What the HECK is this?!?!?

It looks like the area on Abbie's back where I think she had a reaction to the Frontline Plus, only on a much larger scale. Abbie lost the hair in an area about the size of a golf ball and there were a lot of red spots that appeared to be "within" the surface of the skin - not like flea "poop" that is normally just above the surface of the skin within the hair folicles and blackish. Her skin was/is also flaky in that area. I am monitoring it closely for any changes, growth, etc. She doesn't seem to be itchy in that area (no reaction when I lighty rub the area - no leg movement, etc.). I've been using my Tea Tree Stick that I get at The Body Shop in our mall. It's tea tree oil in a gel base and works wonders on blemishes, scratches, etc. I have also seen Tea Trea sprays at our holistic supplier. It may be something to try. To me it looks like a reaction to something externally.

I know this is a pretty old post, but I was wondering if you ever found out what the problem was? My golden retriever just turned three and we have been struggling with this some rash since february. We have tried food and treat swaps to medication(which doesn't fully get ride of it, just delays it). Please let me know, i can't believe how similar it is, I haven't been able to find anything like this, ANYWHERE.