence~~Quantitative if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will eliminate the residual method of allocation and ~~require~~Qualitative ~~that~~Disclosures ~~arrangement~~About ~~consideration~~Market be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.Risk

~~-29-~~Interest Rate Risk

~~Item~~As of March 31, 2010, we had long-term debt (including current portion) totaling $44,826,000, of which $2,361,000 —had ~~Management’s~~fixed ~~Discussion~~rates of 5% to 8%, and ~~Analysis~~$42,465,000 ofincurred ~~Financial~~interest ~~Condition~~at a variable rate equal to a specified prime rate. We are exposed to some market risk due to the remaining floating interest rate debt totaling $42,465,000. We make monthly or quarterly payments of principal and ~~Results~~interest on $1,735,000 of ~~Operations~~the floating rate debt. An increase in interest rates of 1% would result in a $425,000 annual increase in interest expense on this existing principal balance.

In June 2009, the FASB issued Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles (“ASC 105”), (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles). ASC 105 establishes the FASB ASC as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”). The standard is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 did not have a material impact on our financial statements. In June 2009, the FASB issued accounting guidance contained within ASC 810, Consolidation (“ASC 810”), regarding the consolidation of variable interest entities (formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). ASC 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009. The adoption of this standard is not expected to have a material impact on our financial statements. In June 2009, the FASB issued ASC 860, Transfers and Servicing (“ASC 860”), (formerly SFAS No. 166, Accounting for Transfers of Financial Assets). ASC 860 requires more information about transfers of financial assets and where companies have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods ending after November 15, 2009. We will adopt this standard on January 1, 2010. The adoption of this standard is not expected to have a material impact on our financial statements. In May 2009, the FASB issued ASC No. 855, Subsequent Events (“ASC 855”), (formerly SFAS No. 165, Subsequent Events). ASC 855 should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply to both interim financial statements and annual financial statements. The objective of ASC 855 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009. We adopted ASC 855 during the second quarter of 2009 and its application did not affect our consolidated financial position, results of operations, or cash flows. We evaluated subsequent events through the date the accompanying financial statements were issued, which was November 4, 2009.-29-

~~-30-~~Item 4 – Controls and Procedures

~~Item~~As 2of —March ~~Management’s~~31, ~~Discussion~~2010, under the supervision and ~~Analysis~~with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial ~~Condition~~Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and ~~Results~~procedures (as defined under Rule 13a-15(e) of ~~Operations~~the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2010, our disclosure controls and procedures were effective. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

~~In April 2009, the FASB issued ASC 825, Financial Instruments (“ASC 825”), (formerly FASB Staff Position 107~~-1, Interim Disclosures about Fair Value of Financial Instruments ). ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods beginning after March 15, 2009. The adoption of this ASC did not affect our consolidated financial position, results of operations, or cash flows. In June 2008, the FASB issued ASC 260, Earnings Per Share (“ASC 260”), (formerly FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ). ASC 260 concluded that instruments containing rights to nonforfeitable dividends granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing basic earnings per share (EPS) under the two-class method. This ASC is effective for financial statements issued for fiscal years beginning after December 15, 2008, with prior period retrospective application. Our adoption of this ASC on January 1, 2009 had no material impact on our consolidated financial statements. In April 2008, the FASB issued ASC 350-30~~, General Intangibles Other Than Goodwill (”ASC 350~~-30“), (formerly FSP No. 142-3, Determination of the Useful Life of Intangible Assets ). ASC 350-30 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of ASC 350-30 did not have a material impact on our financial position or results of operations. In December 2007, the FASB issued ASC No. 805, Business Combinations (”ASC 805“), (formerly SFAS 141R, Business Combinations ). ASC 805 will significantly change current practices regarding business combinations. Among the more significant changes, ASC 805 expands the definition of a business and a business combination; requires the acquirer to recognize the assets acquired, liabilities assumed and noncontrolling interests (including goodwill), measured at fair value at the acquisition date; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination; and requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset. ASC 805 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The impact of adopting ASC 805 will continue to be dependent on the future business combinations that we may pursue after its effective date. We expensed approximately $1.2 million in the third quarter of 2009 and approximately $1.9 million year to date in 2009, of costs related to acquisitions.

~~-31-~~PART II OTHER INFORMATION

~~Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations~~-31-

In December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation (“ASC 810-10-65”), (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements ) regarding noncontrolling interests. ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of ASC 810-10-65 revised our presentation of consolidated financial statements and further impact will continue to be dependent on our future changes in ownership in subsidiaries after the effective date.

-32-

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

As of September 30, 2009, we had long-term debt (including current portion) totaling $49,027,000, of which $4,243,000 had fixed rates of 5% to 9%, and $44,784,000 incurred interest at a variable rate equal to a specified prime rate. We are exposed to some market risk due to the remaining floating interest rate debt totaling $44,784,000. We make monthly or quarterly payments of principal and interest on $151,000 of the floating rate debt. An increase in interest rates of 1% would result in a $448,000 annual increase in interest expense on this existing principal balance.

-33-

Item 4 – Controls and Procedures

As of September 30, 2009, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2009, our disclosure controls and procedures were effective. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

-34-

PART II OTHER INFORMATION

-35-

Item 1A. Risk Factors.

InExcept as provided below, in addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in Part I, Item 1 in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009, which could materially affect our business, financial condition or future results. There are no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, ~~2008,~~2009. ~~except~~U.S. ~~for~~healthcare ~~the~~reform ~~following~~could ~~additional~~adversely ~~risk~~affect ~~factors~~our ~~resulting~~business, ~~from~~revenues, ~~our~~and ~~acquisition~~results of ~~Endocare:~~operations. IfIn weMarch ~~fail~~2010, tothe ~~obtain~~U.S. orCongress ~~maintain~~adopted ~~necessary~~and ~~regulatory~~President ~~clearances~~Obama orsigned ~~approvals~~into ~~for~~law ~~the~~comprehensive ~~medical~~healthcare ~~products~~reform welegislation ~~manufacture,~~through orthe ifpassage ~~approvals~~of ~~are~~the ~~delayed~~Patient orProtection ~~withdrawn,~~and weAffordable ~~will~~Health beCare ~~unable~~Act to(H.R. ~~commercially~~3590) ~~distribute~~ and ~~market~~the ~~our~~Health ~~products~~Care orand ~~any~~Education ~~product~~Reconciliation ~~modifications~~Act (H.R. ~~Government~~4872). ~~regulation~~This ~~has~~legislation ais ~~significant~~far-reaching ~~impact~~and onis ~~our~~intended ~~business.~~to ~~Government~~expand ~~regulation~~access into ~~the~~health ~~United~~insurance ~~States~~coverage ~~and~~over ~~other~~time. ~~countries~~The islegislation aalso ~~significant~~places ~~factor~~new ~~affecting~~regulations on the ~~research~~health ~~and~~insurance ~~development,~~sector ~~manufacture~~including guaranteed coverage requirements and ~~marketing~~increased ofrestrictions ~~the~~on ~~products~~rescinding weinsurance ~~manufacture~~coverage. In ~~the United States~~addition, the ~~Food~~legislation ~~and~~changes ~~Drug~~the ~~Administration~~way ~~(the~~healthcare ~~“FDA”)~~is ~~has~~financed ~~broad~~by ~~authority~~both ~~under~~government ~~the~~and ~~Federal~~private ~~Food~~insurers, ~~Drug~~including ~~and~~payment ~~Cosmetic~~reforms ~~Act~~that ~~(the~~may ~~“FD&C~~establish ~~Act”)~~payments to ~~regulate~~hospitals ~~the~~and ~~development,~~physicians ~~distribution,~~based ~~manufacture~~in ~~and~~part ~~sale~~on ofquality ~~medical devices~~measures. ~~Foreign~~While ~~sales~~many of ~~drugs~~the ~~and~~provisions ~~medical~~of ~~devices~~the ~~are~~legislation ~~subject~~will tonot ~~foreign~~apply ~~governmental~~directly ~~regulation~~to ~~and restrictions~~us, ~~which~~they ~~vary~~will ~~from~~affect ~~country~~the tophysicians, ~~country.~~hospitals, ~~The~~and ~~process~~payors ofthat ~~obtaining~~we ~~FDA~~have ~~and~~relationships ~~other~~with. ~~required~~In ~~regulatory~~addition, ~~clearances~~the ~~and~~legislation ~~approvals~~imposes ~~(collectively,~~a ~~“regulatory~~2.3% ~~approvals”)~~excise istax ~~lengthy~~on ~~and~~domestic ~~expensive.~~sales Weof ~~may~~medical ~~not~~devices befollowing ~~able~~December to31, ~~obtain~~2012. orThe ~~maintain~~legislation ~~necessary~~may ~~regulatory~~also ~~approvals~~have ~~for~~an ~~clinical~~impact ~~testing~~on orour costs for the ~~manufacturing~~provision ~~or marketing~~ of ~~the~~group ~~medical~~health ~~products~~insurance weto ~~manufacture~~our employees. ~~Failure~~Various tohealthcare ~~comply~~reform ~~with~~proposals ~~applicable~~have ~~regulatory~~also ~~approvals~~been ~~can,~~proposed ~~among~~at ~~other~~the ~~things,~~state ~~result~~level. inWe ~~fines,~~cannot ~~suspension~~predict orwith ~~withdrawal~~certainty ofwhat ~~regulatory~~healthcare ~~approvals~~reform, ~~product~~if ~~recalls~~any, ~~operating~~will ~~restrictions~~be ~~and~~implemented ~~criminal~~at ~~prosecution.~~the Instate ~~addition~~level, ~~new~~ or ~~additional~~what ~~governmental~~the ~~regulations~~ultimate ~~may~~effect beof ~~established~~federal ~~that~~healthcare ~~could~~reform ~~prevent,~~or ~~delay,~~any ~~modify~~future legislation or ~~rescind~~regulation ~~regulatory~~will ~~approval~~have ofon ~~our medical products~~us. ~~Any~~However, ofthis ~~these~~healthcare ~~actions~~reform bylegislation ~~the~~and ~~FDA~~any orfuture ~~foreign~~legislation ~~regulatory~~may ~~authority,~~lower orreimbursements ~~change~~for inour ~~FDA~~products ~~regulations~~and orservices, ~~those~~reduce ~~of a foreign regulatory authority~~treatments, ~~could~~and ~~have~~adversely aaffect ~~material adverse effect on~~ our business, ~~financial~~revenues ~~condition,~~and results of operations, ~~and~~possibly ~~cash flows~~materially. ~~Regulatory~~As ~~approvals,~~discussed ifunder ~~granted,~~“Recent ~~may~~Developments” ~~include~~in ~~significant~~Management’s ~~limitations~~Discussion onand ~~the~~Analysis ~~indicated~~of ~~uses~~Financial ~~for~~Condition ~~which~~and ~~the~~Results ~~medical~~of ~~products~~Operations wein ~~manufacture~~this ~~may~~Form be10-Q, ~~marketed.~~on InMay ~~addition~~5, to2010 ~~obtain~~we ~~such~~entered ~~regulatory~~into ~~approvals,~~an ~~the~~agreement ~~FDA~~ and ~~foreign~~plan ~~regulatory~~of ~~authorities~~merger ~~may~~with ~~impose~~Endo ~~numerous~~Pharmaceuticals ~~other~~Holdings, ~~requirements~~Inc. onpursuant ~~us.~~to ~~FDA~~which ~~enforcement~~Endo ~~policy~~(through ~~prohibits~~a ~~the~~wholly-owned ~~marketing~~merger ofsubsidiary) ~~approved~~will ~~medical~~conduct ~~devices~~a ~~for~~cash ~~unapproved~~tender ~~uses.~~offer Infor ~~addition,~~all ~~regulatory~~outstanding ~~approvals~~shares ~~can~~of beour ~~withdrawn~~common stock for ~~failure~~$4.85 toper ~~comply~~share. ~~with~~The ~~regulatory~~tender ~~standards~~offer, orif assuccessful, awill ~~result~~be offollowed ~~unforeseen~~by ~~problems~~a ~~following~~merger ~~initial~~of ~~marketing.~~the WeEndo ~~may~~merger ~~not~~subsidiary beinto ~~able~~us, toand ~~obtain~~we orwill ~~maintain~~continue ~~regulatory~~as ~~approvals~~a ~~for~~wholly-owned ~~our~~subsidiary ~~products~~of onEndo. aIn ~~timely~~the ~~basis~~merger, orthose atshares ~~all,~~not ~~and~~tendered ~~delays~~ in ~~receipt~~the oftender oroffer ~~failure~~(other tothan ~~receive~~shares ~~such~~held ~~regulatory~~by ~~approvals~~us, Endo, the ~~loss~~Endo ofmerger ~~previously~~subsidiary, ~~obtained~~or ~~regulatory~~shareholders ~~approvals~~who orhave ~~failure~~validly toexercised ~~comply~~their ~~with~~appraisal ~~existing~~rights orunder ~~future~~Georgia ~~regulatory~~law) ~~requirements~~will ~~could~~be ~~have~~cancelled aand ~~material~~automatically ~~adverse~~converted ~~effect~~into onthe ~~our~~right ~~business,~~to ~~financial~~receive ~~condition,~~$4.85 ~~results~~per ofshare ~~operations~~in ~~and~~ cash ~~flows~~. ~~Our~~The ~~manufactured~~tender ~~medical~~offer ~~products~~and the merger may not be ~~subject~~completed. toIf ~~product~~the ~~recalls~~tender ~~even~~offer ~~after~~and ~~receiving~~the ~~FDA~~merger ~~clearance~~are ornot ~~approval~~completed, ~~which would harm~~ our ~~reputation~~stock price and ~~our~~future business. ~~The FDA~~ and ~~similar~~operations ~~governmental~~could ~~authorities~~be inharmed. ~~other~~The ~~countries~~completion ~~have~~of the ~~authority~~tender tooffer ~~request~~is ~~and,~~subject into ~~some cases, require~~ the ~~recall~~satisfaction or ~~similar~~waiver ~~actions for the medical products we manufacture in the event~~ of ~~material~~certain ~~deficiencies or defects in design~~conditions, ~~manufacture~~including ora ~~labeling~~minimum orof in the ~~event~~majority of ~~patient~~outstanding ~~injury.~~shares Aon ~~governmental~~a ~~mandated~~fully-diluted orbasis ~~voluntary~~having ~~recall~~been bytendered usinto ~~could~~the ~~occur~~tender ~~as a result of component failures~~offer, ~~manufacturing~~the ~~errors~~expiration or ~~design~~termination ~~defects. Any recall~~ of ~~product~~the ~~would~~waiting ~~divert~~period ~~managerial~~under ~~and~~the ~~financial~~Hart ~~resources~~Scott ~~and~~Rodino ~~harm~~Antitrust ~~our~~Improvements ~~reputation~~Act, ~~with customers~~ and ~~our~~other ~~business,~~customary ~~impact~~conditions. ~~our~~If ~~ability~~any toof ~~distribute~~these ~~the~~conditions ~~recalled~~are ~~product~~not insatisfied ~~the~~or ~~future~~waived, ~~require~~the ~~costly~~tender ~~redesign~~offer ~~or manufacturing changes~~ and ~~leave~~the usmerger ~~vulnerable~~may tonot ~~additional~~be ~~regulatory sanctions and product liability litigation~~completed.

-3632-

~~The~~If ~~risks~~the ~~described~~tender inoffer ~~our Annual Report on Form 10-K~~ and ~~above are not~~ the ~~only~~merger ~~risks~~are ~~facing us. Additional risks and uncertainties~~ not ~~currently~~completed ~~known~~for toany usreason, ~~or that~~ we ~~currently~~may ~~deem to~~ be ~~immaterial~~subject ~~also~~to ~~may~~a ~~materially~~number ~~adversely~~of ~~affect our business~~risks, ~~financial~~including ~~condition~~the ~~and/or operating results.~~following:

~~Item~~• 2.we ~~Unregistered~~may ~~Sales~~be required to pay a termination fee of ~~Equity~~$8 ~~Securities~~million ~~and~~upon ~~Use~~termination of ~~Proceeds~~the merger agreement in certain circumstances; • the price of our common stock may decline; and • costs related to the tender offer and the merger must be paid even if the tender offer and the merger are not completed.

On September 25, 2009, we acquired US Surgical Services, LLC (“US Surgical”) for $400,000 in cash and an earn-out provision pursuant to which we could issue up to $1,350,000 in shares of our common stock. The ~~actual~~completion ~~number~~ of ~~shares issued, if any, cannot be determined until it is determined whether~~ the ~~earn-out~~tender ~~provision~~offer ~~requirements~~may ~~are~~adversely ~~met.~~affect ~~Randy Wheelock, who is~~ the ~~brother~~liquidity of Argil Wheelock, one of the members of our Board of Directors, was one of the two 50% owners of US Surgical. Thus, in exchange for his 50% ownership interest in US Surgical, Randy Wheelock was paid $200,000 in cash and ~~will~~value ~~be entitled to 50%~~ of any earn-out consideration paid. In addition, in connection with this acquisition, we entered into a consulting agreement with Randy Wheelock pursuant to which he will provide consulting services to us for 15 months following closing in exchange for a payment of $10,000 per month. On September 30, 2009, in connection with our acquisition of INnMED, LLC, we entered into consulting agreements with the ~~two principals of INnMED pursuant to which we agreed to pay each of them up to 93,073~~ shares ofnot ~~our common stock (in addition to cash) in exchange for consulting services~~tendered. ~~The~~If ~~actual number of shares issued cannot be determined until~~ the ~~requirements~~tender ofoffer ~~such consulting services payment are met. The issuance~~ is ~~exempt~~completed ~~from~~but ~~registration~~all ~~under~~shares ~~the~~are ~~Securities~~not ~~Act~~tendered ~~of 1933~~ in ~~reliance on Section 4(2) and Rule 506 of~~ the ~~Securities~~tender ~~Act of 1933. On October 6~~offer, ~~2008,~~the ~~our~~number ~~Board~~ of ~~Directors~~shareholders ~~authorized~~and the ~~repurchase~~number of upshares topublicly ~~$10~~held ~~million of our common stock. We anticipate that the stock~~ will be ~~repurchased~~greatly ~~through privately-negotiated transactions or on the open market~~reduced. WeAs ~~intend~~a toresult, ~~comply with~~ the ~~SEC’s~~closing ~~Rule~~of ~~10b-18 and~~ the ~~repurchases~~tender ~~will~~offer becould ~~subject~~adversely toaffect ~~market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase shares under~~ the ~~program~~liquidity and ~~our~~market ~~Board~~value of ~~Directors may suspend or terminate~~ the ~~program~~remaining atshares ~~any~~held ~~time. The repurchase program has no expiration date. We have no repurchase plans or programs that expired during the period covered~~ by the ~~above table and we have no repurchase plans or programs that we intend to terminate prior to expiration or under which we no longer intend to make further purchases~~public.

-37-Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Issuer Purchases of Equity Securities (a)

Period			Average Price Paid Per Share

Month 1 (1/1/2010 – 1/31/2010)	7,440	^(b)	$	2.48	--
Month 2 (2/1/2010 – 2/28/2010)	--		$	--	--
Month 3 (3/1/2010 – 3/31/2010)	7,914	^(b)	$	3.37	--
Total	15,354		$	2.94	--	6,260,000


	(a)	On October 6, 2008, our Board of Directors authorized the repurchase of up to $10 million of our common stock. We anticipate that the stock will be repurchased through privately-negotiated transactions or on the open market. We intend to comply with the SEC’s Rule 10b-18, and the repurchases will be subject to market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase shares under the program, and our Board of Directors may suspend or terminate the program at any time. The repurchase program has no expiration date. We have no repurchase plans or programs that expired during the period covered by the above table, and we have no repurchase plans or programs that we intend to terminate prior to expiration or under which we no longer intend to make further purchases.

-33-

(b)

Represents shares used by 9 employees to pay their federal tax withholding obligation related to the vesting of certain restricted stock awards in January and March 2010.

Item 6. Exhibits.

10.1* 10.2* 31.1* 31.2* 32.1* 32.2* Executive Employment Agreement, effective July 30, 2009, by and between HealthTronics, Inc. and Clint B. Davis. Second Amendment to Lease Agreement, dated as of August 20, 2009, between HEP-Davis Spring, L.P. as landlord and HealthTronics, Inc. as tenant. Certification of Chief Executive Officer Certification of Chief Financial Officer Certification of Chief Executive Officer Certification of Chief Financial Officer

* Filed herewith.

-3834-

SIGNATURES

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

Date: ~~November~~May 610, ~~2009~~2010 HEALTHTRONICS, INC. By: /s/ Richard A. Rusk Richard A. Rusk Chief Financial Officer

-3935-

PART I

FINANCIAL INFORMATION

Item 1 - Financial Statements

1. General

2. Debt

3. Earnings per share

HEALTHTRONICS, INC4. ANDStock-Based SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009 (Unaudited)Compensation

5. Stock-Based CompensationInventory

6. InventoryNew Pronouncements

7. New PronouncementsAcquisitions

HEALTHTRONICS, INC8. ANDFair SUBSIDIARIESValue NOTESof TOFinancial CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009 (Unaudited)Instruments

8. Acquisitions

-16-9. Variable Interest Entities

10. Subsequent Events

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 1A. Risk Factors.

-37-Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Issuer Purchases of Equity Securities (a)

Item 6. Exhibits.

SIGNATURES

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

Filing Compare · HEALTHTRONICS, INC.