UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, ~~2014~~2015

o	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 000-52836

DR. TATTOFF, INC.

(Exact name of registrant as specified in its charter)

Florida		20-0594204
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

8500 Wilshire Blvd, Suite 105

Beverly Hills, California 90211

(Address of principal executive office)

(310) 659-5101

(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 o

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

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No xNox

The number of shares of the registrant’s common stock, $0.0001 par value, outstanding as of ~~November1~~May 1, ~~2014~~2015 was 21,~~338~~044,~~730~~950.

DR. TATTOFF, INC.

Quarterly Report on Form 10-Q

~~September~~March 3031, ~~2014~~2015

Part I.	FINANCIAL INFORMATION	Page
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
ITEM 4.	CONTROLS AND PROCEDURES	30
Part II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	31
ITEM 1A.	RISK FACTORS	31
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	31
ITEM 4.	MINE SAFETY DISCLOSURES	31
ITEM 5.	OTHER INFORMATION	31
ITEM 6.	EXHIBITS	32
SIGNATURES		32
Index to Exhibits

Table of Contents

Part I.	FINANCIAL INFORMATION	Page

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20

Part II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	20
ITEM 1A.	RISK FACTORS	20
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	MINE SAFETY DISCLOSURES	21
ITEM 5.	OTHER INFORMATION	21
ITEM 6.	EXHIBITS	23

SIGNATURES		23

Index to Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

DR. TATTOFF, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
	March 31, 2015 (Unaudited)			December 31, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1911,~~715~~113		$	~~197~~32,~~523~~767
Prepaid expenses and other current assets		80102,~~709~~758			~~397~~72,~~115~~736
Total current assets		~~100~~113,~~424~~871			~~594~~105,~~638~~503
Property and equipment, net		21,~~086~~845,~~511~~446			21,~~050~~984,~~287~~201
Other assets		~~158~~155,~~673~~432			~~251~~161,~~270~~487
Total assets	$	2,~~345~~114,~~608~~749		$	2,~~896~~251,~~195~~191
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Revolving line of credit	$	1977,~~012,027~~435		$	1,~~100~~069,~~954~~302
Accounts payable		~~999~~988,~~262~~624			~~869~~1,~~313~~027,331
Related party payables		~~275~~310,~~452~~511			23290,~~622~~567
Accrued expenses and other liabilities		~~532~~626,~~740~~746			~~496~~601,~~053~~068
Accrued compensation		~~610~~562,~~490~~610			~~543~~547,~~251~~876
Accrued interest		12,~~675~~582,~~815~~901			9151,~~545~~269
Warrant liabilities		6011,~~746~~684			~~116~~24,~~690~~260
Deferred revenue		1,~~568~~690,~~622~~830			1,~~113~~529,~~883~~413
Notes payable, current portion (net of unamortized discount)		14,~~966~~083,~~298~~533			~~716~~1,~~531~~440,581
Convertible promissory notes, current portion (net of unamortized discount)		1,091,140			947,987
Capital lease obligations, current portion (related party)		11,599			11,323
Capital lease obligations, current portion (related party)		11,054			10,286
Total current liabilities		11,846,473			6,592,990
Total current liabilities		9,803,646			6,030,115
LONG-TERM LIABILITIES
Notes payable, net of current portion and unamortized discount		~~360~~218,~~913~~238			~~255~~2,~~456~~896,706
Convertible promissory notes, net of current portion and unamortized discount		333,097			328,388
Capital lease obligations, net of current portion (related party)		29,302			32,307
Capital lease obligations, net of current portion (related party)		35,241			43,630
Accrued interest		-			2,302,462
Deferred rent		~~232~~275,~~557~~581			~~251~~287,~~597~~852
Total liabilities		1012,~~765~~369,~~454~~594			612,~~909~~112,~~186~~317
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ DEFICIT
Preferred stock, 2,857,143 shares authorized, none issued or outstanding at September 30, 2014 and December 31, 2013					-
Preferred stock, 2,857,143 shares authorized, none issued or outstanding at March 31, 2015 and December 31, 2014		-			-
Common stock, $.0001 par value, 75,000,000 authorized, 20,298,730 and 19,308,230 issued and outstanding at September 30, 2014 and December 31, 2013, respectively		2,030			1,931
Common stock, $.0001 par value, 75,000,000 authorized, 21,054,950 and 19,268,730 issued and outstanding at March 31, 2015 and December 31, 2014, respectively		2,106			1,927
Additional paid-in capital		8,~~660~~881,~~623~~136			78,~~692~~434,~~978~~783
Accumulated deficit		(1719,~~082~~138,~~499~~087	)		(1118,~~707~~297,~~900~~836	)
Total shareholders’ deficit		(810,~~419~~254,~~846~~845	)		(49,~~012~~861,~~991~~126	)
Total liabilities and shareholders’ deficit	$	2,~~345~~114,~~608~~749		$	2,~~896~~251,~~195~~191

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

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DR. TATTOFF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine months Ended September 30,
	Three Months Ended March 31,
	2014			2013			2014			2013
	2015			2014
Revenues from related party	$	750,575		$	622,377		$	2,151,737		$	2,086,519
Revenue
Owned clinic revenues		444,478			304,356			1,239,585			818,079
Management services revenues (related party)	$	703,169		$	705,876
		1,195,053			926,733			3,391,322			2,904,598
Owned clinic revenues		484,444			368,649
Operating costs and expenses
Total revenue		1,187,613			1,074,525
Clinic operating expenses		906,490			791,823			2,873,131			2,475,646
Operating costs and expenses
General and administrative expenses		494,639			636,688			1,891,368			2,304,311
Clinic operating expenses		962,281			1,021,431
Marketing and advertising		108,765			136,818			494,225			656,854
General and administrative expenses		429,706			745,479
Depreciation and amortization		129,203			101,648			403,134			285,450
Marketing and advertising		147,122			140,515
Loss from operations		(444,044	)		(740,244	)		(2,270,536	)		(2,817,663	)
Depreciation and amortization		140,775			133,164
Interest expense		1,843,091			144,354			3,191,502			342,374
Loss from operations		(492,271	)		(966,064	)
Other income (expense)		9,357			(1,908	)		91,574			(4,608	)
Interest expense and costs of financing		(349,313	)		(489,733	)
Loss from operations before provision for income taxes		(2,277,778	)		(886,506	)		(5,370,464	)		(3,164,645	)
Change in value of warrant liabilities		2,644			6,500
Provision for income taxes		-			-			4,135			800
Loss from operations before provision for income taxes		(838,940	)		(1,449,297	)
Net loss	$	(2,277,778	)	$	(886,506	)	$	(5,374,599	)	$	(3,165,445	)
Provision for income taxes		1,311			-
Basic and diluted net loss per share applicable to common stock	$	(0.11	)	$	(0.05	)	$	(0.27	)	$	(0.17	)
Net loss	$	(840,251	)	$	(1,449,297	)
Weighted average common shares outstanding – basic and diluted		20,022,719			19,164,294			19,694,018			18,703,088
Basic and diluted net loss per share applicable to common stock	$	(0.04	)	$	(0.08	)
Weighted average common shares outstanding – basic and diluted		19,490,215			19,308,230

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

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DR. TATTOFF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (UNAUDITED)

	Common Stock						Additional Paid-in			Accumulated			Total Shareholders’
	Shares			Par Value			Capital			Deficit			Deficit
BALANCE – December 31, 2013		19,308,230		$	1,931		$	7,692,978		$	(11,707,900	)	$	(4,012,991	)
BALANCE – December 31, 2014		19,268,730		$	1,927		$	8,434,783		$	(18,297,836	)	$	(9,861,126	)
Fair value of warrants issued on debt extension		-			-			413,701			-			413,701
Stock compensation expense		-			-			12,380			-			12,380
Common stock issued		1,010,500			101			495,043			-			495,144
Common stock issued for service		5,150			1			1,699			-			1,700
Common stock repurchased		(20,000	)		(2	)		(9,798	)		-			(9,800	)
Common stock issued in exchange for warrants		1,811,070			181			432,274			-			432,455
Stock compensation expense		-			-			68,699			-			68,699
Common stock repurchased		(30,000	)		(3	)		-			-			(3	)
Net loss		-			-			-			(5840,~~374,599~~251	)		(5840,~~374,599~~251	)
BALANCE – September 30, 2014 (unaudited)		20,298,730		$	2,030		$	8,660,623		$	(17,082,499	)	$	(8,419,846	)
BALANCE – March 31, 2015(unaudited)		21,054,950		$	2,106		$	8,881,136		$	(19,138,087	)	$	(10,254,845	)

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

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DR. TATTOFF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months Ended September 30,
	Three Months Ended March 31,
	2014			2013
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5840,~~374,599~~251	)	$	(31,~~165~~449,~~445~~297	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~403~~140,~~134~~775			~~285~~133,~~450~~164
Amortization of debt discount to interest		~~577~~42,~~660~~581			~~180~~237,~~763~~057
Stock compensation expense		68,699			130,250
Non-cash interest and costs of financing		148,871			-
Services paid for in stock and warrants		495,144			315,084
Stock compensation expense		12,380			29,364
Change in fair value of warrant liability		(69,556	)		4,600
Services paid for in stock and warrants		1,700			-
Impairment charge		39,886			-
Change in fair value of warrant liability		(2,644	)		(6,500	)
Loss on sale of equipment		40,313			-
Changes in operating assets and liabilities:
Management fee due from related party		-			87(4,~~817~~998	)
Prepaid expenses and other current assets		~~462~~77,~~421~~599			74267,~~587~~050
Other assets		864,~~484~~039			~~(28~~64,~~864~~216	)
Accounts payable		~~129~~(38,~~948~~707	)		~~408~~78,~~957~~915
Accrued expenses and other liabilities		3655,~~744~~854			3(77,~~923~~297	)
Deferred revenue		~~454~~161,~~739~~417			~~558~~216,~~507~~623
Related party payables		~~251~~19,~~830~~944			-(2,789	)
Accrued compensation		6714,~~239~~734			~~221~~(20,~~482~~359	)
Accrued interest		180,~~584,270~~299			52158,~~623~~525
Deferred rent		(1912,~~040~~271	)		(5424,~~806~~021	)
Net cash used in operating activities		(~~764~~133,~~684~~680	)		(~~925~~400,~~072~~347	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		~~(386,374~~-	)		(~~364~~229,~~335~~083	)
Proceeds received from sale of property and equipment		87,500			-
Net cash used in investing activities		-			(229,083	)
Net cash used in investing activities		(298,874	)		(364,335	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations		(72,~~621~~730	)		(502,~~030~~479	)
Principal payments on notes payable		(~~407~~73,~~902~~376	)		(~~240~~110,~~079~~475	)
Proceeds from sale of common stock		-			125,001
Repurchase of common stock		(30,000	)		-
Repurchase of common stock		(9,800	)		-
Proceeds received from issuance of convertible notes		-			25,000
Proceeds received from exercise of stock option		-			17,493
Proceeds received from issuance of short-term notes		460,000			600,000
Proceeds received from issuance of convertible notes		100,000			835,000
Repayment of short-term notes		(150,000	)		-
Proceeds received from issuance of short-term notes		1,425,000			320,000
Proceeds received from revolving line of credit		977,434			1,130,905
Repayment of short-term notes		(125,000	)		-
Repayments on revolving line of credit		(1,069,302	)		(1,198,337	)
Proceeds received from revolving line of credit		3,284,619			-
Net cash provided by financing activities		112,026			444,614
Repayments on revolving line of credit		(3,373,546	)		-
Net decrease in cash and cash equivalents		(21,654	)		(184,816	)
Net cash provided by financing activities		885,750			1,007,385
Cash and cash equivalents – beginning of period		32,767			197,523
Net decrease in cash and cash equivalents		(177,808	)		(282,022	)
Cash and cash equivalents – end of period	$	11,113		$	12,707
Cash and cash equivalents – beginning of period		197,523			318,394
Cash and cash equivalents – end of period	$	19,715		$	36,373
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	~~223~~83,~~663~~518		$	9790,~~967~~826
Taxes	$	~~3,813~~-		$	800
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of property and equipment through issuance of notes payable	$	214,625		$	145,222
Financing of insurance premiums	$	107,621		$	146,015
Financing of insurance premiums	$	146,015		$	131,859
Common stock and warrants issued and recorded as valuation discount	$	432,455		$	-
Common stock and warrants issued	$	908,845		$	334,484

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

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DR. TATTOFF, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2015 and 2014

(Unaudited)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Organization

Dr. Tattoff, Inc., a Florida corporation formed in 2004, directly and through its wholly-owned subsidiaries, DRTHC I, LLC and DRTHC II, LLC, Delaware limited liability companies (collectively with Dr. Tattoff, Inc., the “Company”), operates clinics and provides marketing and practice management services to licensed physicians who primarily perform laser tattoo removal services. The Company currently operates clinics in Dallas, Frisco, Ft. Worth and Houston, Texas; Phoenix, Arizona; and Atlanta, Georgia, and provides services under a management services agreement with a contracting physician at four Southern California locations whereby the Company provides management, administrative, marketing and support services, insurance, and equipment at the clinical sites. The contracting physician’s medical personnel provide laser tattoo and hair removal services.

In February 2008, the Company completed a reverse merger with Lifesciences Opportunities Incorporated, a “public shell” company, and became a Securities and Exchange Commission (“SEC”) registrant (the “Merger”). The Company filed Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008, but failed to file any Forms 10-Q or 10-K subsequently. On March 16, 2010, the Company filed a Form 15 with the SEC to terminate its registration under Section 12(g) of the Securities Exchanges Act of 1934, as amended, (the “Exchange Act”). Upon the filing of the Form 15, the Company’s obligation to file periodic and other reports with the SEC was immediately suspended. On December 7, 2011 the Company filed a registration statement on Form 10 with the SEC to register its common stock pursuant to Section 12(g) of the Exchange Act, which was subsequently amended on December 23, 2011 and January 20, 2012. The amended registration statement became effective on February 6, 2012.

Increase in Authorized Shares and Reverse Stock Split

In February 2011, the Company amended its Articles of Incorporation to increase the number of authorized shares to 28,571,429, consisting of 25,714,286 shares of common stock, par value $.0001 per share and 2,857,143 shares of preferred stock. Series of preferred stock may be created and issued from time to time, with such designations, preferences, rights and restrictions as shall be stated in resolutions adopted by the Board of Directors.

In February 2012, the Company amended its Articles of Incorporation to effect a 7-for-1 reverse stock split. Earnings per share amounts, weighted average common shares outstanding, shares issued and outstanding, exercise prices, and fair value per share amounts for all periods have been adjusted to reflect the Company’s 7-for-1 reverse stock split. Par value per share was unchanged with the difference between the originally calculated par value of issued and outstanding shares and the adjusted amounts reclassified to additional paid-in capital for all periods.

In June 2012, the Company amended its Articles of Incorporation to increase the number of shares of the Company’s common stock authorized for issuance from 25,714,286 shares to 75,000,000 shares.

Going Concern

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities in the ordinary course of business. At ~~September~~March 3031, ~~2014~~2015, the Company has accumulated losses approximating $1719,~~082~~138,000, current liabilities that exceeded its current assets by approximately $911,~~703~~733,000, shareholders’ deficit of approximately $810,~~420~~255,000, and has not yet produced operating income or positive cash flows from operations. In addition, $325,000 of promissory notes are currently in default. The Company’s ability to continue as a going concern is predicated on its ability to raise additional capital, increase sales and margins, and ultimately achieve sustained profitable operations. The uncertainty related to these conditions raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management believes that the Company will need to continue to raise additional outside capital to expand the number of clinics in operation and to address its losses and ability to continue to operate. The Company intends to raise additional capital and continue opening additional clinics to achieve this goal.

In addition, the Company’s ~~expanded its~~ Board of Directors inincludes ~~2010 to include~~ individuals with substantial experience in raising capital and numerous relationships that may assist the Company in achieving its goals. In the event that the Company is unsuccessful in raising adequate equity capital, management will attempt to reduce losses and preserve as much liquidity as possible. Steps management would likely take would include limiting capital expenditures, reducing expenses and leveraging the relatively few assets that it owns without encumbrance. A reduction in expenses would likely include personnel costs, professional fees, and marketing expenses. While management would attempt to achieve break-even or profitable operations through these steps, there can be no assurance that it will be successful.

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Consolidation Policy

The Company has various contractual relationships with William Kirby, D.O., Inc. including a management services agreement, medical director’s agreement, equipment subleases, and guarantees. The Company evaluated the various relationships between the parties to determine if it should consolidate William Kirby, D.O., Inc. as a variable interest entity pursuant to ASC 810, Consolidation. The Company determined that it was not the primary beneficiary of the interest due to the following: William Kirby, D.O., Inc. has the ability to control the activities that have the most significant impact on its economic performance; the Company does not have an obligation to absorb losses of William Kirby, D.O., Inc.; the Company is not guaranteed a return; and there are no interests that are subordinate to the equity interest at risk. The Company conclusion followed an analysis of both the contractual arrangements and California state law restrictions on relationships between licensed professionals and businesses. Among the restrictions of California law the Company considered most relevant in its analysis were those that prohibit a lay corporation from providing medical services, including laser tattoo and laser hair removal, employing medical personnel, and making key decisions about equipment and marketing initiatives. Therefore, the results of William Kirby, D.O., Inc. are not consolidated into the results of the Company as of ~~September~~March 3031, ~~2014~~2015. The Company reassesses the need to consolidate in each reporting period. Dr. Kirby served as a member of our Board of Directors from March 2008 through September 2014, however, none of the terms of Company’s agreements with William Kirby, D.O., Inc,. require that he be a member of our Board of Directors.

The carrying amount and classification of assets and liabilities in the accompanying balance sheets relating to the Company’s relationship with William Kirby, D.O., Inc. are summarized as follows:

	September 30, 2014 (Unaudited)		December 31, 2013 (Audited)
	March 31, 2015 (Unaudited)		December 31, 2014
Current Liabilities
Related party payables		~~275~~310,~~452~~511		23290,~~622~~567
Capital lease obligations, current portion		11,~~054~~599		1011,~~286~~323
Long-Term Liabilities
Capital lease obligations, net of current portion		3529,~~241~~302		4332,~~630~~307

- 5 -

The Company may be exposed to losses under its relationship with William Kirby, D.O., Inc. The Company’s most significant exposure to loss in the relationship is under the management services agreement. Losses could occur if the management fees are inadequate to cover the Company’s costs of providing the management services. The Company is unable to estimate its maximum exposure to such losses.

The Company’s relationship and agreements with William Kirby, D.O., Inc. and Dr. Kirby are further described in Note 76, “Capital Lease Obligations (Related Party)”; Note 87, “Related Party Transactions” and Note 109, “Commitments and Contingencies.”

Dr. Tattoff, Inc. formed two wholly owned subsidiaries, DRTHC I, LLC and DRTHC II, LLC, that are responsible for the operations of some of the clinics that the Company has established. The consolidated financial statements include the accounts of DRTHC I, LLC and DRTHC II, LLC.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of Dr. Tattoff, Inc. and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments that, in the opinion of the management of the Company, are considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Form 10-K for the year ended December 31, ~~2013~~2014. The balance sheet as of December 31, ~~2013~~2014 has been derived from the audited financial statements as of that date but omits certain information and footnotes required for complete financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The Company adopted the fair value measurement and disclosure requirements of ASC 820, Fair Value Measurements and Disclosure for financial assets and liabilities measured on a recurring basis. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. This standard applies in situations where other accounting pronouncements either permit or require fair value measurements. ASC 820 does not require any new fair value measurements.

- 6 -

Fair value is defined in ASC 820 as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1:

Quoted prices in active markets for identical or similar assets and liabilities.

Level 2:

Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.

Level 3:

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments include cash and cash equivalents, prepaid expenses and other current assets, other assets, accounts payable, related party payable, accrued expenses and other liabilities, deferred revenue, accrued compensation, capital lease obligations, convertible promissory notes, notes payable, and warrant liabilities. The carrying amounts of prepaid expenses and other current assets, other assets, accounts payable, related party payable, accrued expenses and other liabilities, deferred revenue and accrued compensation approximate their fair values due to the short maturity of these instruments. The carrying amounts of capital leases, convertible promissory notes, and notes payable approximates their fair value as these instruments earn or are charged interest based on prevailing rates. The fair value of warrants is measured using level 3 inputs.

Long-lived Assets

Long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment” which requires impairment losses to be recorded on long-lived assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are reviewed on an asset-by-asset basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of each asset to future net cash flows on an undiscounted basis expected to be generated by such asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount which the carrying amount of the assets on an undiscounted basis exceeds the fair value of the assets.

~~The major long~~-~~lived~~ ~~assets~~6 of the Company are the lasers and Intense Pulse Light, or IPL, devices. While the Company has sustained losses, the clinics where the lasers and IPL devices are located are or are expected to be profitable. As a result, recoverability of assets to be held and used is measured by a comparison of the carrying amount of each asset to future net cash flows on an undiscounted basis expected to be generated by such asset in each clinic. There were no impairments of long-lived assets at December 31, 2013. In February 2014, the Company decided to close its Sugar Land, Texas (a suburb of Houston) clinic due to poor financial performance. The Company is working with the landlord to find a subtenant for the location but has been unsuccessful to date; however, it concluded that the capitalized tenant improvements were impaired and recorded an impairment charge of approximately $41,000 related to the closure. The impairment charge is included in clinic operating expenses in the accompanying consolidated statements of operations. The Company moved the laser and other capital assets located there to other clinics. There have been no other impairments in 2014.

~~Property~~The major long-lived assets of the Company are the lasers and ~~Equipment~~Intense Pulse Light, or IPL, devices. While the Company has sustained losses, the clinics where the lasers and IPL devices are located are or are expected to be profitable. As a result, recoverability of assets to be held and used is measured by a comparison of the carrying amount of each asset to future net cash flows on an undiscounted basis expected to be generated by such asset in each clinic. In February 2014, the Company decided to close its Sugar Land, Texas (a suburb of Houston) clinic due to poor financial performance. The Company concluded that the capitalized tenant improvements were impaired and recorded an impairment charge of approximately $40,000 related to the closure. In February 2015, the Company entered into a mutual release and settlement agreement with the landlord pursuant to which the Company agreed to make payments totaling $87,000 over a period of two years to the landlord. There have been no other impairments.

Property and equipment is recorded at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. The Company uses the following estimated useful lives for computing depreciation expense: furniture and fixtures, 7 years; medical equipment, 7 years; other equipment, 3 to 5 years. Amortization of leasehold improvements is recorded using the straight-line method based on the lesser of the useful life of the improvement or the lease term, which is typically five years or less.

Debt and Other Financial Instruments

Debt/Equity Instruments Issued with Warrants

The Company estimates the relative fair values of the debt and warrants, and allocates the proceeds pro-rata based on these values. The allocation of proceeds to the warrants results in the debt instrument being recorded at a discount from the face amount of the debt and the value allocated to the warrant is recorded to additional paid-in capital.

The Company reviews the terms of convertible financial instruments it issues to determine whether there are embedded derivative instruments, including the conversion option that may be required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative, including the conversion option that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds from the convertible host instruments are first allocated to the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, resulting in those instruments being recorded at a discount from their face value.

Derivative Financial Instruments

Derivative instruments are initially recorded at estimated fair value and are then revalued at each reporting date with changes in the estimated fair value reported as charges or credits to income.

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Revenue Recognition

Currently, the majority of the Company’s revenues are derived from management services provided to William Kirby D.O., Inc., a related party, for our non-owned clinics. The Company provides nonmedical services and facilities based on contractual prices established in advance that extend continuously over a set time for a fixed percentage of the contracting physician’s gross revenues (as defined in the Management Services Agreement - See Note 8, “Related Party Transactions”) with no upfront fees paid by William Kirby D.O., Inc. The management services agreement with William Kirby D.O., Inc. covers all of the Company’s California locations.Revenues

Through March 31, 2015, the majority of the Company’s revenues are derived from management services provided to William Kirby D.O., Inc., a related party, for our non-owned clinics. The Company provides nonmedical services and facilities based on contractual prices established in advance that extend continuously over a set time for a fixed percentage of the contracting physician’s gross revenues (as defined in the Management Services Agreement - See Note 7, “Related Party Transactions”) with no upfront fees paid by William Kirby D.O., Inc. The management services agreement with William Kirby D.O., Inc. covers all of the Company’s California locations.

Under the management service agreement with William Kirby D.O., Inc., there is no right to refund or rejection of services. The Company recognizes revenue when the following criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Management services fees are paid by the contracting physician to the Company on a bi-weekly basis as earned, which is when the Company has substantially performed management services pursuant to the terms of the management services agreement with William Kirby D.O., Inc.

~~The~~Owned ~~Company~~Clinic operates the Dallas, Houston, Atlanta and Phoenix locations directly, not pursuant to a management services agreement with a physician. Accordingly, patients contract with the Company and pay for the services they receive directly to the Company. The Company recognizes revenue when the following criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. The Company requires payment at the time of the patient visit or in advance of the visit by those patients purchasing packages of treatments. Payments by patients made in advance of service delivery are recorded as “deferred revenue” on the accompanying consolidated balance sheets and amounted toRevenues ~~approximately $1,569,000 at September 30, 2014 and $1,114,000 at December 31, 2013.~~

~~Patients~~The ~~who purchase a package of tattoo removal services at clinics the~~ Company operates ~~directly are eligible to participate in~~ the ~~Company’s~~Dallas, ~~tattoo~~Frisco, ~~removal guarantee program~~Ft. ~~Pursuant~~ toWorth, ~~the guarantee program~~Houston, ifAtlanta ~~the~~and ~~tattoo~~Phoenix islocations directly, not ~~fully~~pursuant ~~removed~~to ~~within~~a ~~the~~management ~~recommended~~services ~~number~~agreement ofwith ~~treatments,~~a ~~the~~physician. ~~Company will continue to provide additional treatments~~Accordingly, ~~consistent~~patients contract with the Company’s ~~medical~~and ~~protocols,~~pay for athe ~~period~~services ofthey upreceive directly to ~~one year following~~ the ~~date of the last paid treatment~~Company. The Company ~~estimates~~recognizes ~~the~~revenue ~~cost~~when of the ~~guarantee~~following ~~program~~criteria ~~based~~of onrevenue ~~historical~~recognition ~~usage~~are ~~and~~met: ~~the~~(1) ~~average~~persuasive ~~cost~~evidence ofthat ~~treatments. The~~an ~~cost~~arrangement ofexists; ~~the~~(2) ~~program~~delivery ishas ~~accrued~~occurred onor aservices ~~per~~rendered; ~~visit~~(3) ~~basis~~the asfee ~~visits occur and~~ is ~~included~~fixed inor ~~clinic~~determinable; ~~operating~~and ~~expense~~(4) oncollectability ~~the~~is ~~accompanying~~reasonably ~~consolidated statements of operations~~assured. The Company ~~recognized~~requires ~~accrued~~payment ~~expense~~at ofthe ~~approximately~~time ~~$121,000 and $77,000 as~~ of ~~September 30, 2014 and December 31, 2013, respectively, related to~~ the ~~guarantee~~patient ~~program,~~visit ~~and~~or ~~this is included~~ in ~~the~~advance ~~accrued~~of ~~expenses and other liabilities in~~ the ~~accompanying~~visit ~~consolidated~~by ~~balance~~those ~~sheets. Patients~~patients ~~who~~purchasing ~~purchase~~packages ~~a package~~ of ~~services~~treatments. ~~and~~Payments ~~experience~~by ~~complete~~patients ~~removal~~made ~~prior~~in toadvance ~~completion~~ of ~~the~~service ~~package~~delivery are ~~eligible~~recorded ~~for~~as a“deferred ~~refund~~revenue” ~~for~~on the ~~unused~~accompanying ~~portion~~consolidated ofbalance ~~the~~sheets ~~package. The~~and ~~Company~~amounted ~~recognizes~~to approximately ~~refunds~~$1,691,000 at ~~which~~March ~~have been immaterial in amount~~31, as2015 aand ~~reduction in revenue as incurred. Patients who receive services in clinics operated under the management services agreement with William Kirby~~$1, ~~D.O.~~529,000 at ~~Inc.~~December ~~are eligible for similar programs~~31, ~~which may reduce the management fee that the Company receives~~2014.

Patients who purchase a package of tattoo removal services at clinics the Company operates directly are eligible to participate in the Company’s tattoo removal guarantee program. Pursuant to the guarantee program, if the tattoo is not fully removed within the recommended number of treatments, the Company will continue to provide additional treatments, consistent with the Company’s medical protocols, for a period of up to one year following the date of the last paid treatment. The Company estimates the cost of the guarantee program based on historical usage and the average cost of treatments. The cost of the program is accrued on a per visit basis as visits occur and is included in clinic operating expense on the accompanying consolidated statements of operations. The Company recognized accrued expense of approximately $148,000 and $132,000 as of March 31, 2015 and December 31, 2014, respectively, related to the guarantee program, and this is included in the accrued expenses and other liabilities in the accompanying consolidated balance sheets. Patients who purchase a package of services and experience complete removal prior to completion of the package are eligible for a refund for the unused portion of the package. The Company recognizes refunds, which have been immaterial in amount, as a reduction in revenue as incurred. Patients who receive services in clinics operated under the management services agreement with William Kirby, D.O., Inc. are eligible for similar programs, which may reduce the management fee that the Company receives.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was approximately $79117,000 and $~~137~~110,000 for the three months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013, respectively, and $394,000 and $485,000 for the nine months ended September 30,~~ 2014 ~~and 2013~~, respectively.

Income Taxes

The Company accounts for income taxes in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740 “Income taxes.” Under ASC 740, deferred income taxes are recognized to reflect the tax consequences in future years for the differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets to amounts that are more likely than not to be realized.

The Company has incurred tax net operating losses since inception and, accordingly, has a deferred tax asset related to such tax net operating loss carryforwards. The Company has provided a 100% valuation allowance on such deferred tax asset at ~~September~~March 3031, ~~2014~~2015 and December 31, ~~2013~~2014.

The Company accounts for uncertainty in income taxes in accordance with ASC 740-10, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also provides guidance on the measurement, derecognition, classification and disclosure of tax positions, as well as the accounting for related interest and penalties. The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. The Company has recognized no tax related interest or penalties since the adoption of ASC 740-10. As of ~~September~~March 3031, ~~2014~~2015, the open tax years of the Company were 2009 to 2013.

Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. In computing diluted earnings per share, the treasury stock method assumes that outstanding options are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options will have a dilutive effect under the treasury stock method only when the Company reports net income and the average market price of the common stock during the period exceeds the exercise price of the options. Options, warrants and conversions of convertible debt instruments were not included in computing diluted earnings per share for the three ~~or nine~~ months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014, respectively, because their effects were antidilutive.

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The following table illustrates the computation of basic and diluted earnings per share:

	Three Months Ended September 30,						Nine months Ended September 30,
	Three months Ended March 31,
	2014			2013			2014			2013
	2015			2014
Net loss available to common stockholders (numerator)	$	(2840,~~277,778~~251	)	$	(~~886~~1,~~506~~449,297	)	$	~~(5,374,599~~	)	$	~~(3,165,445~~	)
Weighted average shares outstanding (denominator)		2019,~~022~~490,~~719~~215			19,~~164~~308,~~294~~230			~~19,694,018~~			~~18,703,088~~
Basic and diluted EPS	$	(0.1104	)	$	(0.0508	)	$	~~(0.27~~	)	$	~~(0.17~~	)

Basic and diluted EPS are the same for all periods presented as the impact of all potentially dilutive securities were anti-dilutive.

The following potentially dilutive securities were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.:

	September 30,
	March 31,
	2014		2013
	2015		2014
Warrants		83,~~332~~805,~~862~~183		46,~~756~~349,~~739~~150
Common stock options		1,~~545~~532,~~078~~578		1,~~524~~594,~~474~~947
Convertible promissory notes		2,541,358		2,~~310~~425,~~577~~972
		12,419,298		8,591,790
		7,879,119		10,370,069

Accounting for Common Stock Options

The Company measures stock-based compensation expense from the issuance of options to acquire common stock at the grant date, based on the fair value of the award, and recognizes the expense over the employee’s requisite service (vesting) period using the straight-line method. The measurement of stock-based compensation expense is based on several criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate and forfeiture rate. Certain of these inputs are subjective to some degree and are determined based in part on management’s judgment. The Company recognizes the compensation expense on a straight-line basis for its graded vesting awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. However, the cumulative compensation expense recognized at any point in time must at least equal the portion of the grant-date fair value of the award that is vested at that date. As used in this context, the term “forfeitures” is distinct from “cancellations” or “expirations”, and refers only to the unvested portion of the surrendered equity awards.

Deferred Rent

The Company currently leases all of its locations under leases classified as operating leases. Minimum base rent for these operating leases, which generally have escalating rentals over the term of the lease is recorded on a straight-line basis over the lease term. As such, an equal amount of rent expense is attributed to each period during the term of the lease regardless of when actual payments occur. Lease terms begin on the inception date and include option periods only where such renewals are imminent and assured. The difference between rent expense and actual cash payments is classified as “deferred rent” in the accompanying consolidated balance sheets and approximated $233,000 and $252,000 at September 30, 2014 and December 31, 2013, respectively.

Use of Estimates

The preparation of financial statements in conformity with ~~GAAP~~Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include those related to the realization of long-lived assets, deferred income tax asset valuation allowances, and the valuation of equity instruments issued.

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Concentrations

Financial instruments that subject the Company to credit risk consist primarily of cash and revenues. The Company’s cash is maintained at financial institutions in the United States. These accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, such balances may be in excess of the amounts insured by the FDIC. The Company has not experienced any losses on such accounts and believes it is not exposed to any significant credit risks on cash.

AFor ~~substantial portion of~~ the ~~Company’s~~three ~~revenues~~months ~~for~~ended ~~the~~March ~~three~~31, 2015 and ~~nine~~2014, ~~months~~59% ~~ended~~and ~~September~~66% ~~30,~~of ~~2014~~the ~~and~~Company’s ~~2013~~revenues were derived from a management services agreement with William Kirby, D.O., Inc. relating to the Company’s California clinics. The management services agreement with William Kirby, D.O., Inc. terminated in May 2015 and the Company entered into a new management services agreement with SC Laser, Inc., a company owned by an unrelated physician. If the Company’s management services agreement is terminated for any reason or ~~William~~SC ~~Kirby~~Laser, ~~D.O.,~~ Inc. defaults on its obligations thereunder, the Company’s operating results, cash flows and financial performance may be adversely affected and the Company may need to negotiate and enter into a new agreement with a qualified physician. Although the Company’s management services agreement provides the Company with the right to approve a replacement contracting physician upon termination or default, the Company can give no assurance that it will be able to expeditiously identify and contract with a qualified replacement physician on commercially reasonable terms or at all. The termination of the Company’s management services agreement could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

Recent Accounting Pronouncements

In May ~~April~~ 2014, the FASB issued ~~Accounting~~ASU ~~Standards Update No.~~ 2014-0809, Revenue from ~~Presentation~~Contracts ofwith ~~Financial Statements~~ Customers (~~Topic 205) and Property, Plant, and Equipment (Topic 360) (~~“ASU 2014-0809”), ~~which~~that ~~changes~~updates the ~~requirements~~principles for ~~reporting~~recognizing ~~discontinued operations~~revenue. ~~ASU~~The ~~2014-08~~core ~~raises~~principle of the ~~threshold~~guidance ~~for~~is athat ~~disposal~~an toentity should ~~qualify~~recognize asrevenue ato ~~discontinued~~depict ~~operation~~the ~~and~~transfer ~~requires~~of ~~new~~promised ~~disclosures~~goods ofor ~~both~~services ~~discontinued~~to ~~operations~~customers ~~and~~in ~~certain~~an ~~other~~amount ~~disposals~~ that doreflects ~~not meet~~ the consideration ~~definition~~to ofwhich athe ~~discontinued~~entity ~~operation.~~expects ~~Under~~to ~~the~~be ~~revised~~entitled ~~standard,~~in aexchange ~~disposal~~for ~~that~~those ~~represents~~goods aor ~~strategic~~services. ~~shift~~ASU or2014-09 ~~will~~also ~~have~~amends athe required ~~major~~disclosures ~~effect~~of onthe annature, ~~entity’s~~amount, ~~operations~~timing and ~~financial~~uncertainty ~~results~~of ~~will~~revenue beand ~~reported~~cash asflows ~~discontinued~~arising ~~operations~~from ~~while~~contracts ~~smaller disposals will not~~with customers. ASU 2014-0809 is effective infor ~~2015~~annual ~~and~~reporting ~~interim~~ periods ~~within~~beginning ~~that~~after ~~year~~December ~~for~~15, ~~calendar~~2016, ~~year~~including ~~companies.~~interim ~~Early~~periods within ~~adoption~~that isreporting ~~permitted~~period. ~~and~~On ~~the~~April ~~Company~~1, ~~has~~2015, ~~adopted~~ the ~~new~~FASB ~~guidance~~voted into propose to defer the ~~first~~effective ~~quarter~~date of ~~2014. The~~the ~~Company~~new ~~does~~revenue recognition ~~not~~standard ~~expect~~by ~~that~~one ~~this~~year. ~~new~~The ~~guidance~~Company ~~will~~is ~~have~~evaluating athe ~~significant~~potential ~~impact~~impacts onof the ~~Company’s~~new ~~consolidated~~standard ~~financial~~on ~~position,~~its ~~results~~existing ofrevenue recognition ~~operations~~policies orand ~~cash flows~~procedures.

In ~~May~~August 2014, the FASB issued ASU 2014-0915, ~~Revenue~~ ~~from~~Presentation ~~Contracts~~of ~~with~~Financial ~~Customers~~ Statements-Going Concern (Subtopic 205-40)(“ASU 2014-0915”), ~~that~~which ~~updates the principles for recognizing revenue. The core principle of the guidance~~ is ~~that~~intended anto ~~entity~~define ~~should~~management’s ~~recognize~~responsibility ~~revenue~~ to ~~depict~~evaluate ~~the~~whether ~~transfer~~there ofis ~~promised~~substantial ~~goods~~doubt orabout ~~services to customers in~~ an ~~amount~~organization’s ~~that~~ability ~~reflects the consideration~~ to ~~which~~continue ~~the~~as ~~entity~~a ~~expects~~going toconcern ~~be entitled in exchange for those goods or services. ASU 2014-09 also amends the required disclosures of the nature, amount, timing~~ and ~~uncertainty~~to ofprovide ~~revenue~~related ~~and~~footnote ~~cash flows arising from contracts with customers~~disclosures. ASU 2014-0915 is effective ~~for~~in the annual ~~reporting~~period ~~periods~~ending ~~beginning~~ after December 15, 2016, ~~including~~with ~~interim~~early ~~periods~~application ~~within that reporting period~~permitted. The Company isdoes ~~evaluating~~not ~~the~~expect ~~potential~~that ~~impacts~~this ofnew ~~the~~guidance ~~new~~will ~~standard~~have a significant impact on ~~its~~the ~~existing~~Company’s ~~revenue~~consolidated ~~recognition~~financial ~~policies~~position, ~~and~~results ~~procedures~~of operations or cash flows.

~~In August 2014, FASB issued ASU 2014~~-~~15,~~ ~~Presentation~~8 ~~of Financial Statements~~-Going Concern (Subtopic 205-40)(“ASU 2014-15”), which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective in the annual period ending after December 15, 2016, with early application permitted. The Company does not expect that this new guidance will have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810)(“ASU 2015-02”), which provides consolidation guidance and changes the way reporting enterprises evaluate consolidation for limited partnerships, investment companies and similar entities, as well as variable interest entities. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2015. The Company is currently evaluating the potential effect on its consolidated financial statements from adoption of this standard.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
	March 31, 2015 (Unaudited)			December 31, 2014 (Audited)
Equipment	$	1,~~870~~901,~~106~~071		$	1,~~824~~905,~~871~~106
Furniture and fixtures		143,893			~~136~~143,~~426~~893
Leasehold improvements		1,~~452~~449,~~144~~494			1,~~217~~452,~~223~~144
		3,466,143			3,178,520
		3,494,458			3,501,143
Less accumulated depreciation and amortization		(1,~~379~~649,~~632~~012	)		(1,~~128~~516,~~233~~942	)
	$	21,~~086~~845,~~511~~446		$	21,~~050~~984,~~287~~201

Depreciation and amortization expense was approximately $~~129~~139,000 and $~~102~~133,000 for the three months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013, respectively, and $403,000 and $285,000 for the nine months ended September 30,~~ 2014 ~~and 2013~~, respectively. The Company disposed of assets of approximately $263,000 (gross) and $128,000 (net) and recognized and impairment charge of approximately $40,000 during the nine months ended September 30, 2014 which is included in clinic operating expenses in the accompanying consolidated statements of operations. Approximately $240,000 (gross) and $127,000 (net) of disposals was in connection with the acquisition of replacement laser devices.

Assets under capital leases (gross) were approximately $159,000 at ~~September~~March 3031, ~~2014~~2015 and December 31, ~~2013. Amortization expense recorded for the assets under capital leases amounted to approximately $0 and $2,000 for the three months ended September 30,~~ 2014 ~~and 2013, respectively, and $0 and $8,000 for the nine months ended September 30, 2014 and 2013, respectively~~. Accumulated amortization of assets under capital leases was approximately $159,000 at ~~September~~March 3031, ~~2014~~2015 and December 31, ~~2013~~2014.

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NOTE 4. REVOLVING LINE OF CREDIT

In December 2013, the Company entered into a revolving line of credit with a lender with an initial commitment of $1,300,000 and a maximum revolving commitment of $7,000,000. Increase in the commitment above $1,300,000 is at the sole and absolute discretion of the lender. The term of the revolving loan isexpires ~~for six months subject to two automatic six month extensions as long as the Company is not in default~~ on ~~the credit agreement. In~~ June ~~2014~~2, ~~the Company entered the first automatic six month extension~~2015. The line of credit is secured by a second lien on all encumbered equipment of the Company and a first lien on all other assets of the Company.

The credit agreement requires that all receipts of the Company, except receipts received from investors and receipts from landlords for tenant improvement allowances, be deposited in a lockbox account controlled by the lender. Provided the Company is not in default, it can draw from the lockbox an amount equal to all of the funds deposited in the lockbox less fees and expenses due the lender and a mandatory principal repayment equal to 2% of the funds deposited in the lockbox. The Company deposited $130,000 in the lockbox account as a mandatory principal payment at the time that the loan closed. Atand ~~September~~those ~~30, 2014, these~~ funds ~~remain in the lockbox and~~ are unavailable to the Company to draw upon. As a result, the Company recorded a $130,000 reduction in the loan balance. At March ~~September 30~~31, ~~2014~~2015, the Company had deposits in the lockbox account of approximately $773,000 available for draw under the revolving line of credit. Cash deposited in the lockbox by the Company in excess of fees and expenses due the lender and the mandatory 2% principal payment are recorded as a further reduction in the loan balance.

The outstanding principal balance of the loan, which is reduced by funds in the lockbox account, bears interest at 10% per annum and requires a surcharge in the form of a receipts collection fee such that the aggregate interest and receipts collection fee do not exceed 1.5% of the outstanding principal per month. In addition, the Company is obligated to pay an asset monitoring fee of $1,500 per quarter and certain other expenses of the lender. In connection with the initial closing of the revolving line of credit, the Company paid the lender fees for transaction advisory services, due diligence, legal review and related expenses and finder’s fees totaling $136,850 in cash. Additionally, the Company paid a financial advisory firm $26,000 in cash for services in connection with the loan.

In addition to the cash consideration, the Company issued 125,000 shares of its common stock to the lender. The common stock is subject to a make whole provision such that the value of the common stock issued to the lender is not less than nor can ever be more than $125,000. The Company also issued fully vested three-year, callable warrants to three organizations affiliated to the financial advisory firm to purchase up to an aggregate of 39,000 shares of its common stock at an exercise price of $.78 per share in connection with the loan. Loan costs were included in prepaid expenses and were amortized to interest expense over the initial six month term of the loan.

In August 2014, the Company entered into an amendment to the credit agreement (the “First Amendment”) with the lender pursuant to which the Company agreed to redeem the 125,000 shares of stock issued to the lender at a purchase price equal to one dollar per share payable in cash. The redemption will occur at the rate of 10,000 shares per month, provided, however, any remaining shares must be redeemed in cash on the loan maturity date. In addition, the Company paid the lender $3,000 for legal fees and costs in connection with the First Amendment. Through ~~September~~March 3031, ~~2014~~2015, the Company has redeemed 2080,000 shares of common stock and is obligated to repurchase the remaining ~~105~~45,000 shares on or before the loan maturity date.

SoIn ~~long~~February as2015 the ~~revolving~~Company ~~note~~entered isinto ~~outstanding,~~an ~~but~~amendment ~~only~~to ~~upon~~ the ~~occurrence~~credit ~~and~~agreement ~~during~~ (the ~~continuance~~“Second ofAmendment”) anwith ~~event~~the oflender ~~default,~~pursuant ~~and subject~~ to ~~certain~~which ~~limitations,~~ the ~~lender~~Company ~~may~~agreed ~~convert~~to ~~all~~make oradditional ~~any~~principal ~~portion~~payments of ~~the~~$20,000 ~~amounts~~in ~~due~~each itJanuary ~~into~~and ~~common~~February ~~stock~~2015, of$30,000 ~~the~~in ~~Company.~~March ~~Beginning~~2015, ~~with~~and ~~the~~$40,000 ~~first~~in ~~quarter~~each of ~~2014~~April ~~the~~and ~~Company~~May is2015. ~~subject~~In toaddition, athe ~~financial~~Company ~~covenant~~paid ~~which~~the ~~requires~~lender ~~that~~$3,000 ~~its~~for ~~sales~~legal ~~revenue~~fees beand ~~not~~costs ~~less~~in ~~than~~connection ~~75%~~with ~~of its sales revenue for~~ the ~~corresponding~~Second ~~quarter of the prior year~~Amendment. The Company ~~was~~has inmade ~~compliance~~all ~~with~~of the ~~financial~~required ~~covenant~~payments asthrough ofMarch ~~September 30~~31, ~~2014~~2015.

So long as the revolving note is outstanding, but only upon the occurrence and during the continuance of an event of default, and subject to certain limitations, the lender may convert all or any portion of the amounts due it into common stock of the Company. Beginning with the first quarter of 2014 the Company is subject to a financial covenant which requires that its sales revenue be not less than 75% of its sales revenue for the corresponding quarter of the prior year. The Company was in compliance with the financial covenant as of March 31, 2015.

- 9 -

NOTE 5. NOTES PAYABLE

Notes payable consist of the following:

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
	March 31, 2015 (Unaudited)			December 31, 2014 (Audited)
Financed insurance premiums	$	1564,~~883~~103		$	-
Equipment promissory notes		~~611~~503,~~328~~721			~~674~~533,~~474~~580
Tenant improvement secured loans		100,000			100,000
Unsecured promissory notes		1,600,000			300,000
Interim credit agreement		1,050,000			1,050,000
		2,327,211			1,074,474
Unsecured promissory notes		1,423,156			1,113,156
Less unamortized discount		-			(102,487	)
Secured senior subordinated convertible promissory notes		892,500			892,500
Less current portion (net of unamortized discounts)		(1,966,298	)		(716,531	)
Senior subordinated convertible promissory notes		685,000			685,000
	$	360,913		$	255,456
		4,718,480			4,374,236
Less unamortized discount		(416,709	)		(36,949	)
Less current portion (net of unamortized discounts)		(4,083,533	)		(1,440,581	)
	$	218,238		$	2,896,706

Financed Insurance Premiums

InThe ~~January 2014, the~~ Company ~~entered~~financesits ~~into a financing agreement with an unrelated third party to finance the Company’s~~ medical malpractice, property and casualty, directors and officers, and employment liability insurance. ~~over~~The afinancing, ~~period~~through ofunrelated ~~nine~~third ~~months. The note~~parties, inhas ~~the~~a ~~principal~~typical ~~amount~~term of ~~$99,265, bears interest at~~ approximately ~~6.25%~~nine ~~per~~months ~~annum,~~ and isbears ~~repayable~~interest ~~in one installment~~ of $6-8~~,674~~%. ~~and~~Installments ~~eight~~on ~~installments~~such ofinsurance are approximately $1115,~~642. The~~400 ~~note~~per ~~matured~~month in ~~September 2014 and is paid in full~~2015.

- 11 -

In March 2014, the Company entered into a financing agreement with an unrelated third party to finance the Company’s directors and officer liability insurance over a period of nine months. The note, in the principal amount of $46,750, bears interest at approximately 7.68% per annum, and is repayable in nine monthly installments of $5,362. The note matures in December 2014. The balance outstanding on the note was $15,883 and $0 at September 30, 2014 and December 31, 2013, respectively.

Equipment Promissory Notes

InThe Company ~~November~~and ~~2010,~~its ~~the~~wholly-owned ~~Company~~subsidiaries have entered into avarious ~~financing~~loan ~~agreement~~agreements with ~~an unrelated~~ third party lenders to finance equipment ~~computer~~such ~~and~~as ~~telephone~~tattoo ~~equipment~~removal tolasers, ~~upgrade~~IPL ~~existing~~devices ~~systems~~for ~~and~~hair ~~equip~~removal, ~~its~~and ~~clinic~~computer ~~location~~and intelephone ~~Montclair, California~~equipment. The ~~note,~~loans typically inhave ~~the~~terms ~~principal~~from ~~amount~~two ofto ~~$64,157,~~five ~~bears~~years and bear interest at rates from approximately 67 – 14% per annum, and isare collateralized ~~repayable~~by inthe 60equipment. ~~monthly~~All ~~installments~~ of ~~$1,241. The~~the ~~note~~equipment ~~matures~~promissory innotes ~~October~~require ~~2015~~the Company to maintain and isinsure the equipment secured by athe ~~first~~note ~~priority~~and ~~purchase~~pay ~~money~~personal ~~security~~property taxes thereon. Principal and interest inpayments on the ~~equipment~~loans are due monthly. ~~The~~ ~~balance~~Interest ~~outstanding~~expense on the ~~note~~equipment promissory notes was approximately $1713,~~888~~000 and $2712,~~994~~000 atfor ~~September~~the ~~30,~~three ~~2014~~months ~~and~~ended March ~~December~~ 31, ~~2013~~2015 and 2014, respectively.

In February 2011, the Company entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a laser for the location in Montclair, California. The note, in the principal amount of $118,495, bore interest at approximately 7% per annum, and was repayable in 36 monthly installments of $3,700. The note matured in January 2014 and was secured by a first priority purchase money security interest in the equipment. The note was paid off in April 2014. The balance outstanding on the note was $0 and $43,020 at September 30, 2014 and December 31, 2013, respectively.

In May 2011, the Company entered into a financing agreement with an unrelated third party to finance computer and telephone equipment for its Dallas, Texas clinic and its call center in Irvine, California. The note, in the principal amount of $17,515, bore interest at approximately 7% per annum, and was repayable in 36 monthly installments of $539. The note matured in June 2014 and has been paid in full. The balance outstanding on the note was $0 and $3,171 at September 30, 2014 and December 31, 2013, respectively.

In June 2011, the Company entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a laser for the location in Dallas, Texas. The note, in the principal amount of $118,495, bore interest at approximately 7% per annum, and was repayable in 36 monthly installments of $3,700. The note was set to mature in June 2014 and was paid off in April 2014. The balance outstanding on the note was $0 and $49,390 at September 30, 2014 and December 31, 2013, respectively.

In June 2012, the Company entered into a financing agreement with an unrelated third party to finance computer and telephone equipment for its Houston, Texas clinic and its clinic planned for Phoenix, Arizona. The note, in the principal amount of $37,870, bears interest at approximately 6% per annum, and is repayable in 36 monthly installments of $1,148. The note matures in May 2015 and is secured by a first priority purchase money security interest in the equipment. The balance outstanding on the note was $8,988 and $18,697 at September 30, 2014 and December 31, 2013, respectively.

In June 2012, DRTHC I, LLC, a wholly-owned subsidiary of the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a laser for the location in Houston, Texas. The note, in the principal amount of $59,920, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $2,683. The note matured in June 2014 and has been paid in full. The balance outstanding on the note was $0 and $15,773 at September 30, 2014 and December 31, 2013, respectively.

In November 2012, DRTHC I, LLC, a wholly-owned subsidiary of the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a laser for the location in Phoenix, Arizona. The note, in the principal amount of $67,996, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $3,044. The note was scheduled to mature in November 2014 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $533 per month. The balance outstanding on the note was $14,107 and $32,345 at September 30, 2014 and December 31, 2013, respectively.

In March 2013, the Company entered into a financing agreement with an unrelated third party to finance telephone equipment for its Sugar Land, Texas clinic (which was subsequently moved to Frisco, Texas) and clinics planned for Fort Worth, Texas and Atlanta, Georgia. The note, in the principal amount of $34,563 bears interest at approximately 9% per annum, and is repayable in 36 monthly payments of $1,037. The note matures in March 2016 and is secured by a first priority purchase money security interest in the equipment. The balance outstanding on the note was $17,282 and $22,538 at September 30, 2014 and December 31, 2013, respectively.

In March 2013, the Company entered into a financing agreement with an unrelated third party to finance computer equipment for its Sugar Land, Texas clinic which was subsequently moved to Frisco, Texas (a suburb of Dallas) and clinics planned for Fort Worth, Texas and Atlanta, Georgia. The note, in the principal amount of $37,524, bears interest at approximately 11% per annum, and is repayable in 36 monthly installments of $1,199. The note matures in February 2016 and is secured by a first priority purchase money security interest in the equipment. The balance outstanding on the note was $19,828 and $28,590 at September 30, 2014 and December 31, 2013, respectively.

In March 2013, DRTHC I, LLC, a wholly-owned subsidiary of the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a laser for the Sugar Land, Texas clinic (which was subsequently moved to Frisco, Texas). The note, in the principal amount of $75,920, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $3,399. The note was scheduled to mature in March 2015 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $1,134 per month. The balance outstanding on the note was $29,987 and $48,485 at September 30, 2014 and December 31, 2013, respectively.

- 12 -

In October 2013, DRTHC II, LLC, a wholly-owned subsidiary of the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of lasers for the Atlanta, Georgia clinic. The note, in the principal amount of $114,000, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $5,104. The note was scheduled to mature in November 2015 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $3,151 per month. The balance outstanding on the note was $83,338 and $109,561 at September 30, 2014 and December 31, 2013, respectively.

In October 2013, DRTHC I, LLC, a wholly-owned subsidiary of the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a hair removal device for the Houston, Texas clinic. The note, in the principal amount of $28,000, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $1,254. The note was scheduled to mature in November 2015 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $774 per month. The balance outstanding on the note was $20,469 and $26,910 at September 30, 2014 and December 31, 2013, respectively.

In December 2013, the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of three laser devices for its clinics in Southern California. The note, in the principal amount of $248,000, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $11,104. The note was scheduled to mature in December 2015 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $7,238 per month. The balance outstanding on the note was $191,414 and $248,000 at September 30, 2014 and December 31, 2013, respectively.

In May 2014, the Company, entered into a financing agreement with an unrelated third party manufacturer to finance computer equipment for its Fort Worth, Texas clinic. The note, in the principal amount of $4,625, bears interest at approximately 13.8% per annum, and is repayable in 36 monthly installments of $157. The note matures in April 2017 and is secured by a first priority purchase money security interest in the equipment. The balance outstanding on the note was $4,090 and $0 at September 30, 2014 and December 31, 2013, respectively.

In June 2014, the Company, entered into a financing agreement with an unrelated third party manufacturer to finance the purchase of a hair removal devices for the San Fernando Valley and Inland Empire, California clinics. The note, in the principal amount of $210,000, bore interest at approximately 7% per annum, and was repayable in 24 monthly installments of $9,402. The note was scheduled to mature in May 2016 and is secured by a first priority purchase money security interest in the equipment. Effective September 1, 2014, the parties renegotiated the loan to extend the term to March 2017 and increase the interest rate to 10% per annum. The new installment amount is $7,702 per month. The balance outstanding on the note was $204,177 and $0 at September 30, 2014 and December 31, 2013, respectively.

All of the equipment promissory notes require the Company to maintain and insure the equipment secured by the note and pay personal property taxes thereon.

Tenant Improvement Secured Loan

InAs ~~February~~of ~~2013~~March 31, 2015 and December 31, 2014, the Company ~~issued~~had $~~200~~100,000 in outstanding secured tenant improvement loans. The notes, were secured by the reimbursements due from landlords with respect to tenant improvements made or to be made by the Company in connection with the development of clinics. The notes bear interest at 15% and were initially due on August 15, 2013~~. As additional consideration for the investors purchasing the notes~~, ~~the~~but ~~Company~~were ~~issued~~subsequently ~~the~~extended ~~note~~through ~~holders~~various ~~fully~~agreements ~~vested~~until ~~five-year~~December ~~warrants to purchase an aggregate of 218~~31,~~750~~ ~~shares of the Company’s common stock at an exercise price of $~~2014.~~60 per share.~~ The ~~fair~~outstanding ~~values~~balance of the ~~warrants~~tenant atimprovement ~~the~~secured ~~time~~loans ofwas ~~issuance, determined by management to be~~ $49100,~~454~~000 inat ~~the~~March ~~aggregate~~31, ~~were~~2015 ~~recorded as a debt discount~~ and ~~were~~December amortized to interest expense over the initial term of the notes. The Company estimated the fair value of the warrants issued based upon the application of the Black-Scholes option pricing model using the following assumptions: value of common share of $.4931, ~~strike price $~~2014.~~60, expected life of five years; risk free interest rate of .08%; volatility of 72% and expected dividend yield of zero.~~

In ~~July~~March ~~2013~~2015, inthe ~~exchange~~Company ~~for~~and ~~their~~holders ~~agreement~~of its tenant improvement secured loans agreed to ~~extend~~amend the ~~original~~terms ~~due~~of ~~date~~the ~~from~~agreements ~~August~~to ~~15,~~extend ~~2013~~the todue ~~December~~date ~~31,~~of ~~2013,~~both ~~the~~principal ~~Company~~and ~~issued~~interest ~~five-year~~until ~~fully~~January ~~vested~~1, ~~warrants~~2016. toThe ~~purchase~~holders ~~220~~received 235,~~000~~837 shares of ~~Company~~ common stock atin exchange for the 589,593 warrant shares that they held, an ~~exercise~~exchange ~~price~~ratio of $.604 ~~per~~shares ~~share~~of tocommon ~~the~~stock ~~note~~for ~~holders.~~each ~~The~~warrant ~~fair~~share ~~values~~exchanged. The ofdifference between the ~~warrants~~estimated atfair ~~the~~value ~~time~~ of ~~issuance,~~the ~~determined~~common bystock ~~management~~and tothe bewarrants ~~$52,500~~exchanged inof ~~the~~approximately ~~aggregate~~$50,000 ~~were~~was recorded as a debt discount and ~~were~~will ~~amortized~~be charged to interest expense and costs of financing over the ~~extended~~ term of the ~~notes~~extension. Amortization of the debt discount for the tenant improvement secured loans was approximately $3,000 for the three months ended March 31, 2015.

In December 2013, the Company repaid $100,000 principal amount of its tenant improvement secured loans together with interest due thereon of approximately $15,238 to three note holders, one of whom is an officer of the Company, and entered into extension agreements with respect to the remaining outstanding balance of $100,000. In exchange for an extension of the due date of the notes through March 31, 2014, the Company issued the note holders fully vested five-year warrants to purchase an aggregate of 115,240 shares of the Company’s common stock at an exercise price of $.60 per share. The fair value of the warrants at the time of issuance, determined by management to be approximately $27,700 in the aggregate, was recorded as additional debt discount and amortized to interest expense over the term of the extension. On April 1, 2014, the Company entered into further extension agreements with respect to the loans. In exchange for an extension of the due date of the notes through September 30, 2014, the Company issued the note holders fully vested five-year warrants to purchase an aggregate of 239,353 shares of the Company’s common stock at an exercise price of $.60 per share. The fair value of the warrants at the time of issuance, determined by management to be $53,200 in the aggregate, was recorded as additional debt discount and will be amortized to interest expense over the term of the extension. On October 1, 2014, the Company entered into further extension agreements with respect to the loans, extending the due date to December 31, 2014. The note holders agreed to the extension for no additional consideration. The outstanding balance of the tenant improvement secured loans was $100,000 at September 30, 2014 and December 31, 2013.

Amortization of the debt discount related to the tenant improvement secured loan was $80,916 for the nine months ended September 30, 2014 and $101,954 for the year ended December 31, 2013.

- 13 -

Unsecured Promissory Notes

InInterim ~~August~~credit 2013, the Company issued $120,000 in unsecured promissory notes to three members of its Board of Directors, their families, associates or associated entities. The notes bear interest at 15% and were initially due on December 31, 2013. As additional consideration for the investors purchasing the notes, the Company issued the note holders fully vested five-year warrants to purchase an aggregate of 120,000 shares of the Company’s common stock at an exercise price of $.60 per share. The fair values of the warrants at the time of issuance, determined by management to be $22,800 in the aggregate, were recorded as a debt discount and were amortized to interest expense over the initial term of the notes. agreement

In ~~October~~2014 ~~2013,~~ the Company issued $~~200~~1,050,000 inof short-term unsecured promissory notes. The short-term unsecured promissory notes were issued to Board amembers 5%and ~~shareholder~~their affiliates, and certain parties who were already lenders or investors in the Company. The ~~note~~notes ~~bears~~matured on April 30, 2014, and bore interest at 15% per annum, and ~~was~~were ~~initially~~planned ~~due~~to onbe ~~December~~repaid ~~31,~~from ~~2013~~the proceeds of a $2 million convertible debt offering. AsIn ~~additional~~addition ~~consideration~~to ~~for~~the 15% per annum interest, the ~~investor~~holders ~~purchasing~~were entitled to equity and a repayment premium if the ~~note~~notes were not repaid by certain dates. In December 2014, the Company ~~issued~~entered ~~the~~into ~~note~~an ~~holder~~amendment ~~fully~~with ~~vested~~all ~~five~~of the holders of these short-~~year~~term ~~warrants~~unsecured promissory notes. Pursuant to ~~purchase~~the anamendment, ~~aggregate~~the holders agreed to extend the due date of ~~200,000~~the loan and extended the dates upon which interest to be paid in shares of Company common stock or as repayment premium would be due. Pursuant to the amended terms, the maturity date has been extended to January 1, 2016 when all principal and interest, including interest in the form of common stock, will be due. The Company’s also redeemed 2,000,000 shares of common stock that had previously been issued to the holders. The Company recorded the redemption at an ~~exercise~~estimated ~~price~~fair value of $0.6033 per share in 2014. The ~~fair~~note ~~values~~holders earned four shares of common stock and a repayment premium equal to 100% of the ~~warrants~~principal atamount on March 31, 2015 as the ~~time~~notes remained unpaid on that date. In the event that the notes are not repaid on the maturity date of ~~issuance~~January 1, ~~determined~~2016, bythe ~~management~~holders towill be ~~$38,000~~entitled into ~~the~~an ~~aggregate,~~additional ~~were~~one-quarter ~~recorded~~of asone ashare ~~debt~~of ~~discount~~common stock and ~~were~~repayment ~~amortized~~premium equal to ~~interest~~10% ~~expense~~for ~~over~~each ~~the~~dollar ~~initial~~loaned ~~term~~to of the ~~notes~~Company.

InUnsecured ~~December 2013, the Company repaid $20,000 principal amount of its unsecured~~ promissory notes together with interest due thereon of approximately $1,159 to one note holder, an officer of the Company, and entered into extension agreements with respect to the remaining outstanding balance of unsecured promissory notes of $300,000. In exchange for an extension of the due date of the notes through March 31, 2014, the Company issued the note holders fully vested five-year warrants to purchase an aggregate of 310,893 shares of the Company’s common stock at an exercise price of $.60 per share. The fair value of the warrants at the time of issuance, determined by management to be $74,771 in the aggregate, was recorded as additional debt discount and was amortized to interest expense over the term of the extension. In exchange for a further extension of the due date of the notes through September 30, 2014, the Company issued the note holders fully vested five-year warrants to purchase an aggregate of 643,973 shares of the Company’s common stock at an exercise price of $.60 per share. The fair value of the warrants at the time of issuance, determined by management to be $143,000 in the aggregate, was recorded as additional debt discount and will be amortized to interest expense over the term of the extension. On October 1, 2014, the Company entered into further extension agreements with respect to the loans, extending the due date to December 31, 2014. The note holders agreed to the extension for no additional consideration. Amortization of the debt discount related to the 2013 unsecured promissory notes and their extensions was $217,771 for the nine months ended September 30, 2014 and $60,800 for the year ended December 31, 2013.

In ~~February~~ 2013, ~~March, and April, 2014~~ the Company issued $~~950~~300,000 ofin ~~short-term~~ unsecured promissory notes. ~~The short-term unsecured promissory notes were issued~~ to ~~Board~~three members ~~and their affiliates, and certain parties who are already lenders or investors in the Company. The purpose~~ of ~~the~~its ~~offering~~Board ~~was to provide immediate funds to support the opening~~ of ~~new~~Directors, ~~clinics~~their ~~in Frisco and Ft. Worth~~families, associates, ~~Texas~~shareholders ~~and~~or ~~additional~~associated ~~marketing while the Company works to complete a convertible debt offering~~entities. The notes ~~matured on April 30, 2014, and~~ bear interest at 15% ~~per annum,~~ and were ~~planned~~initially todue beon ~~repaid~~December 31, ~~from~~2013. The ~~the~~Company ~~proceeds~~and ofthe aholders $2entered ~~million~~into ~~convertible~~various ~~debt~~extension ~~offering. As~~agreements ~~additional~~with ~~consideration~~respect ~~for~~to the ~~lenders~~loans, extending the ~~Company~~due ~~will~~date ~~issue~~to ~~equity~~December to31, ~~the~~2014. ~~lenders~~In ~~depending~~March ~~upon~~2015, the Company ~~date~~and ofholders ~~repayment~~ of ~~the loan. Initially~~$300,000 ~~the~~in ~~lenders~~principal ~~will~~amount ~~receive one fully vested warrant to purchase common stock at an exercise price~~ of ~~$.65.~~its ~~If the short-term~~ unsecured promissory notes ~~are~~agreed ~~repaid~~to onamend orthe ~~after~~terms ~~May 31, 2014, in lieu~~ of ~~a warrant~~ the agreements ~~investors~~to ~~will~~extend ~~receive~~the ~~0.5~~due ~~shares~~date of ~~common~~both ~~stock.~~principal Inand ~~the~~interest ~~event~~until ~~that~~January ~~the~~1, ~~short-term~~2016. ~~unsecured~~The ~~promissory~~holders ~~note~~received ~~remains unpaid after July 31~~501,946 ~~2014, the number of~~ shares of common stock ~~that~~in ~~the~~exchange ~~lender~~for ~~will~~the ~~receive increases as follows: if paid on or after July 31~~1, ~~2014 one share~~254,866 ifwarrant ~~paid~~shares onthat orthey ~~after September 30~~held, ~~2014~~an ~~two~~exchange ~~shares,~~ratio ~~and~~of if.4 ~~paid~~shares onof orcommon ~~after~~stock for ~~December~~each ~~31,~~warrant ~~2014~~share ~~four shares~~exchanged. The difference Inbetween ~~addition,~~the ~~each~~estimated ~~lender~~fair isvalue ~~entitled to a repayment premium as a percentage~~ of the ~~unpaid~~common ~~balance~~stock asand ~~follows: if~~ the ~~loan~~warrants isexchanged ~~repaid~~of ~~between~~approximately ~~April 30~~$102,000 ~~2014~~was recorded ~~and~~as ~~May~~debt ~~31,~~discount ~~2014,~~and ~~10%;~~will ifbe ~~the~~charged ~~loan~~to isinterest ~~repaid~~expense ~~between June 1, 2014~~ and ~~July~~costs ~~31,~~of ~~2014,~~financing ~~25%;~~over if the ~~loan~~term isof ~~repaid between August 1, 2014 and September 30, 2014, 50%; and 100% if~~ the ~~loan is repaid thereafter~~extension. Amortization Inof ~~June 2014,~~ the ~~Company~~debt ~~issued~~discount anfor ~~additional $100,000 of~~ the ~~short-term~~amended unsecured promissory notes ~~under~~was ~~similar~~approximately ~~terms~~$5,000 ~~with~~for the ~~maturity~~three ~~and~~months ended ~~other~~March ~~target~~31, ~~dates adjusted to reflect the later date of issuance~~2015. ~~The short-term unsecured promissory notes remain unpaid as of the date hereof.~~

~~From~~As ~~July~~of December 31,2014, the Company had outstanding short-term notes to ~~September~~an ~~2014~~officer and two significant shareholders in the amount of $813,156. From January 1, 2015 through March 31, 2015, the Company issued $~~250~~460,000 in additional short-term notes to ~~two~~an ~~significant~~officer ~~shareholders.~~and ~~The~~a ~~notes~~significant ~~are~~shareholder ~~included~~and repaid $150,000 in short-term notes ~~payable,~~for ~~current~~an ~~portion~~aggregate ~~(net~~amount outstanding of ~~unamortized~~$1,123,156 ~~discount)~~as inof ~~the~~March ~~accompanying~~31, ~~consolidated balance sheets~~2015. The notes bear interest at 15% per annum and are due on demand.

~~The~~- ~~following~~10 ~~table sets forth the future maturities of the Company’s outstanding notes payable, net of unamortized discount:~~-

Year ended December 31,	September 30, 2014 (Unaudited)		December 31, 2013 (Audited)
2014	$	1,793,873	$	716,531
2015		254,373		250,016
2016		238,002		5,440
2017		40,963		-
Total	$	2,327,211	$	971,987

NOTE 6. CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes payable consist of the following:

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
Secured senior subordinated convertible promissory notes	$	892,500		$	892,500
Senior subordinated convertible promissory notes		685,000			585,000
		1,577,500			1,477,500
Less unamortized discount		(153,263	)		(201,125	)
Less current portion (net of unamortized discounts)		(1,091,140	)		(947,987	)
	$	333,097		$	328,388

- 14 -

Secured Senior Subordinated Convertible Promissory Notes

~~Between~~As ~~May~~of ~~2012~~March 31, 2015 and ~~January~~December ~~2013~~31, 2014, the Company ~~issued~~had outstanding $892,500 of secured senior subordinated convertible promissory notes, ~~respectively~~payable to two members of the Company’s Board of Directors, their associates or associated entities, and others. The notes are convertible at the option of the holder at any time during the term of the note into common stock of the Company at an initial conversion price of $.60 per share, subject to adjustment for stock splits or subdivisions. The notes bear interest at 12% per annum, which interest is payable quarterly, and are due at maturity. The notes matured in May 2014 or mature December 2015 (with respect to the $300,000 of notes issued in January 2013) and are secured by a first priority lien on the ownership interest of the Company in its wholly-owned subsidiary DRTHC I, LLC or DRTHC II, LLC (with respect to the notes issued in January 2013). The balance outstanding on the notes was $892,500 at September 30, 2014 and December 31, 2013. As additional consideration for the investors purchasing the notes, the Company issued the note holders five-year warrants to purchase an aggregate of 1,115,625 shares of the Company’s common stock at an exercise price of $.75 per share. The fair values of the warrants at the time of issuance, determined by management to be $217,225 in the aggregate, were recorded as a debt discount and will be amortized to interest expense over the term of the notes. The notes also contained a beneficial conversion feature determined by management to be $45,066 in the aggregate which was recorded as a debt discount which will be amortized to interest expense over the term of the notes. In May 2014, the Company entered into agreements with holders of $492,500 of the notes to extend the term to December 31, 2014. The Company issued the extending holders five year fully vested warrants to purchase 985,000 shares of common stock at a purchase price of $.60 per share. The fair value of the warrants at the time of issuance, determined by management to be $217,500 in the aggregate, was recorded as a debt discount and will be amortized to interest expense over the term of the extension. Amortization of the debt discount was $183,141 for the nine months ended September 30, 2014 and $129,282 for the year ended December 31, 2013.

In March 2015, the Company and holders of $792,500 in principal amount of its secured senior subordinated convertible promissory notes agreed to amend the terms of the agreements to extend the due date of both principal and interest until January 1, 2016. The holders received 790,210 shares of common stock in exchange for the 1,975,525 warrant shares that they held, an exchange ratio of 0.4 shares of common stock for each warrant share exchanged. The difference between the estimated fair value of the common stock and the warrants exchanged of approximately $178,000 was recorded as debt discount and will be charged to interest expense and costs of financing over the term of the extension. Amortization of the debt discount for the amended secured senior subordinated convertible promissory notes was approximately $21,000 for the three months ended March 31, 2015. As of March 31, 2015, $100,000 of these notes are in default.

Senior Subordinated Convertible Promissory Notes

~~Between~~As ~~May~~of ~~2013~~March 31, 2015 and ~~July~~December ~~2013~~31, 2014, the Company ~~issued~~had outstanding $~~485~~685,000 of senior subordinated convertible promissory notes payable to two members of the Company’s Board of Directors, two 5% shareholders, and others. The notes are convertible at the option of the holder at any time during the term of the note into common stock of the Company at an initial conversion price of $.65 per share, subject to adjustment for stock splits or subdivisions. The notes are mandatorily convertible in the event of a Qualified Transaction (as defined in the notes) and the conversion price is adjustable to the lower of 75% of the price of a share of common stock sold in the Qualified Transaction or $.65. The notes bear interest at 7% per annum, are payable upon conversion or at maturity. The notes ~~mature~~matured November 1, 2014 and are unsecured. As additional consideration for the investors purchasing the notes, the Company issued the note holders fully vested three-year warrants to purchase an aggregate of 746,157 shares of the Company’s common stock at an exercise price equal to the lower of 120% of the conversion price or $.78 per share. The balance outstanding on the notes was $485,000 at September 30, 2014 and December 31, 2013. The fair values of the warrants at the time of issuance, determined by management to be $92,283 in the aggregate, were recorded as a debt discount and will be amortized to interest expense over the term of the notes. Amortization of the debt discount was $81,245 for the nine month ended September 30, 2014 and $875 for the year ended December 31, 2013.

~~Between~~In March ~~September 2013 and January 2014~~2015, the Company ~~issued~~and holders of $~~125~~460,000 in principal amount of its senior subordinated convertible promissory notes agreed to ~~investors. The~~amend ~~notes are convertible at~~ the ~~option~~terms of the ~~holder~~agreements atto ~~any~~extend ~~time during~~ the ~~term~~due ofdate ~~the note into common stock~~ of ~~the~~both ~~Company~~principal atand aninterest ~~initial~~until ~~conversion~~January ~~price of $.65 per share~~1, ~~subject to adjustment for stock splits or subdivisions~~2016. The holders ~~notes~~received ~~are~~283,078 ~~mandatorily~~shares ~~convertible in the event~~ of ~~a Qualified Transaction (as defined in the notes) and the conversion price is adjustable to the lower of 75% of the price of a share of~~ common stock ~~sold~~ in ~~the~~exchange ~~Qualified Transaction or $.65. The notes bear interest at 7% per annum, payable upon conversion or at maturity. The notes mature in March 2015 and are unsecured. As additional consideration~~ for the ~~investor purchasing the notes~~707,695 ~~the~~warrant ~~Company~~shares ~~issued~~that ~~the~~they ~~note~~held, ~~holders fully vested three-year warrants to purchase~~ an ~~aggregate~~exchange ratio of ~~192,308~~0.4 shares of ~~the Company’s~~ common stock atfor aneach ~~exercise~~warrant ~~price~~share ~~equal~~exchanged. The difference tobetween the ~~lower~~estimated offair ~~120%~~value of the ~~conversion~~common ~~price~~stock ~~or $.78 per share. The balance outstanding on the notes was $125,000 at September 30, 2014~~ and ~~$100,000 at December 31, 2013, respectively. The fair values of~~ the warrants atexchanged ~~the time~~ of ~~issuance, determined by management to be~~ approximately $2291,000 ~~in the aggregate, were~~ was recorded as a debt discount and will be ~~amortized~~charged to interest expense and costs of financing over the term of the ~~notes~~extension. Amortization of the debt discount for the amended senior subordinated convertible promissory notes was approximately $1214,~~307~~000 for the ~~nine~~three months ended ~~September~~March 3031, 2015. As ~~2014~~of ~~and~~March $131,~~721~~ ~~for~~2015, ~~the~~$225,000 ~~year~~of ~~ended~~these ~~December~~notes ~~31,~~are ~~2013~~in default.

InNOTE ~~June 2014, the Company issued $75,000 of senior subordinated convertible promissory notes~~6. ~~The~~ CAPITAL ~~notes~~LEASE ~~are~~OBLIGATIONS convertible at the option of the holder at any time during the term of the note into common stock of the Company at an initial conversion price of $.65 per share, subject to adjustment for stock splits or subdivisions. The notes are mandatorily convertible in the event of a Qualified Transaction (asRELATED ~~defined in the notes~~PARTY) and the conversion price is adjustable to the lower of 75% of the price of a share of common stock sold in the Qualified Transaction or $.65. The notes bear interest at 7% per annum, payable upon conversion or at maturity. The notes mature in November 2015 and are unsecured. As additional consideration for the investor purchasing the notes, the Company issued the note holders fully vested three-year warrants to purchase an aggregate of 115,386 shares of the Company’s common stock at an exercise price equal to the lower of 120% of the conversion price or $.78 per share. The balance outstanding on the notes was $75,000 at September 30, 2014 and $0 at December 31, 2013. The fair values of the warrants at the time of issuance, determined by management to be approximately $9,600 in the aggregate, were recorded as a debt discount and will be amortized to interest expense over the term of the notes. Amortization of the debt discount was $2,280 for the nine months ended September 30, 2014 and $0 for the year ended December 31, 2013.

The following table sets forth the future maturities of the Company’s convertible promissory notes net of unamortized discount:

Year ended December 31,	September 30, 2014 (Unaudited)		December 31, 2013 (Audited)
2014	$	1,091,140	$	947,987
2015		333,097		328,388
Total	$	1,424,237	$	1,276,375

-15-

NOTE 7. CAPITAL LEASE OBLIGATIONS (RELATED PARTY)

Capital lease obligations (related party) consisted of the following:

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
	March 31, 2015 (Unaudited)			December 31, 2014 (Audited)
$199,610 capital lease obligation on equipment. The lease bears interest at 9.65% per annum, is payable monthly in principal and interest installments of $2,704 and matures in May 2018.	$	4640,~~295~~901		$	5343,~~916~~630
Total minimum lease payments		4640,~~295~~901			5343,~~916~~630
Less current maturities		(11,~~054~~599	)		(1011,~~286~~323	)
Long-term portion	$	3529,~~241~~302		$	4332,~~630~~307

~~The~~NOTE ~~future~~7. RELATED ~~minimum~~PARTY ~~capital lease payments are as follows:~~TRANSACTIONS

	September 30, 2014 (Unaudited)			December 31, 2013 (Audited)
2014	$	3,760		$	15,041
2015		15,041			15,041
2016		15,041			15,041
2017		15,041			15,041
2018		6,267			6,267
Total minimum lease payments		55,150			66,431
Less amount representing interest		(8,855	)		(12,515	)
Present value of minimum lease payments		46,295			53,916
Less current maturities		(11,054	)		(10,286	)
Long-term portion	$	35,241		$	43,630

NOTE 8. RELATED PARTY TRANSACTIONS

Management Services Agreement

The Company and William Kirby D.O., Inc. ~~operate~~operated under a management agreement that was entered into effective January 1, 2010 and was terminated effective May 2, 2015, whereby the Company provides technical, management, administrative, marketing, support services and equipment to the sites where William Kirby D.O., Inc. provides or supervises tattoo removal services. The agreement covers four clinics in southern California operated by the Company.

Pursuant to the Management Services Agreement, the Company provides certain non-medical management, administrative, marketing and support services to the clinics where William Kirby, D.O., Inc. provides or supervises laser tattoo and hair removal services, which such services include employment of all non-licensed administrative personnel including an on-site manager and receptionist for each site and all support personnel such as accounting, information technology, human resources, purchasing and maintenance. The Company also provides certain supplies, furniture and equipment used at the clinics. The Company is also responsible for identifying and leasing the clinic locations and paying all rent, utilities and maintenance costs related thereto. Under the Management Services Agreement, the Company also arranges third party marketing and advertising for the clinics.

Immediately following the termination of the management services agreement with William Kirby, D.O., Inc., the Company entered into a new management services agreement with similar terms with SC Laser, Inc. which is owned by an unrelated physician.

- 11 -

Medical Director Agreement

Effective January 1, 2010, the Company entered into a Medical Director Agreement with William Kirby, D.O., Inc. and Dr. Kirby, under which the Company receives administrative, consultative and strategic services from William Kirby, D.O. The initial term of the agreement was for five years. The parties ~~have~~terminated ~~agreed to terminate~~ the Medical Director Agreement effective December 31, 2014. The agreement ~~provides~~provided for an annual payment of $250,000 to William Kirby, D.O., Inc. for these services. The Company’s unpaid ~~current~~ obligation under the Medical Director Agreement was $~~20,833~~0 and $20,833 at ~~September 30~~March 31, ~~2014~~2015 and December 31, ~~2013~~2014, respectively. The unpaid ~~amounts~~amount ~~are~~is included in related party payables in the accompanying consolidated balance sheets.

-16-

Lease Guarantees

The IPL device currently used in one of the Company’s clinics is owned by William Kirby, D.O., Inc. pursuant to a financing agreement with a third party financing source. In addition, under the Management Services Agreement, the Company has the right, at any time, to purchase the equipment from William Kirby, D.O., Inc. at a purchase price of the amount outstanding, if any, under the applicable financing agreement. The Company has accounted for this as a capital lease based on the agreement terms.

Shareholders Agreement:

Effective January 1, 2010, the Company entered into a Shareholders Agreement with William Kirby, D.O., Inc. and Dr. Kirby, pursuant to which, upon the occurrence of certain triggering events described below, Dr. Kirby is required to transfer his interest in William Kirby, D.O., Inc. to another licensed person or entity approved by the Company. Such triggering events include but are not limited to (i) the death or incapacity of Dr. Kirby, (ii) the loss of Dr. Kirby’s medical license, (iii) a breach of the obligations of William Kirby, D.O., Inc. and/or Dr. Kirby under the Amended and Restated Management Services Agreement or the Medical Director Agreement, (iv) the voluntary or involuntary transfer of Dr. Kirby’s interest in William Kirby, D.O., Inc., or (v) termination of the Amended and Restated Management Services Agreement in certain circumstances.

NOTE 98. EQUITY

Common Stock

InDuring ~~January 2013,~~ the ~~Company~~quarter ~~issued~~ended ~~35,700~~March ~~shares of common stock to an employee pursuant to the exercise of a non-qualified stock option. The Company received gross proceeds of approximately $17~~31,~~500~~ ~~in connection with the option exercise. In March 2013~~2015, the Company ~~sold~~repurchased ~~136~~30,~~365~~000 shares of its common stock infrom a ~~private~~lender ~~placement~~as ~~for~~required ~~aggregate~~pursuant ~~gross proceeds of approximately $75,000 and issued 423,061 shares of common stock valued at $.49 per share in exchange for services provided~~ to ~~the Company including~~ an ~~aggregate~~amendment ~~of 270,000 shares of common stock issued~~ to the ~~Company’s~~credit ~~three independent directors as compensation for serving in such capacity and 153,061 shares issued to a consultant in connection with brand development~~agreement.

In ~~April~~February ~~2013~~2015, the Company ~~sold~~issued 905,~~910~~150 shares of common stock invalued aat ~~private placement for aggregate gross proceeds of approximately~~ $501,~~000.~~700 Into ~~May 2013~~employees, ~~the~~except ~~Company~~members ~~issued 145,455 shares~~ of ~~common~~its ~~stock~~senior ~~valued~~management atteam, ~~$.49~~as ~~per~~a ~~share in exchange for consulting services provided to the Company~~bonus.

In March ~~December 2013~~2015, the Company issued 131,~~636~~811,070 shares of common stock ~~valued~~to atcertain ~~$.49~~debt ~~per~~holders ~~share~~ in exchange for ~~consulting~~4,527,679 ~~services~~warrants ~~provided~~to acquire shares of shares of common stock and an agreement to extend the maturity of the debt to January 1, 2016. The Company valued ~~and~~the ~~issued~~common ~~125~~stock at $0.33 per share. The value of the warrants for 4,~~000~~527,679 shares of common stock towas aestimated using ~~lender~~the inBlack-Scholes ~~connection~~option-pricing model with ainputs ~~line~~based on the underlying warrant. Such estimate was based on the following assumptions: value of ~~credit~~one common share of $0.33; ~~Also~~strike inprice ~~December~~ranging ~~2013~~from $0.60 to $0.75, ~~the~~expected life from 2.2 years to 4.2 years, risk-free interest rate of ranging from approximately .14% to .95%, volatility of approximately 42%; and expected dividend yield of zero. The Company ~~issued~~decreased 5its warrant liability from approximately $9,~~300~~932 to zero with respect to approximately 707,695 warrant shares that had been accounted for as debt warrants. The remaining difference between the estimated fair value of ~~its~~the common stock of approximately $598,000 and the warrants exchanged of approximately $165,000 was charged to ~~non-executive~~debt ~~employees~~discount asand ~~additional~~will ~~compensation~~be charged to interest expense and costs of financing over the term of the extension.

In June 2014, the Company issued 475,000 shares of common stock valued at $.49 to holders of the Company’s short-term unsecured promissory notes pursuant to the terms of the notes, which provide for the issuance of equity consideration as of certain dates in the event that the promissory notes remain unpaid.

In July 2014, the Company issued 10,500 shares of common stock valued at $.49 per share to a vendor in exchange for a reduction in fees.

In August 2014, the Company issued 475,000 shares of common stock valued at $.49 to holders of the Company’s short-term unsecured promissory notes pursuant to the terms of the notes, which provide for the issuance of equity consideration as of certain dates in the event that the promissory notes remain unpaid.

In August and in September 2014, the Company repurchased 10,000 shares of common stock from a lender at a purchase price of $.49 per share as required pursuant to an amendment in the credit agreement. The Company accounted for the repurchase of shares using the constructive retirement method as the Company’s state of incorporation does not recognize treasury shares.

In September 2014, the Company issued 50,000 shares of common stock valued at $.49 to a holder of the Company’s short-term unsecured promissory notes pursuant to the terms of the note, which provides for the issuance of equity consideration as of certain dates in the event that the promissory note remains unpaid.

Stock Options

In April 2011, the Company’s board of directors adopted the Dr. Tattoff, Inc. Long-Term Incentive Plan for the purpose of granting incentive awards, including equity awards such as stock options or restricted stock, to certain officers, employees, directors, consultants and other service providers of our Company, to provide such recipients with additional incentives to enhance the value of our Company and encourage stock ownership. Under the Long-Term Incentive Plan, we can grant incentive and nonqualified options to purchase shares of our common stock, stock appreciation rights, other stock-based awards, which are settled in either cash or shares of our common stock and are determined by reference to shares of our stock (such as grants of restricted common stock, grants of rights to receive stock in the future or dividend equivalent rights) and cash performance awards, which are settled in cash and are not determined by reference to shares of our common stock.

~~-17-~~The Company recognized compensation expense of approximately $12,000 and $29,000 in the three months ended March 31, 2015 and 2014 related to the options and grants, which is included in general and administrative expenses in the accompanying consolidated statements of operations.

InThe ~~January~~following ~~2013,~~table summarizes the Company’s ~~granted 61,225 incentive~~ stock ~~options to an executive officer as part of his compensation package, vesting over twelve months with an exercise price of $.49. As determined by management using the Black-Scholes~~ option~~-pricing~~ ~~model,~~activity ~~the~~for ~~estimated fair value of~~ the ~~aforementioned~~three ~~stock~~months ~~option~~ended ~~approximated~~March ~~$17~~31,~~300~~ ~~on its issuance date. Such estimate was based on the following assumptions~~2015: ~~value of one common share of $0.49; strike price of $0.49; expected life of five years; risk-free interest rate of 0.67%; volatility of 73%; and expected dividend yield of zero.~~

In March 2013, the Company granted 24,041 incentive options to executive officers, 13,264 incentive options to other employees of the Company and 6,517 non-qualified options to employees of William Kirby, D.O., Inc., vesting immediately with an exercise price of $.49 as consideration for their agreement to defer compensation. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $14,000 on their issuance date. Also in March 2013, the Company granted 20,000 non-qualified options to each of the three independent members of its Board of Directors, vesting immediately and 45,000 options to each of the three independent members of its Board of Directors vesting 50% immediately and 25% on each the first and second anniversary of the grant date, with an exercise price of $.49 per share as compensation for serving on the Company’s Board of Directors. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $52,000 on their issuance date. Also in March 2013, the Company granted 10,000 non-qualified options to each of five members of its medical advisory board, with 25% vesting immediately and 25% vesting on each of the first, second and third anniversary of the grant date with an exercise price of $.49 per share. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $13,400 on their issuance date. Also in March 2013, the Company granted 10,000 non-qualified options to each of five members of its medical advisory board, vesting 25% on each of the first through fourth anniversary of the grant date with an exercise price of $.55 per share. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $13,400 on their issuance date. All of the estimates of the values of the options granted during March 2013 were based on the following assumptions: value of one common share of $0.49; strike price of $0.49; expected life of five years; risk-free interest rate of 0.63%; volatility of 73%; and expected dividend yield of zero.


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Grant-Date Fair Value per Share
Outstanding at December 31, 2014 (audited)		1,553,906		$	.46	$	.44
Granted (unaudited)		-			-		.
Exercised (unaudited)		-			-		-
Forfeited or Expired (unaudited)		(21,328	)		.51		.49
Outstanding at March 31, 2015 (unaudited)		1,532,578		$	.46	$	.44

Exercisable at March 31, 2015 (unaudited)		1,186,099		$	.45	$	.44
Vested and expected to vest at March 31, 2015 (unaudited)		1,532,578		$	.46	$	.44

In June 2013, the Company granted 212,413 incentive stock options to an employee as part of his compensation package, vesting over a four year period with an exercise price of $.55. As determined by management using the Black-~~Scholes~~ ~~option-pricing~~12 ~~model, the estimated fair value of the aforementioned stock option approximated $53,200 on its issuance date. Also, in June 2013, the Company granted 10,000 non~~-qualified options to a new member of its medical advisory board, vesting 25% on each of the first through fourth anniversary of the grant date with an exercise price of $.55 per share. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $2,503 on their issuance date. All of the estimates of the values of the options granted during June 2013 were based on the following assumptions: value of one common share of $0.49; strike price of $0.55, expected life of five years; risk-free interest rate of 1.07%; volatility of 64%; and expected dividend yield of zero.

InThe ~~July~~aggregate ~~2013,~~intrinsic ~~the~~value ~~Company~~of ~~granted 112,727 incentive~~ options toexercised ~~two~~during ~~executive~~the ~~officers~~three asmonths ~~part~~ended ofMarch ~~their compensation packages~~31, ~~vesting~~2015 ~~over~~was ~~a four year period with an exercise price of~~ $0.~~55.~~ AsThe ~~determined~~aggregate byintrinsic ~~management using the Black-Scholes option-pricing model, the estimated fair~~ value of ~~the~~options ~~aforementioned~~outstanding ~~stock~~at ~~options~~March ~~approximated $28~~31,~~100~~ on2015 ~~the issuance date. Such estimate~~ was ~~based~~approximately ~~on the following assumptions: value of one common share of~~ $0.~~49; strike price of $0.55, expected life of five years; risk-free interest rate of 1.42%; volatility of 63%; and expected dividend yield of zero.~~

In October 2013, the Company granted 7,327 incentive options to executive officers, 2,513 incentive options to other employees of the Company and 6,088 non-qualified options to William Kirby, D.O., vesting immediately with an exercise price of $.55 as consideration for their agreement to defer compensation. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock options approximated $3,900 on their issuance date. Such estimate was based on the following assumptions: value of one common share of $0.49; strike price of $0.55; expected life of five years; risk-free interest rate of 1.41%; volatility of 63%; and expected dividend yield of zero.

In February 2014, the Company granted 54,545 incentive stock options to an executive officer as part of his compensation package vesting over twelve months with an exercise price of $.55. As determined by management using the Black-Scholes option-pricing model, the estimated fair value of the aforementioned stock option approximated $13,200 on its issuance date. Such estimate was based on the following assumptions: value of one common share of $0.49; strike price of $0.55; expected life of five years; risk-free interest rate of 1.57%; volatility of 61%; and expected dividend yield of zero.

The Company recognized compensation expense of approximately $69,000 in the nine months ended September 30, 2014 and $136,000 for the year ended December 31, 2013 related to the options and grants, which is included in general and administrative expenses in the accompanying consolidated statements of operations.

The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2014:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Grant-Date Fair Value per Share
Outstanding at December 31, 2013 (audited)		1,540,402		$	.45	$	.44
Granted (unaudited)		54,545			.55		.49
Exercised (unaudited)		-			-		-
Forfeited or Expired (unaudited)		(49,869	)		.39		.39
Outstanding at September 30, 2014 (unaudited)		1,545,078		$	.46	$	.44
Exercisable at September 30, 2014 (unaudited)		1,105,039		$	.45	$	.43
Vested and expected to vest at September 30, 2014 (unaudited)		1,545,078		$	.46	$	.44

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The aggregate intrinsic value of options exercised during the three months ended September 30, 2014 was $0. The aggregate intrinsic value of options outstanding at September 30, 2014 was approximately $81,000.

Warrants

The ~~Company~~following ~~issued~~table asummarizes ~~number of warrants in 2013 and 2014 related to various transactions. In each case,~~ the Company’s estimated the fair value of the warrants issued based upon the application of the Black-Scholes option pricing model. During 2013, the Company used the following assumptions: value of common share of $.49, expected life of three or five years depending on the term of the warrant; ~~risk~~activity ~~free~~for ~~interest rate of between .58% and 1.73%; volatility of 63-72% and expected dividend yield of zero. During 2014,~~ the ~~Company used the following assumptions: value of common share of $.49, expected life of~~ three ormonths ~~five~~ended ~~years~~March ~~depending on the term of the warrant; risk free interest rate of between .86% and 1.73%; volatility between 46% and 61% and expected dividend yield of zero. Unless indicated otherwise~~31, the Company has analyzed these warrants and determined them to be equity instruments. Accordingly, the estimated fair value of the warrants was recognized as “additional paid-in capital” on the accompanying consolidated balance sheets. 2015:

In January 2013, the Company issued five-year warrants to purchase 30,613 shares of the Company’s common stock at a purchase price of $.595 per share to an employee as part of his compensation package. The warrants vested on a monthly basis through January 1, 2014. The estimated fair value at issuance of $8,200 was recognized as “compensation expense” and is included within “general and administrative” expenses on the consolidated statements of operations.


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2014 (audited)		8,332,862		$	.65		3.1
Granted (unaudited)		-			-		-
Exercised (unaudited)		-			-		-
Expired or cancelled (unaudited)		(4,527,679	)		.66		-
Exercisable at March 31, 2015 (unaudited)		3,805,183		$	.63		2.5

In connection with issuance of the secured senior subordinated convertible notes in a private placement in January 2013, the Company issued fully vested five-year warrants to purchase 375,000 shares of the Company’s common stock at a purchase price of $.75 per share as additional consideration to the investors, including 250,000 warrant shares to two members of the Company’s Board of Directors. The net proceeds on the issuance of the convertible notes were allocated between the estimated fair value of the warrants at issuance of $89,500 and the convertible notes issued in the offering.

Warrants Outstanding and Exercisable

Number of Shares Under Warrants	Range of Exercise Prices		Expiration Date	Weighted Average Exercise Price
128,840	$	.37	2015	$	.37
207,956		.59-.78	2016		.73
2,487,956		.49-.78	2017		.60
953,158		.60-1.00	2018		.72
27,273		.60-.65	2019		.65
3,805,183	$	.37-1.00		$	.63

~~In connection with issuance and subsequent extension of the maturity date of the tenant improvement secured loan initially made in February 2013, the Company issued fully vested five~~-~~year~~ ~~warrants~~13 to purchase 585,240 shares of the Company’s common stock at a purchase price of $.60 per share as additional consideration to the investors, including 146,310 warrant shares to members of the Company’s Board of Directors and management. The net proceeds on the issuance of the tenant improvement secured loan were allocated between the estimated fair value of the warrants at issuance of approximately $145,900 and the notes issued in the offering. -

In March 2013, the Company issued fully vested five-year warrants to purchase 76,530 shares of the Company’s common stock at a purchase price of $.595 per share to a service provider as additional consideration for services provided. The warrant expires on January 15, 2018. The estimated fair value at issuance of $20,500 was recognized as “consulting expense” and is included within “general and administrative” expenses on the consolidated statements of operations.

In connection with the sale of common stock in a private placement in March and April 2013, the Company issued fully vested five-year warrants to purchase 170,457 shares of the Company’s common stock at a purchase price of $.65 per share as additional consideration to the investors. The net proceeds on the sale of common stock were allocated between the estimated fair value of the warrants at issuance of $41,600 and the common stock sold in the offering.

In May 2013, the Company issued five-year warrants, vesting over one year, to purchase 34,090 shares of the Company’s common stock at a purchase price of $.65 per share to a service provider as additional consideration for services provided. The estimated fair value at issuance of approximately $7,800 was recognized as “consulting expense” and is included within “general and administrative” expenses on the consolidated statements of operations.

In connection with issuance of the senior subordinated convertible notes in a private placement in May, June and July 2013, the Company issued fully vested five-year warrants to purchase 186,537 shares of the Company’s common stock at a purchase price of $.78 per share as additional consideration to the investors. The warrants were exchanged in December 2013 for warrants with different terms as described below.

-19-

In connection with the issuance and subsequent extension of the maturity date of unsecured promissory notes originally issued in August and October 2013, the Company issued five-year warrants to purchase 630,893 shares of the Company’s common stock at a purchase price of $.60 per share as additional consideration to the note holders, including 97,174 shares issued to members of the Company’s Board of Directors and management. The net proceeds on the unsecured promissory notes were allocated between the estimated fair value of the warrants at issuance of approximately $141,500 and the notes issued.

In July 2013, the Company issued five-year warrants to purchase 84,545 shares of the Company’s common stock at a purchase price of $.65 per share to two employees as part of their compensation package. The warrants vest on a monthly basis through July 2014 at which time the warrant will be fully vested. The estimated fair value at issuance of $19,400 was recognized as “compensation expense” and is included within “general and administrative” expenses on the consolidated statements of operations.

In connection with the issuance of senior subordinated convertible notes in a private placement from September 2013 to January 2014, the Company issued fully vested three-year warrants to purchase 153,846 shares of the Company’s common stock at a purchase price of $.78 per share as additional consideration to the investors. In the event that the convertible note is converted, the number of shares issuable under the warrant will be adjusted to 100% of the number of conversion shares and the strike price adjusted to 120% of the conversion price. The net proceeds on the issuance of the convertible notes were allocated between the estimated fair value of the warrants at issuance of approximately $25,800 and the convertible notes issued in the offering. The Company has analyzed these warrants and determined them to be debt instruments. Accordingly, the estimated fair value of the warrants was recognized as “warrant liability” on the consolidated balance sheets. The Company determined the fair value of the warrant liability to be approximately $10,400 at September 30, 2014.

In October 2013 the Company issued fully vested five-year warrants to purchase 450,000 shares of the Company’s common stock at a purchase price of $1.00 per share in exchange for consulting services to be delivered over a twelve month period. The estimated fair value of the warrants at issuance of $80,300 was recognized as consulting expense included in general and administrative expense on the consolidated statements of operations. Of these warrants, 225,000 were cancelled in February 2014.

In December 2013 the Company issued fully vested three-year warrants to purchase 39,000 shares of the Company’s common stock at a purchase price of $.78 per share in exchange for services related to the Company’s new revolving loan facility. The Company has analyzed these warrants and determined them to be debt instruments. Accordingly, the estimated fair value of the warrants was recognized as “warrant liability” on the consolidated balance sheets and the expense will be amortized over the term of the revolving loan and included in interest expense. The Company determined the fair value of the warrant liability to be $4,300 at issuance and $2,200 at September 30, 2014.

In December 2013, the Company exchanged 186,537 warrants that had been issued in connection with the issuance of the senior subordinated convertible notes in a private placement from May to July 2013 with new warrants. The number of shares of common stock that can be purchased by the warrant holder was increased to 746,157 and the term of the warrant was decreased from five to three years. In the event that the convertible note is converted, the number of shares issuable under the warrant will be adjusted to 100% of the number of conversion shares and the strike price adjusted to 120% of the conversion price. The net proceeds on the issuance of the convertible notes were allocated between the estimated fair value of the warrants at issuance of $91,400 and the convertible notes issued in the offering. The Company has analyzed these warrants and determined them to be debt instruments. Accordingly, the estimated fair value of the warrants was recognized as “warrant liability” on the consolidated balance sheets. The Company determined the fair value of the warrant liability to be approximately $36,400 and $91,400 at September 30, 2014 and December 31, 2013, respectively.

In February 2014, the Company issued five-year warrants to purchase 27,273 shares of the Company’s common stock at a purchase price of $.65 per share to an employee as part of his compensation package. The warrants vested on a monthly basis through January 1, 2015. The estimated fair value at issuance of $6,100 was recognized as “compensation expense” and is included within “general and administrative” expenses on the consolidated statements of operations.

In connection with the issuance of senior subordinated convertible notes in a private placement in June 2014, the Company issued fully vested three-year warrants to purchase 115,386 shares of the Company’s common stock at a purchase price of $.78 per share as additional consideration to the investors. In the event that the convertible note is converted, the number of shares issuable under the warrant will be adjusted to 100% of the number of conversion shares and the strike price adjusted to 120% of the conversion price. The net proceeds on the issuance of the convertible notes were allocated between the estimated fair value of the warrants at issuance of approximately $9,600 and the convertible notes issued in the offering. The Company has analyzed these warrants and determined them to be debt instruments. Accordingly, the estimated fair value of the warrants was recognized as “warrant liability” on the consolidated balance sheets. The Company determined the fair value of the warrant liability to be approximately $11,700 at September 30, 2014.

The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2014:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2013 (audited)		6,508,415		$	.62		3.8
Granted (unaudited)		2,049,447			.61		4.7
Exercised (unaudited)		-			-		-
Expired or cancelled (unaudited)		(225,000	)		1.00		-
Exercisable at September 30, 2014 (unaudited)		8,332,862		$	.65		3.3

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Warrants Outstanding and Exercisable
Number of Shares Under Warrants	Range of Exercise Prices		Expiration Date		Weighted Average Exercise Price
128,840	$	.37		2015	$	.37
915,651		.59-.78		2016		.77
3,103,481		.49-.78		2017		.63
2,289,291		.60-1.00		2018		.68
1,895,599		.60-.65		2019		.60
8,332,862	$	.37-1.00			$	.65

NOTE 10. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases all of its clinics from unrelated third parties, which expire through 2020. Lease agreements, in addition to base rentals, generally are subject to annual escalation provisions that range from 3% to 4% and options to renew ranging from 3 years to 5 years.

The aggregate minimum future payments required on the operating leases are as follows at September 30, 2014:

2014 (three months)	$	170,564
2015		684,176
2016		634,789
2017		524,655
2018		208,693
Thereafter		152,111
	$	2,374,988

Rent expense relating to related party leases for the three months ended September 30, 2014 and 2013 approximated $0 and $11,000, respectively. Rent expense for the nine months ended September 30, 2014 and 2013 approximated $11,000 and $48,000, respectively. Rent expense related to third party leases for the three months ended September 30, 2014 and 2013 approximated $165,000 and $182,000, respectively. Rent expense related to third party leases for the nine months ended September 30, 2014 and 2013 approximated $484,000 and $509,000, respectively.

NOTE 11. SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date on which these consolidated financial statements have been issued.

In October 2014, the Company issued additional short-term unsecured promissory notes in the amount of $50,000 to a major shareholder. The notes are due on demand and bear interest at a rate of 15% per annum. In November 2014, the Company issued additional short-term unsecured promissory notes in the amount of $65,000 to a major shareholder. The notes are due on demand and bear interest at a rate of 15% per annum.

In October 2014, the Company issued 950,000 shares of common stock valued at $.49 to holders of the Company’s short-term unsecured promissory notes pursuant to the terms of the notes, which provide for the issuance of equity consideration as of certain dates in the event that the promissory notes remain unpaid.

In November 2014, the Company issued 100,000 shares of common stock valued at $.49 to a holder of the Company’s short-term unsecured promissory notes pursuant to the terms of the note, which provides for the issuance of equity consideration as of certain dates in the event that the promissory note remains unpaid.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking and Cautionary Statements

This report contains forward-looking statements within the meaning of the Federal securities laws. Forward-looking statements express our expectations or predictions of future events or results. The statements are not guarantees and are subject to risk and uncertainty. Except as required by applicable law, including Federal securities laws, we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

In light of the significant uncertainties inherent in the forward-looking statements made in this report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives, future results, levels of activity, performance or plans will be achieved. We caution that these statements are further qualified by important factors that could cause actual results to materially differ from those contemplated in the forward-looking statements, including, without limitation, the following:

● those items discussed under “Risk Factors” in Item 1A to our annual report on Form 10-K for the year ended December 31, ~~2013~~2014;

●

our failure to generate significant revenues from operations;

●

the availability and cost of capital required to fund our current and future operations;

●

federal, state and local law and regulation, including regulation of the services provided at our clinics;

●

our failure to execute our business plan;

●

our failure to effectively execute our marketing strategies;

●

our failure to identify or negotiate new real property leases on reasonable terms as part of our expansion plans;

●

our ability to renew existing leases on reasonable terms;

●

the effect of competition in our industry;

●

our ability to protect our intellectual property;

●

our exposure to litigation;

●

our dependence on key management and other personnel, including the physicians providing services at our clinics;

●

a decline in the demand for services provided at our clinics;

●

the ability of holders of our securities to effect resales of our securities; and

●

the effect of adverse economic conditions generally, and on discretionary consumer spending and the availability of credit.

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Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or words of similar meaning. They may also use words such as “would,” “should,” “could” or “may.”

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided as a supplement to the accompanying financial statements and notes to help provide an understanding of the Company’s financial condition, cash flows and results of operations. MD&A is organized as follows:

Overview. This section provides a brief description of the Company’s business and operating plans.

Results of Operations. This section provides an analysis of the Company’s results of operations for the three ~~and nine~~ month periods ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014.

Liquidity and Capital Resources. This section provides an analysis of the Company’s cash flows for the ~~nine~~three months ended March ~~September 30~~31, ~~2014~~2015 and ~~2013~~2014, as well as a discussion of the Company’s outstanding commitments as of ~~September~~March 3031, ~~2014~~2015. Included in the analysis is a discussion of the amount of financial capacity available to fund the Company’s future commitments, as well as a discussion of other financing arrangements.

Off-Balance Sheet Arrangements. This section discloses any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition.

Critical Accounting Estimates. This section identifies those accounting estimates that are considered important to the Company’s results of operations and financial condition, require significant judgment and require estimates on the part of management in application.

Significant Accounting Policies. This section identifies those accounting policies that are considered important to the Company’s results of operations and financial condition, require significant judgment and require estimates on the part of management in application. All of the Company’s significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2 to the financial statements included in Part I of this report.

Overview

Our clinics provide safe, minimally invasive and affordable laser tattoo and hair removal services in a relaxed environment. The services offered at our clinics are administered by licensed medical professionals in accordance with applicable state and Federal law. We currently manage four clinics located in southern California pursuant to a management services agreement with a contracting physician. This arrangement is structured to comply with a California state limitation on the corporate practice of medicine. In addition, we own and operate six clinics, in Dallas, Frisco, Ft. Worth and Houston Texas, in Atlanta, Georgia and in Phoenix, Arizona. We opened a Sugar Land, Texas clinic in March 2013 (which was closed in February 2014) and the Atlanta location opened in October 2013. We opened a location in Frisco, Texas (a suburb of Dallas) in March 2014 and a location in Ft. Worth, Texas in May 2014. As we expand into other states, applicable state law will govern how we structure the provision of services in our new clinics. Within this framework, we are seeking to become the first nationally branded laser tattoo and hair removal business.

Throughout this report, the terms “our clinics” and “our facilities” refer to the laser tattoo and hair removal clinics we currently manage or operate, or will manage or operate in the future, in accordance with applicable state and Federal law; and the terms “the business” and “our business” refer to the business of owning, operating and/or managing our clinics.

We have supported the provision of over ~~250~~340,000 procedures to more than 2930,000 patients during our operating history. Our first clinic opened in Beverly Hills, California in July 2004. We opened two clinics in 2011, two in 2012, two in 2013, and one each in the first and second quarter of 2014.

Our primary source of revenues through September 30, 2014, consisted of a management fee paid under a management services agreement with William Kirby, D.O., Inc. related to clinics operated by that entity and fees for services provided in our owned clinics. Pursuant to the management services agreement, we provide certain non-medical management, administrative, marketing and support services and equipment as an independent contractor to the practice sites where William Kirby, D.O., Inc. provides or supervises laser tattoo and hair removal services, all of which are located in southern California. The Company has responsibility for most of the operations of the business conducted at the clinics, except for the dispensing of patient care services, in accordance with California state law. As we expand into states outside of California, applicable state law will govern how we structure the provision of services in our new clinics. Effective January 1, 2010, we entered into an amended and restated management services agreement with William Kirby, D.O., Inc. Dr. William Kirby, a former member of our board of directors, is the sole shareholder of William Kirby, D.O., Inc. Pursuant to the management services agreement, the percentage management fee that we receive is subject to annual adjustment and was decreased from 73.5% to 70.3%, effective January 1, 2012. Under the agreement we absorb the cost of advertising while William Kirby, D.O., Inc. absorbs the cost of credit card fees and discounts which were approximately 4% of cash collections for the three months ended September 30, 2014. Advertising costs provided under the management services agreement were approximately 7% of our management service revenue in the three months ended September 30, 2014.

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Because the source of the majority of our revenue is through our management services agreement with William Kirby, D.O., Inc., our financial performance could be negatively impacted by unfavorable developments in that business. Fee for service receipts of William Kirby D.O., Inc., less refunds, increased by approximately $167,000 or 18% for the three months ended September 30, 2014 when compared to the prior year. Accordingly, our management fees, which are a percentage of the fee for service receipts of William Kirby, D.O., Inc. also increased by approximately $128,000. Dr. Kirby’s staff compensation expense also increased for the three months ended September 30, 2014 when compared to the prior year as a result of the increased activity. As a result, William Kirby, D.O., Inc. experienced a cash basis profit in the third quarter of 2014. In the event that William Kirby, D.O. Inc. incurs losses, it may not have adequate cash to meet its obligations to us and it may seek changes in the management services agreement that would unfavorably impact our financial results. The financial information related to William Kirby, D.O., Inc. included herein is on a cash and not accrual basis, and has not been prepared on a GAAP basis consistently applied. As a result, the foregoing financial information related to William Kirby, D.O., Inc. is not directly comparable to the financial information prepared on a GAAP basis regarding the Company that is included in this report.

Funds from operations from our Dallas, Ft. Worth, Houston, Phoenix, and Atlanta clinics serve as an additional source of revenue. In connection with our Dallas, Ft. Worth, Houston, Atlanta and Phoenix clinics, we entered into consulting physician agreements with licensed physicians, pursuant to which those physicians, or other physicians engaged by those physicians provide to our clinics (i) medical director services, (ii) assistance with the creation of clinic protocols and (iii) supervisory and consulting services regarding equipment procurement and operation, in each case consistent with applicable state and Federal laws and regulations.

We differentiate the services offered at our clinics from those of competitors by:

● focusing solely on tattoo and hair removal;

● providing services in a relaxed environment;

● optimizing the location of our clinics; and

● catering to our target demographic.

Our initial expansion focus is on large metropolitan markets that can support multiple clinic locations with favorable demographics, regulatory environments and competitive landscapes. We are currently evaluating potential clinic sites in ~~Texas,~~several ~~Georgia,~~states ~~Florida~~ and ~~Arizona, and~~ have identified over 40 other viable markets in the United States for expansion, however, our financial limitations have severely limited our ability to expand. We estimate our cash requirements for each new clinic to be approximately $300,000, to be applied toward various start-up costs, including leasehold improvements, marketing expenses, equipment acquisition, supplies and personnel. Absent additional investment from investors we will be unable to open additional clinics in the foreseeable future.

~~Our laser tattoo removal services are performed by licensed medical professionals using Q~~-~~switched~~ ~~lasers~~15 and our hair removal services are similarly performed by licensed medical professionals using laser and/or Intense Pulse Light, or IPL, devices, in each case, with physician oversight in compliance with applicable state law. From time to time, our affiliated physicians and our Chief Medical Officer, William Kirby, D.O., evaluate the lasers used to perform procedures at the applicable clinic(s) and may recommend the use of new or additional technology.-

~~With~~Our laser ~~respect~~tattoo toremoval ~~our~~services ~~clinics,~~are ~~the~~performed ~~amount of revenue generated~~ by alicensed ~~clinic,~~medical ~~whether~~professionals ~~for~~using ~~the~~Q-switched ~~Company~~lasers ~~directly (with respect to our Texas, Georgia~~ and ~~Arizona locations) or for William Kirby, D.O., Inc. (with respect to~~ our ~~California~~hair ~~locations)~~removal services isare ~~primarily~~similarly aperformed ~~function~~by oflicensed ~~the~~medical ~~size~~professionals ~~and~~using ~~characteristics~~laser ~~of the tattoo~~ and/or ~~the~~Intense ~~area~~Pulse ~~of the body to be treated for hair reduction~~Light, ~~less~~or ~~any refunds. Under our management services agreement with William Kirby~~IPL, ~~D.O.~~devices, in ~~Inc.,~~each our management services fee is based on a percentage of the contracting physician’s gross revenues. The costs of operating our California clinics are predominantly fixed or have a relatively small variable componentcase, ~~principally~~with ~~supplies. As a result, the contracting~~ physician’s ~~procedure~~oversight ~~volume~~in ~~can~~compliance ~~have~~with aapplicable ~~significant~~state ~~impact on our level of profitability since we operate under a fixed percentage of gross revenues arrangement~~law. ~~With~~From ~~respect~~time to ~~the clinics we operate directly~~time, ~~the costs of operating~~ our ~~clinics,~~affiliated physicians ~~not~~evaluate ~~only include those that are fixed or have a relatively small variable component, principally supplies, but also include~~ the ~~expenses~~lasers ~~related~~used to ~~the~~perform ~~personnel~~procedures toat ~~staff~~ the ~~clinics. Here~~applicable ~~too,~~clinic(s) ~~the~~and ~~procedure~~may ~~volume~~recommend ~~can~~the ~~have~~use ~~a significant impact on our level~~ of ~~profitability~~new ~~since~~or additional ~~many of the costs are relatively fixed~~technology.

~~Management~~With ~~measures~~respect ~~volume~~to inour ~~“encounters~~clinics,” ~~which~~the ~~includes~~amount aof ~~visit~~revenue togenerated ~~the~~by a clinic, whether for the Company directly (with respect to our Texas, Georgia and Arizona locations) or ~~not~~for our California locations operated under a ~~purchase~~management services agreement is ~~made,~~primarily a function of the size and ~~telephone~~characteristics ~~sales~~of the tattoo and the area of the body to be treated for hair reduction, less any refunds. ~~Management~~Under ~~believes~~our ~~this~~management ~~measurement~~services ~~best~~agreement, ~~represents~~our management services fee is based on a percentage of the contracting physician’s gross revenues. The costs of operating our California clinics are predominantly fixed or have a relatively small variable ~~resource~~component, ~~requirements~~principally supplies. As a result, ~~primarily~~the ~~staff~~contracting ~~time~~physician’s procedure volume can have a significant impact on our level of profitability since we operate under a fixed percentage of gross revenues arrangement. With respect to the clinics we operate directly, ~~and~~the ~~because~~costs ~~other~~of ~~measures~~operating ~~would~~our beclinics, ~~difficult~~not ~~and~~only ~~expensive~~include those that are fixed or have a relatively small variable component, principally supplies, but also include the expenses related to ~~implement~~the ~~with~~personnel ~~little~~to ~~added~~staff ~~benefit~~the clinics.

~~Our~~The majority ~~management~~of ~~service~~patients, ~~fees~~approximately ~~are~~90%, ~~affected~~pay byfor services using a ~~number~~debit ofor ~~factors,~~credit ~~including,~~card or ~~but~~outside ~~not~~financing ~~limited~~agencies ~~to,~~whose services both we and our ~~ability~~contracting tophysicians ~~assist~~offer. Historically, the outside financing agencies we and our contracting physician use offer non-recourse programs. If the agency is unable to ~~generate~~collect ~~patients~~from the patient, ~~placement~~it ~~for~~bears the ~~physician~~cost ~~through~~thereof except in infrequent cases where there is a charge-back. We evaluate alternative patient financing programs from time-to-time and may utilize alternative programs and recommend them to our ~~consumer~~contracting ~~advertising~~physicians, including recourse programs. Both we and ~~word~~our contracting physicians offer a refund if a tattoo is fully removed in a lesser number of ~~mouth~~treatments ~~referrals~~than the patient has purchased, and occasionally in other circumstances. Refunds and charge-backs were approximately 2.4% of receipts in the ~~availability~~three months ended March 31, 2015. Refunds and charge-backs incurred by our contracting physician result in a reduction of ~~patient~~our ~~financing~~management fee and refunds and charge-backs in our owned clinics reduce our revenue. Deterioration in the ~~effect~~availability of ~~competition~~consumer credit is likely to negatively impact our results. Neither we nor our contracting physicians offer direct patient financing but we (and ~~discounting~~our ~~practices~~contracting physicians) offers a program whereby patients can pay monthly via automatic charge. Currently, patients may cease participation in the ~~laser~~program at ~~tattoo~~any time and ~~hair~~no ~~removal~~interest ~~industry~~is charged. The program was developed to meet the needs of patients who are unable to finance a purchase using a credit card or outside financing agencies. Less than 2% of patient charges are generated in this manner.

~~The~~ Effective ~~majority~~marketing ofis ~~patients,~~an ~~approximately~~integral ~~90%,~~factor ~~pay for~~in ~~services~~our ~~using~~ability ato ~~debit~~generate orpatients ~~credit~~and ~~card~~service orfees ~~outside~~for ~~financing agencies whose services both we and~~ our ~~contracting~~own ~~physician~~clinics ~~offer. Historically, the outside financing agencies we~~ and ~~our~~management ~~contracting~~service ~~physician~~revenues ~~use offer non-recourse programs. If the agency is unable to collect from the patient, it bears the cost thereof except~~ in ~~infrequent~~clinics ~~cases~~operated ~~where~~under ~~there~~a ismanagement aservices ~~chargeback~~arrangement. InOur ~~our~~marketing ~~role~~efforts ashave ~~manager,~~traditionally wefocused ~~evaluate~~on ~~alternative patient financing programs from time-to-time and may recommend other programs to~~ our ~~contracting~~website ~~physician. Both we~~ and ~~our~~its ~~contracting~~placement ~~physician~~on ~~offer~~search aengines, ~~refund~~email ifcampaigns adirected ~~tattoo~~towards isexisting ~~fully~~patients, ~~removed~~and inword ~~a lesser number~~ of ~~treatments~~mouth ~~than~~referral. We ~~the~~also ~~patient~~use ~~has~~outdoor ~~purchased,~~ and ~~occasionally~~radio ~~in other circumstances~~advertising. ~~Refunds~~ ~~were~~The ~~less~~purpose ~~than .3%~~ of our ~~contracting~~marketing ~~physician’s~~is ~~gross~~to ~~revenue~~educate inprospective ~~the~~patients ~~three~~about ~~months~~the ~~ended~~advantages ~~September~~of ~~30,~~laser ~~2014. Refunds~~tattoo and ~~chargebacks~~laser/IPL ~~result~~hair inremoval acompared ~~reduction~~to ofalternatives ~~our~~and ~~management~~to ~~fee. Deterioration~~attract inthem ~~the availability of consumer credit is likely~~ to ~~impact~~ our ~~contracting physician’s revenue and ultimately, our management service fees~~clinics.

~~William~~Our ~~Kirby,~~clinics ~~D.O.,~~offer ~~Inc.~~gift ~~does~~certificates ~~not~~that ~~provide~~may ~~patient~~be ~~financing~~used ~~but~~in ~~offers~~any aof ~~program~~our ~~whereby patients can pay monthly via automatic charge. Currently~~clinics, ~~patients~~including ~~may~~those ~~cease~~operated ~~participation~~pursuant into ~~the~~a ~~program~~management atservices ~~any time and no interest is charged~~agreement. The ~~program~~sale ~~was~~of ~~developed~~gift tocertificates ~~meet~~is ~~the~~included ~~needs~~in ofour ~~patients~~contracting ~~who~~physician’s ~~are~~gross ~~unable~~revenue tofor ~~finance~~purposes aof ~~purchase~~calculating ~~using~~our amanagement ~~credit~~fee. Sales ~~card~~of orgift ~~outside~~certificates ~~financing~~represent ~~agencies. Less~~less than 2.5% of ~~William Kirby, D~~revenue.~~O., Inc.’s patients pay in this manner.~~

~~Effective~~The ~~marketing~~fees isgenerated anthrough ~~integral factor in~~ our ~~ability~~management toservices ~~generate patients and service fees our own clinics and for William Kirby~~agreement, ~~D.O.,~~as ~~Inc.~~well ~~and~~as ~~ultimately~~the ~~affect~~revenues ~~our management service fees and revenue~~ from our owned clinics~~. Our~~ ~~marketing efforts~~ have ~~traditionally~~historically ~~focused~~been onweak ~~our~~in ~~website~~the ~~and~~fourth ~~its placement on search engines, email campaigns directed towards existing patients, and word of mouth referral~~quarter. We ~~also~~believe ~~use~~that ~~outdoor~~patients ~~and~~are ~~radio~~less ~~advertising.~~inclined ~~The purpose of our marketing is~~ to ~~educate~~purchase ~~prospective~~discretionary ~~patients~~services ~~about~~in the ~~advantages~~months of ~~laser~~November ~~tattoo~~ and ~~laser/IPL~~December ~~hair~~as ~~removal~~they ~~compared~~have toatypical ~~alternatives~~demands ~~and~~on toboth ~~attract~~their ~~them~~time toand ~~our~~financial ~~clinics~~resources.

- Our revenues 24have continued to increase despite relatively unfavorable economic conditions. However, we do not have sufficient history to predict what may occur if economic conditions in the United States deteriorate. We believe that the typical customer of the services offered at our clinics is young, educated and affluent with adequate disposable income to afford the services. However, tattoo and hair removal is discretionary for most individuals and they may delay or forego removal if faced with a reduction in income or increase in non-discretionary expenses. We also believe that relatively poor economic conditions have resulted in increased pressure on pricing and an expectation of greater value for the money by patients. Management believes that such pricing pressure is a result of a decrease in consumer confidence in economic conditions and their employment prospects together with the increased availability of competitive pricing information on the Internet. In addition, we believe that a portion of our core demographic is attracted to coupon programs such as those offered by Group on and Living Social, particularly with respect to hair removal where we face a larger number of competitors.

Gift certificate sales represented less than 1% of William Kirby, D.O., Inc.’s gross revenue in the three months ended September 30, 2014. The sale of gift certificates is included in William Kirby, D.O., Inc.’s gross revenue for purposes of calculating our management fee. We also offer gift certificates at our owned clinics. Sales of gift certificates at our owned clinics have not been significant to date.

The fees generated by William Kirby, D.O., Inc., and therefore our management services fees, as well as the revenues from our owned clinics have historically been weak in the fourth quarter. We believe that patients are less inclined to purchase discretionary services in the months of November and December as they have atypical demands on both their time and financial resources.

Our revenues have continued to increase despite relatively unfavorable economic conditions. However, we do not have sufficient history to predict what may occur if economic conditions in the United States further deteriorate. We believe that the typical customer of the services offered at our clinics is young, educated and affluent with adequate disposable income to afford the services. However, tattoo and hair removal is discretionary for most individuals and they may delay or forego removal if faced with a reduction in income or increase in non-discretionary expenses. We also believe that poor economic conditions have resulted in increased pressure on pricing and an expectation of greater value for the money by patients. Management believes that such pricing pressure is a result of a decrease in consumer confidence in economic conditions and their employment prospects together with the increased availability of competitive pricing information on the Internet. In addition, we believe that a portion of our core demographic is attracted to coupon programs such as those offered by Groupon and Living Social, particularly with respect to hair removal where we face a larger number of competitors.

Our operating costs and expenses include:

● clinic operating expenses, including rent, utilities, parking and related costs to operate the clinics, laser equipment, maintenance costs, supplies, non-medical staff expenses for managed clinics and all staff expenses for owned locations and insurance; ● ~~marketing~~general and ~~advertising~~administrative costs, including ~~marketing~~corporate staff expense and ~~the~~other ~~cost~~overhead ~~of outside advertising~~costs; ● ~~general~~marketing and ~~administrative~~advertising costs, including ~~corporate~~marketing staff expense and ~~other~~the ~~overhead~~cost ~~costs~~of outside advertising; and ● depreciation and amortization of equipment and leasehold improvements.

We opened a location in Sugar Land, Texas in March 2013 (which was closed in February 2014 after showing disappointing results), a location in Atlanta in October 2013, a location in Frisco, Texas in March 2014, and a location in Ft. Worth, Texas in May 2014, and may open additional clinics in ~~Texas, Georgia, Florida, Arizona, and other states in~~ 2015 and thereafter assuming that the availability of growth capital exists, we can maintain a highly skilled management team, and our business model is shown to be successful in varying markets. To our knowledge, there is currently no nationally branded provider of laser tattoo and hair removal services and the opportunity to gain first mover advantage is the motivation behind our aggressive expansion plan. To be successful, we believe that our new locations must be in areas attractive to our demographic, that our clinic staff must be adequately trained and motivated, and that our marketing programs must be effective.

We require substantial capital to fund our growth and will continue to seek substantial amounts of capital to effectuate our business plan. We have experienced significant negative cash flow from operations to date, and we expect to continue to experience negative cash flow in the near future. Our inability to generate sufficient funds from operations and external sources will have a material adverse effect on our business, results of operations and financial condition. If we are not able to raise additional funds, we will be forced to significantly curtail or cease our operations. See “Liquidity and Capital Resources” below for additional information.

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Management Services Revenues

Our primary source of revenues through March 31, 2015, consisted of fees paid under a management services agreement with William Kirby, D.O., Inc. related to clinics operated by that entity in California. Pursuant to the management services agreement, we provide certain non-medical management, administrative, marketing and support services and equipment as an independent contractor to the practice sites where William Kirby, D.O., Inc. provides or supervises laser tattoo and hair removal services.. The Company has responsibility for most of the operations of the business conducted at the clinics, except for the dispensing of patient care services, in accordance with California state law. Effective January 1, 2010, we entered into an amended and restated management services agreement with William Kirby, D.O., Inc. which terminated effective May 2, 2015. Dr. William Kirby, a former member of our board of directors, is the sole shareholder of William Kirby, D.O., Inc. Pursuant to the management services agreement, the percentage management fee that we receive is subject to annual adjustment and was decreased from 73.5% to 70.3%, effective January 1, 2012. Under the agreement we absorb the cost of advertising while William Kirby, D.O., Inc. absorbs the cost of credit card fees and discounts which were approximately 5% of cash collections for the three months ended March 31, 2015. Advertising costs provided under the management services agreement were approximately 8.5% of our management service revenue in the three months ended March 31, 2015. Immediately following the termination of the management services agreement with William Kirby, D.O., Inc., the Company entered into a new management services agreement with similar terms with SC Laser, Inc. which is owned by an unrelated physician.

Because the source of the majority of our revenue has been through our management services agreement, our financial performance could be negatively impacted by unfavorable developments in that business. Fee for service receipts of William Kirby D.O., Inc., less refunds, increased by approximately $5,000 or .5% for the three months ended March 31, 2015 when compared to the prior year. Credit card fees and discounts increased by approximately $10,000. Accordingly, our management fees, which are a percentage of the fee for service receipts of William Kirby, D.O., Inc. decreased by approximately $3,000. Dr. Kirby’s staff compensation expense decreased for the three months ended March 31, 2015 when compared to the prior year. As a result, William Kirby, D.O., Inc. experienced a cash basis profit in the first quarter of 2015. In the event that William Kirby, D.O. Inc. incurs losses, it may not have adequate cash to meet its obligations to us and it may seek changes in the management services agreement that would unfavorably impact our financial results. The financial information related to William Kirby, D.O., Inc. included herein is on a cash and not accrual basis, and has not been prepared on a GAAP basis consistently applied. As a result, the foregoing financial information related to William Kirby, D.O., Inc. is not directly comparable to the financial information prepared on a GAAP basis regarding the Company that is included in this report.

Owned Clinic Revenues

Funds from operations from our Dallas, Frisco, Ft. Worth, Houston, Phoenix, and Atlanta clinics serve as an additional source of revenue. In connection with our Dallas, Ft. Worth, Houston, Atlanta and Phoenix clinics, we entered into consulting physician agreements with licensed physicians, pursuant to which those physicians, or other physicians engaged by those physicians provide to our clinics (i) medical director services, (ii) assistance with the creation of clinic protocols and (iii) supervisory and consulting services regarding equipment procurement and operation, in each case consistent with applicable state and Federal laws and regulations.

Results of Operations

Comparison of the Three Months Ended ~~September~~March 3031, ~~2014~~2015 and the Three Months Ended ~~September~~March 3031, ~~2013~~2014

The following table sets forth, for the periods indicated, selected items from our statements of operations, expressed as a percentage of revenues.

	Three Months Ended September 30,
	Three Months Ended March 31,
	2014			2013
	2015			2014
Revenues		100	%		100	%
Clinic operating expenses		7681	%		8595	%
General and administrative expenses		4136	%		69	%
Marketing and advertising		912	%		1513	%
Depreciation and amortization		1112	%		1112	%
Loss from operations		(3741)	%		(8090)	%
Interest expense and other		(154)	%		(16)	%
Interest expense, costs of financing and other		(30)	%		(45)	%
Net loss		(~~191~~71)	%		(96135)	%

-Revenues. Revenues 25increased -by approximately $113,000, or 11%, to approximately $1,188,000 for the three months ended March 31, 2015 compared to approximately $1,075,000 for the three months ended March 31, 2014. Same store revenue, representing revenue from clinics open more than one year, increased by approximately 5% when compared to the comparable period of the prior year to approximately $1,105,000. Two clinics opened in 2014 accounted for increased revenue of approximately $78,000 in the three months ended March 31, 2015 when compared to the prior year. Aggregate cash collections at all clinics (including those of William Kirby, D.O., Inc.) increased by approximately $82,000 or 5% to $1,714,000 for the three months ended March 31, 2015 compared to approximately $1,632,000 for the comparable period of the prior year. Cash collections, and ultimately revenue, are primarily impacted by the number of patients who are scheduled for a consultation. The consultation is typically the first time that a patient comes to one of our clinics during which they will have the tattoo evaluated and will be quoted a price. If the patient decides to proceed with the removal, they typically start treatment on the same day. The number of scheduled consultation appointments is a function of our ability to market and advertise, particularly in newer clinics that do not have an established base of customers or the benefit of longer term market presence. Scheduled tattoo consultations were 3,402 for the three months ended March 31, 2015 compared to 3,276 for the comparable period of the prior year. Cash collections per scheduled consultation were approximately $481 for the three months ended March 31, 2015 compared to $479 for the comparable period of the prior year. Our inability to provide adequate marketing support has impacted performance at our clinics.

~~Revenues. Revenues~~- ~~increased~~17 by approximately $268,000, or 29%, to approximately $1,195,000 for the three months ended September 30, 2014 compared to approximately $927,000 for the three months ended September 30, 2013. Same store revenue, representing revenue from clinics open more than one year, increased by approximately 18% when compared to the comparable period of the prior year to approximately $1,065,000. One clinic opened in the fourth quarter of 2013 accounted for revenue of approximately $65,000 and two clinics opened in 2014 accounted for revenue of approximately $64,000 in the three months ended September 30, 2014. Despite a decrease in marketing and advertising expenditures of approximately 20%, aggregate cash collections at all clinics (including those of William Kirby, D.O., Inc.) increased by approximately $286,000 or 21% to $1,649,000 for the three months ended September 30, 2014 compared to approximately $1,363,000 for the comparable period of the prior year. Cash collections, and ultimately revenue, are primarily impacted by the number of patients who are scheduled for a consultation. The consultation is typically the first time that a patient comes to one of our clinics during which they will have the tattoo evaluated and will be quoted a price. If the patient decides to proceed with the removal, they typically start treatment on the same day. The number of scheduled consultation appointments is a function of our ability to market and advertise, particularly in newer clinics that do not have an established base of customers or the benefit of longer term market presence. Scheduled consultations were 3,428 for the three months ended September 30, 2014 compared to 2,688 for the comparable period of the prior year. Same store cash collections per scheduled consultation were approximately $522 for the three months ended September 30, 2014 compared to $519 for the comparable period of the prior year. Aggregate cash collections per scheduled consultation were approximately $481 for the three months ended September 30, 2014 compared to $507 for the comparable period of the prior year. Our inability to provide adequate marketing support has impacted performance at our newer clinics.-

Clinic Operating Expenses. Clinic operating expenses consist primarily of salaries, wages and benefits for the employees who work at our owned clinics and salaries, wages and benefits for the non-medical employees who work at our managed clinics, rent and utilities for all clinic premises, and supplies. Clinic operating expenses increased by 146% in the aggregate and decreased 914% as a percentage of revenues to approximately $~~906~~962,000 for the three months ended ~~September~~March 3031, ~~2014~~2015 versus approximately $~~792~~1,021,000 for the three months ended ~~September~~March 3031, ~~2013~~2014. ~~New~~Operating ~~clinics~~expenses ~~accounted~~ for anthe ~~increase~~first quarter of ~~approximately~~2014 included approximately $~~206~~187,000, ~~offset~~in byexpenses related to a ~~decrease~~clinic we closed in Sugar Land, Texas. Operating expenses in our other clinics increased by approximately $128,000, of which approximately $~~110~~104,000 ~~related~~relates to atwo ~~closed~~clinics ~~clinic~~opened in early 2014.

General and Administrative Expenses. General and administrative expenses include the salaries, wages and benefits for the employees who support the clinics including operational, legal and medical-professional oversight, finance and accounting, payroll and personnel, information technology, and risk management. Also included in our general and administrative expenses are professional fees paid to our attorneys, accountants, medical director and other advisors. General and administrative expenses also include insurance, travel, supplies and other costs associated with our corporate functions. General and administrative expenses decreased by approximately $~~142~~315,000 to approximately $~~495~~430,000 for the three months ended ~~September~~March 3031, ~~2014~~2015 when compared to $~~637~~745,000 in the prior year. We took a number of steps to reduce our expenses in light of our continued financial challenges including the elimination of positions, reduction in management compensation and bonuses resulting in a decrease of approximately $~~116~~126,000 in salaries and benefits. We eliminated our corporate medical director resulting in a savings of approximately $62,000. We had incurred approximately $60,000 in consulting fees in 2014 related to our efforts to raise capital. Stock compensation expense was reduced by approximately $2617,000 as a result of a lower level of grant activity. AnCorporate ~~increase~~travel ofexpense ~~approximately~~decreased by approximately$1736,000 inas ~~audit~~we ~~and~~did ~~review~~not ~~related~~open ~~fees~~any ~~was~~clinics ~~substantially offset by a decrease~~ in ~~fees~~the ~~for~~first ~~public~~quarter ~~relations~~of ~~and compensation consulting~~2015.

Marketing and Advertising Expenses. Marketing and advertising expenses consist primarily of salaries, wages and benefits and the cost of outside advertising. Historically we have relied principally on internet advertising. During 2010, we began advertising using outdoor billboards in addition to our internet advertising, and we explore other advertising opportunities from time to time, such as radio and other forms of outreach. We also vary our marketing and advertising expenditures to respond to competitive activities as well as changes in our financial resources. We typically provide additional advertising support in a market when a new clinic is opening. Marketing and advertising expenses were approximately $~~109~~147,000 for the three months ended ~~September~~March 3031, ~~2014~~2015, compared to approximately $~~137~~141,000 for the three months ended ~~September~~March 3031, ~~2013~~2014, aan ~~decrease~~ increase of approximately $286,000. Our salary and benefit costs were approximately $30,000 for the three months ended ~~September~~March 3031, ~~2014~~ 2015 compared to $035,000 in the comparable period of the prior year. asWe weeliminated ~~did~~a ~~not~~part-time ~~have any employees in~~ marketing ~~during~~assistant ~~that~~position ~~period~~to reduce costs. Our advertising costs in the three months ended ~~September~~March 3031, ~~2014~~2015 were approximately $79117,000 compared to $~~137~~110,000 in the comparable period of the prior year~~, a decrease of approximately 42%~~. ~~The decrease was a result of our financial limitations as we did not have cash available to support marketing at an equivalent level.~~

Depreciation and Amortization Expenses. Depreciation and amortization consist of depreciation and amortization of leasehold improvements, medical equipment, and the furniture, computers, telephone systems and other equipment used in our operations. Depreciation and amortization expenses increased by 266% in the aggregate to approximately $~~129~~141,000 for the three months ended ~~September~~March 3031, ~~2014~~2015 versus approximately $~~102~~133,000 for the three months ended ~~September~~March 3031, ~~2013~~2014. ~~The~~An increase in depreciation and amortization related to the opening of two new clinics in 2014, ~~a full year~~ of ~~operation~~approximately ~~for~~$27,000 ~~two~~was ~~clinics~~partially ~~opened~~offset inby ~~2013,~~a ~~and~~decrease ~~the replacement~~ of ~~three~~approximately ~~laser~~$8,000 related ~~devices~~to ina ~~our~~closed ~~California~~clinic ~~locations~~and indecreases ~~December~~related ~~2013~~to ~~were~~fully ~~the~~depreciated ~~principal factors in the increase~~assets.

Interest Expense and Costs of Financing. Interest expense and costs of financing for the three months ended ~~September~~March 3031, ~~2014~~ 2015 was approximately $1349,~~843,~~000, ana ~~increase~~decrease of approximately $1141,~~699,~~000 when compared to interest expense and costs of financing of $~~144~~490,000 for the three months ended ~~September~~March 3031, ~~2013~~2014. ~~The~~Interest ~~increase in interest~~ expense isand ~~principally~~costs aof ~~result~~financing ofin the ~~issuance~~first quarter of ~~approximately~~2014 ~~$150,000~~included inapproximately ~~convertible notes,~~ $1136,~~480,~~000 in ~~non-convertible~~fees ~~debt,~~related ~~borrowing~~to closing of ~~$1,300,000~~our ~~under a~~ revolving line of credit. ~~during~~The ~~the~~first ~~prior year and the financing~~ quarter of ~~new~~2014 ~~laser~~also ~~devices~~include ~~for new clinics together with~~ amortization of debt discount ~~related to warrants issued with or upon extension~~ of ~~convertible~~$237,000 ~~notes~~compared ~~and~~to ~~non-convertible~~$43,000 ~~debt.~~in Athe ~~substantial~~first ~~portion~~quarter of ~~our~~2015. ~~new~~These decreases ~~debt~~were ~~was~~partially ~~provided~~offset by ~~major shareholders and we are not paying current~~ interest inexpense ~~cash.~~on ~~Amortization~~our ofinterim ~~debt~~credit ~~discount~~agreement tofinancing ~~interest,~~which ~~a non-cash charge,~~ was approximately $~~231~~141,000 in the ~~three~~first ~~months~~quarter ~~ended~~of ~~September 30~~2015, ~~2014~~ compared to $~~80,000~~0 in the ~~three~~prior ~~months ended September 30, 2013~~year. ~~The Company also paid interest of approximately $257,000 through the issuance of common stock in the three months ended September 30, 2014.~~ Of our total interest expense of $1349,~~843,~~000 ~~and~~ and $~~144~~490,000 for the three months ended ~~September~~March ~~2014~~31, 2015 and ~~2013~~2014, respectively, only $5584,000 and $3891,000, respectively, was paid in cash.

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Comparison of the Nine months Ended September 30, 2014 and the Nine months Ended September 30, 2013

The following table sets forth, for the periods indicated, selected items from our statements of operations, expressed as a percentage of revenues.

	Nine months Ended September 30,
	2014			2013
Revenues		100	%		100	%
Clinic operating expenses		85	%		85	%
General and administrative expenses		56	%		79	%
Marketing and advertising		15	%		23	%
Depreciation and amortization		12	%		10	%
Loss from operations		(67)	%		(97)	%
Interest expense and other		(91)	%		(12)	%
Net loss		(158)	%		(108)	%

Revenues. Revenues increased by approximately $486,000, or 17%, to approximately $3,391,000 for the nine months ended September 30, 2014 compared to approximately $2,905,000 for the nine months ended September 30, 2013. Same store revenue, representing revenue from clinics open more than one year, increased by approximately 8% when compared to the comparable period of the prior year to approximately $3,102,000. One clinic opened in the fourth quarter of 2013 accounted for revenue of approximately $166,000 and two clinics opened in 2014 accounted for revenue of approximately $105,000 in the nine months ended September 30, 2014. Despite a decrease in marketing and advertising expenditures of approximately 25%, aggregate cash collections at all clinics (including those of William Kirby, D.O., Inc.) increased by approximately $382,000 or 8% to $4,895,000 for the nine months ended September 30, 2014 compared to approximately $4,513,000 for the comparable period of the prior year. Cash collections, and ultimately revenue, are primarily impacted by the number of patients who are scheduled for a consultation. The consultation is typically the first time that a patient comes to one of our clinics during which they will have the tattoo evaluated and will be quoted a price. If the patient decides to proceed with the removal, they typically start treatment on the same day. The number of scheduled consultation appointments is a function of our ability to market and advertise, particularly in newer clinics that do not have an established base of customers or the benefit of longer term market presence. Scheduled consultations were 10,068 for the nine months ended September 30, 2014 compared to 9,209 for the comparable period of the prior year. Same store cash collections per scheduled consultation were approximately $522 for the nine months ended September 30, 2014 compared to $498 for the comparable period of the prior year. Aggregate cash collections per scheduled consultation were approximately $486 for the nine months ended September 30, 2014 compared to $490 for the comparable period of the prior year. Our inability to provide adequate marketing support has impacted performance at our newer clinics.

Clinic Operating Expenses. Clinic operating expenses consist primarily of salaries, wages and benefits for the employees who work at our owned clinics and salaries, wages and benefits for the non-medical employees who work at our managed clinics, rent and utilities for all clinic premises, and supplies. Clinic operating expenses increased by 16% in the aggregate and unchanged as a percentage of revenues to approximately $2,873,000 for the nine months ended September 30, 2014 versus approximately $2,476,000 for the nine months ended September 30, 2013. Of this increase of approximately $397,000, approximately $395,000 was related to two new clinics opened in 2014 and approximately $266,000 reflects a full year of operation for one clinic opened in 2013 offset by a decrease in operating expenses in clinics open prior to 2013 of approximately $190,000. Clinic expenses include approximately $103,000 in costs related to the closure of a clinic in Sugar Land, TX, including asset impairment charges of $41,000.

General and Administrative Expenses. General and administrative expenses include the salaries, wages and benefits for the employees who support the clinics including operational, legal and medical-professional oversight, finance and accounting, payroll and personnel, information technology, and risk management. Also included in our general and administrative expenses are professional fees paid to our attorneys, accountants, medical director and other advisors. General and administrative expenses also include insurance, travel, supplies and other costs associated with our corporate functions. General and administrative expenses decreased by approximately $413,000 to approximately $1,891,000 for the nine months ended September 30, 2014 when compared to $2,304,000 in the prior year. We took a number of steps to reduce our expenses in light of our continued financial challenges including the elimination of positions, reduction in management compensation and bonuses resulting in a decrease of approximately $148,000 in salaries and benefits. Stock compensation expense was reduced by approximately $68,000 as a result of a lower level of grant activity. In 2013, our independent directors received approximately $132,000 in equity based compensation and we conducted a brand development project which cost approximately $100,000, neither of which occurred in 2014. While our aggregate travel expense did not increase in 2014 when compared to 2013, the portion that we attributed to general and administrative activities increased by approximately $48,000.

Marketing and Advertising Expenses. Marketing and advertising expenses consist primarily of salaries, wages and benefits and the cost of outside advertising. Historically we have relied principally on internet advertising. During 2010, we began advertising using outdoor billboards in addition to our internet advertising, and we explore other advertising opportunities from time to time, such as radio and other forms of outreach. We also vary our marketing and advertising expenditures to respond to competitive activities as well as changes in our financial resources. We typically provide additional advertising support in a market when a new clinic is opening. Marketing and advertising expenses were approximately $494,000 for the nine months ended September 30, 2014, compared to approximately $657,000 for the nine months ended September 30, 2013, a decrease of approximately $163,000. Our salary and benefit costs were approximately $99,000 for the nine months ended September 30, 2014 compared to $170,000 in the comparable period of the prior year. Our salary expense in the prior year included approximately $91,000 in severance paid to our former Chief Marketing Officer. Our advertising costs in the nine months ended September 30, 2014 were approximately $394,000 compared to $485,000 in the comparable period of the prior year, a decrease of approximately 19%. The decrease was a result of our financial limitations as we did not have cash available to support marketing at an equivalent level.

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Depreciation and Amortization Expenses. Depreciation and amortization consist of depreciation and amortization of leasehold improvements, medical equipment, and the furniture, computers, telephone systems and other equipment used in our operations. Depreciation and amortization expenses increased by 41% in the aggregate to approximately $403,000 for the nine months ended September 30, 2014 versus approximately $285,000 for the nine months ended September 30, 2013. The depreciation and amortization related to the opening of two new clinics in 2014, a full year of operation for a clinic opened in 2013, and the replacement of laser devices in our California locations in December 2013 were the principal factors in the increase.

Interest Expense. Interest expense for the nine months ended September 30, 2014 was approximately $3,192,000, an increase of approximately $2,849,128 when compared to interest expense of $342,000 for the nine months ended September 30, 2013. The increase in interest expense is principally a result of the issuance of approximately $150,000 in convertible notes, $1,480,000 in non-convertible debt, borrowing of $1,300,000 under a revolving line of credit during the prior year, and the financing of new laser devices for new clinics together with amortization of debt discount related to warrants issued with or upon extension of convertible notes and non-convertible debt. A substantial portion of our new debt was provided by major shareholders and we are not paying current interest in cash. Amortization of debt discount to interest, a non-cash charge, was approximately $578,000 in the nine months ended September 30, 2014 compared to $181,000 in the nine months ended September 30, 2013. The Company also paid interest of approximately $490,000 through the issuance of common stock in the nine months ended September 30, 2014. We paid interest expense, in cash, of approximately $224,000 in nine months ended September 30, 2014 compared to approximately $98,000 in the comparable period of the prior year. Of our total interest expense of $3,192,000 and $342,000 for the nine months ended September 2014 and 2013, respectively, only $224,000 and $98,000, respectively, was paid in cash.

Liquidity and Capital Resources

Cash and cash equivalents decreased by approximately $~~178~~22,000 at ~~September~~March 3031, ~~2014~~2015 as compared to December 31, ~~2013~~2014, principally due to cash used in operating activities of $~~765~~134,000 ~~and investing activities of $299~~,~~000,~~ offset by cash provided by financing activities of $~~886~~112,000.

Cash from operations, which includes the management fees we receive ~~from~~under ~~William~~our ~~Kirby,~~management ~~D.O.,~~fee ~~Inc.~~agreements and service fees earned directly from patient services in our owned clinics represent our primary recurring source of funds, and less expenses, reflects the net loss from operations excluding non-cash charges, and changes in operating capital. The ~~nine~~three months ended March ~~September 30~~31, ~~2014~~2015 and ~~2013~~2014 reflected net cash used in operating activities of approximately $~~765~~134,000 and $~~925~~400,000, respectively. While our clinics (both managed and owned) were able to generate aggregate positive cash flow from operations during the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014, they were unable to generate enough positive cash flow to cover our overhead expenses.

Net cash used in investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014, respectively was $~~299,000~~0 and $~~364~~229,000, reflecting purchases of property and equipment. Our purchases of property and equipment in the first ~~nine~~three months of 2014 ~~are~~were principally related to the clinic we opened in March 2014 in Frisco, Texas, and the clinic we opened in Ft. Worth, Texas in May 2014~~, and equipment replacements in our Southern California locations~~. ~~Our purchases in the nine months ended September 30, 2013 were principally related to the development of our clinics in Sugar Land, Texas and Atlanta, Georgia.~~

Net cash from financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014, respectively was $~~886~~112,000 and $1445,~~007,~~000. During the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015, we received cash from the issuance of debt in private placements of $1460,~~525,~~000. During the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 we received cash from the issuance of debt in private placements of $1625,~~155,~~000 ~~and from the sale of common stock of approximately $125,000~~.

The Company intends to use its available resources to open additional clinics. We have historically experienced significant negative cash flow from operations and we expect to continue to experience significant negative cash flow from operations in the near future as we open new clinics. Accordingly, we expect to raise additional capital to fund our current operations and future expansion through the sale of equity securities and/or the issuance of debt. If we are unable to raise additional equity capital or issue debt, then we will not be able to grow our revenue and eliminate our operating losses. If that were to occur, management would attempt to reduce its professional fees, salaries, advertising and other costs and reduce operating cash requirements. The Company currently intends to raise additional capital and continue opening additional clinics but there can be no assurance that it will be successful.

Going Concern Issues

At March ~~September 30~~31, ~~2014~~2015, the Company has accumulated losses approximating $1719,~~082~~138,000, current liabilities that exceeded its current assets by approximately $911,~~703~~733,000, shareholders’ deficit of approximately $810,~~420~~255,000, and has not yet produced operating income or positive cash flows from operations. In the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015, the Company had a net loss on operations of approximately $5840,~~375,~~000 ~~and the Company has not yet produced positive cash flow from operations~~. The Company’s ability to continue as a going concern is predicated on its ability to raise additional capital, increase sales and margins, and ultimately achieve sustained profitable operations. The uncertainty related to these conditions raises substantial doubt about the Company’s ability to continue as a going concern.

- 18 -

Management believes that the Company will need to continue to raise additional outside capital to expand the number of clinics in operation and reduce expenses to address its losses and ability to continue to operate. The Company intends to raise additional capital and continue opening additional clinics to achieve this goal. In the event that the Company is unsuccessful in raising adequate equity capital, management will attempt to reduce losses and preserve as much liquidity as possible. Steps management would likely take would include limiting capital expenditures, reducing expenses and leveraging the relatively few assets that it owns without encumbrance. A reduction in expenses would likely include personnel costs, professional fees, and marketing expenses. While management would attempt to achieve break-even or profitable operations through these steps, there can be no assurance that it will be successful.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings or other relationships with entities or other persons, also known as “special purpose entities.”

Critical Accounting Estimates

The preparation of our financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As such, in accordance with the use of GAAP, our actual realized results may differ from management’s initial estimates as reported and such differences may be significant. Our most significant accounting estimates are those related to our consolidation policy, valuation of common stock, fair value measurements, uncertainty in income taxes and valuation allowance for deferred tax assets as set forth below.

Consolidation Policy. The Company has various contractual relationships with William Kirby D.O., Inc. including a management services agreement, medical director’s agreement, equipment subleases and guarantees. The Company evaluated the various relationships between the parties to determine whether to consolidate William Kirby, D.O., Inc. as a variable interest entity pursuant to ASC 810, Consolidation. The Company determined that it was not the primary beneficiary of the interest and that it should not consolidate William Kirby, D.O., Inc. The Company’s conclusion was based upon an analysis of the various relationships and California state law restrictions on relationships between licensed professionals and businesses. To complete its analysis, management made assumptions regarding the relevance of certain factors, including state law requirements, which were given significant weight. In the event that state law should change, there should be material changes in the relationships or management’s judgment as to the relevance of various factors should change, the Company might determine that consolidation would be appropriate.

Valuation of Common Stock. There is presently no trading market for common stock or other equity instruments of the Company. Management’s estimates of stock compensation expense and derivative liability are dependent upon an estimated fair value of a share of Company common stock. ASC 820, “Fair Value Measurement,” establishes a hierarchy for measurement of fair value and requires the Company to maximize the use of observable inputs in measuring fair value and minimize the use of unobservable inputs. Management estimates the fair value of a share of common stock primarily based upon the most recent actual purchases of common stock by unrelated third parties because it represents observable inputs, and management believes it is the most reliable estimate available. Management may adjust the value per share as the time period between when actual purchases have been made and the measurement date increases or if it determines that events subsequent to the last actual sale transaction materially impact the value of a share of common stock. Such changes in estimated value may have a material impact on stock compensation expense and derivative liabilities.

Fair Value Measurements. The Company estimates its derivative liabilities using a Black-Scholes option pricing model using such inputs as management deems appropriate. The Black-Scholes option pricing model requires the use of input assumptions, including expected volatility, expected life, expected dividend rate and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions that significantly affect the fair value. Changes in the expected dividend rate and expected risk-free rate of return do not significantly impact the calculation of fair value, and determining these inputs is not highly subjective. Because there is no trading market for the Company’s common stock or any of its warrants or other derivative liabilities, the Company cannot calculate actual volatility. Management has estimated volatility by selecting a group of companies, deemed by management to be similar. Changes in fair value estimates may have a material impact on the measurement of derivative liabilities.

Uncertainty in Income Taxes. We adopted the provisions of ASC 740-10 (formerly FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” effective January 1, 2010. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. ASC 740 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate.

Valuation Allowance for Deferred Tax Assets. Deferred tax assets arise when we recognize charges or expenses in our financial statements that will not be allowed as income tax deductions until future periods. The term deferred tax asset also includes unused tax net operating losses and tax credits that we are allowed to carry forward to future years. Accounting rules permit us to carry deferred tax assets on the balance sheet at full value as long as it is “more likely than not” that the deductions, losses or credits will be used in the future. A valuation allowance must be recorded against a deferred tax asset if this test cannot be met. The accounting rules state that a company with a recent history of losses would have a difficult, perhaps impossible, time supporting a position that utilization of its deferred tax assets was more likely than not to occur.

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We believe that the operating loss incurred by the Company in the current year, and the cumulative losses incurred in prior years, represent sufficient evidence to determine that the establishment of a valuation allowance against deferred tax assets is appropriate. Until an appropriate level of profitability is attained, we expect to continue to maintain a valuation allowance on our net deferred tax assets.

The estimates, judgments and assumptions used by us under “Capitalization Policy,” “Valuation of Common Stock,” “Fair Value Measures,” “Uncertainty in Income Taxes” and “Valuation Allowance for Deferred Tax Assets” are, we believe, reasonable, but involve inherent uncertainties as described above, which may or may not be controllable by management. As a result, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future periods.

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Significant Accounting Policies

The Company has defined a significant accounting policy as one that is both important to the portrayal of the Company’s financial condition and results of operations and requires management of the Company to make difficult, subjective or complex judgments. Estimates and assumptions about future events and their effects cannot be predicted with certainty. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

We have identified the policies set forth in Note 2, “Summary of Significant Accounting Policies” to our financial statements as significant to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout MD&A, where such policies affect our reported and expected financial results. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the discussion set forth in Note 2, “Summary of Significant Accounting Policies” to our financial statements addresses our most significant accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer (principal executive officer) and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. Our chief executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q have concluded that, based on such evaluation, our disclosure controls and procedures were effective as of ~~September~~March 3031, ~~2014~~2015.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the most recent quarter of the Company that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings. We may, however, become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition, cash flows and prospects.

ITEM 1A. RISK FACTORS

We filed our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014, with the Securities and Exchange Commission on ~~March~~April 3115, ~~2014~~2015, which sets forth our risk factors in Item 1A therein.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following summarizes all sales of our unregistered securities during the three months ended ~~September~~March 3031, ~~2014~~2015. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act of 1933, as amended, or the Securities Act, and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(5) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws as a transaction not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions. Proceeds from the sales of these securities were used for general working capital purposes, including the repayment of indebtedness. The securities are deemed restricted securities for purposes of the Securities Act.

In ~~June~~February ~~2014~~2015, the Company issued ~~475~~5,~~000~~150 shares of common stock to ~~the~~employees, ~~holders~~except members of ~~the~~its ~~Company’s~~senior ~~short-term~~management ~~unsecured~~team, ~~promissory~~as ~~notes~~a bonus.

In ~~July~~March ~~2014~~2015, the Company issued 101,~~500~~811,070 shares of common stock to acertain ~~vendor~~debt holders in exchange for their related warrants and an agreement to extend the maturity of the debt to January 1, 2016.

~~In August 2014, the Company issued 475,000 shares of common stock to the holders of the Company’s short~~-~~term~~ ~~unsecured~~20 ~~promissory notes.~~-

In September 2014, the Company issued 50,000 shares of common stock valued at $.49 to a holder of the Company’s short-term unsecured promissory notes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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ITEM 6. EXHIBITS

(a) Exhibits:

Exhibit No.	Description of Exhibit
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following materials from Dr. Tattoff, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (b) Consolidated Statements of Operations for the Three and Nine months ended September 30, 2014 and 2013, (c) Consolidated Statements of Cash Flows for the Nine months ended September 30, 2014 and 2013, and (d) Notes to such Consolidated Financial Statements.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

*filed herewith.

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

	DR. TATTOFF, INC.

	By:	/s/ John P. Keefe
		John P. Keefe
		Chief Executive Officer

Date: ~~November 19~~May 20, ~~2014~~2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities on the date indicated.

	Signatures		Title		Date
PRINCIPAL EXECUTIVE OFFICER
/s/ John P. Keefe		Chief Executive Officer		~~November~~May 1920, ~~2014~~2015
John P. Keefe
PRINCIPAL FINANCIAL OFFICER
/s/ Mark A. Edwards		Chief Financial Officer		~~November~~May 1920, ~~2014~~2015
Mark A. Edwards

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Filing Compare · DR. TATTOFF, INC.