<PAGE>

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

                               -------------------

                                   FORM 10-QSB

                                   -----------

(Mark One)

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 2002

                                       or

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from ____ to ____

                        Commission File Number 000-32045

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

             DELAWARE                                   84-140636
  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   incorporation or organization)

             1 Dundee Park
              Andover, MA                                   01810
  (Address of principal executive offices)                (Zip Code)

                                 (978) 475-7771
                         (Registrant's telephone number)

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 ___

As of June 30, 2002, there were 14,200,000 shares of common stock, par value
$0.001 outstanding (excluding securities which, subject to applicable
conditions, are convertible into shares of common stock).

<PAGE>

                     DIOMED HOLDINGS, INC. AND SUBSIDIARIES

                         QUARTERLY REPORT ON FORM 10-QSB
                FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002

                                TABLE OF CONTENTS

 ITEM                                                                     PAGE
NUMBER                        CAPTION                                    NUMBER
          PART I - FINANCIAL INFORMATION
  1       Unaudited Condensed Consolidated Balance Sheets -
          June 30, 2002 and December 31, 2001                               1
          Unaudited Condensed Consolidated Statements of Operations -
          Three and Six Months Ended June 30, 2002 and 2001                 2
          Unaudited Condensed Consolidated Statements of Cash
          Flows - Six Months Ended June 30, 2002 and 2001                   3
          Notes to Condensed Consolidated Financial Statements              4
  2       Management's Discussion and Analysis or Plan of Operations       13

          PART II - OTHER INFORMATION
  2       Changes in Securities and Use of Proceeds                        22
  4       Submission of Matters to a Vote of Security Holders              23
  5       Other Information                                                23
  6       Exhibits and Reports on Form 8-K                                 25
          Signatures                                                       26

                                    EXHIBITS

Exhibit No. 99.1   Statement Under Oath of Principal Financial Officer Regarding
                   Facts and Circumstances Relating to Exchange Act Filings

Exhibit No. 99.2   Statement Under Oath of Principal Executive Officer Regarding
                   Facts and Circumstances Relating to Exchange Act Filings

<PAGE>

PART I:  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                 Unaudited Condensed Consolidated Balance Sheets
                       June 30, 2002 and December 31, 2002

<TABLE>
<CAPTION>
                                                                         JUNE 30, 2002     DECEMBER 31, 2001
                                                                          (unaudited)
<S>                                                                     <C>                <C>
ASSETS
Current Assets:

   Cash and cash equivalents                                            $     2,831,352    $         322,566
   Accounts receivable, net of allowance for doubtful accounts of
    $208,000 and $217,000 in 2002 and 2001, respectively                        565,532              869,231
   Inventories                                                                2,271,479            2,402,182
   Prepaid expenses and other current assets                                    639,783              201,429
                                                                        ---------------    -----------------

         Total current assets                                                 6,308,146            3,795,408
                                                                        ---------------    -----------------

Property and Equipment:
   Office equipment and furniture and fixtures                                1,114,041            1,209,649
   Manufacturing equipment                                                      693,140              740,000
   Leasehold improvements                                                       617,701              631,900
                                                                        ---------------    -----------------

                                                                              2,424,882            2,581,549

   Less--Accumulated depreciation and amortization                            1,566,109            1,519,607
                                                                        ---------------    -----------------

                                                                                858,773            1,061,942
                                                                        ---------------    -----------------

Intangible Assets, net of accumulated amortization of  $319,000 and
 $221,000 in 2002 and 2001, respectively                                        662,406              760,542
                                                                        ---------------    -----------------

Other Assets:
   Deposits                                                                     618,272              590,600
   Deferred offering costs                                                            -              387,133
   Deferred acquisition costs                                                         -               39,981
                                                                        ---------------    -----------------

                                                                        $     8,447,597    $       6,635,606
                                                                        ===============    =================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
   Bank loan                                                            $       218,396    $         874,449
   Current maturities of convertible debt                                       835,664            1,786,640
   Current maturities of capital lease obligations                               46,053               46,383
   Accounts payable                                                           1,524,944            2,866,346
   Accrued expenses                                                             802,627              883,769
   Customer advance                                                                   -              293,463
                                                                        ---------------    -----------------

         Total current liabilities                                            3,427,684            6,751,050
                                                                        ---------------    -----------------

Promissory Note Payable                                                         936,000              936,000
                                                                        ---------------    -----------------

Capital Lease Obligations, less current maturities                               17,719               39,817
                                                                        ---------------    -----------------

Stockholders' Equity (Deficit):
   Series A convertible preferred stock, $0.01 par value-
     Authorized--3,500,000 shares
     Issued and outstanding--2,725,000 shares at December 31, 2001                    -               27,250
   Class A convertible preferred stock, $0.001 par value                              -                    -
     Authorized - 18,000,000 shares
     Issued and outstanding - 14,765,690 shares at June 30, 2002                 14,767                    -
   Common stock, $0.001 par value
     Authorized - 80,000,000 and 40,000,000 shares at June 30, 2002 and
      December 31, 2001, respectively
     Issued and outstanding - 14,200,000 and 9,179,955 shares at
      June 30, 2002 and December 31, 2001, respectively                          14,200                9,180
   Additional paid-in capital                                                39,227,389           30,324,556
   Cumulative translation adjustment                                           (153,152)                 130
   Accumulated deficit                                                      (35,037,010)         (31,452,377)
                                                                        ---------------    -----------------

         Total stockholders' equity (deficit)                                 4,066,194           (1,091,261)
                                                                        ---------------    -----------------

                                                                        $     8,447,597    $       6,635,606
                                                                        ===============    =================
</TABLE>

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

                                        1

<PAGE>

                        UNAUDITED CONDENSED CONSOLIDATED
                            STATEMENTS OF OPERATIONS
           THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED                    SIX MONTHS ENDED
                                            JUNE 30, 2002   JUNE 30, 2001       JUNE 30, 2002      JUNE 30, 2001

<S>                                         <C>             <C>                 <C>                <C>
Revenues                                    $   1,168,508   $   1,628,545       $   2,125,145      $   5,113,245

Cost of Revenues                                1,038,696       1,434,001           2,193,586          3,667,001
                                            -------------   -------------       -------------      -------------

         Gross profit / (loss)                    129,812         194,544             (68,441)         1,446,244
                                            -------------   -------------       -------------      -------------

Operating Expenses:
   Research and development                       212,243         421,000             383,243            765,000
   Selling and marketing                          734,325         563,027           1,077,053          1,171,027
   General and administrative                     947,363         736,393           1,768,010          1,347,393
                                            -------------   -------------       -------------      -------------

         Total operating expenses               1,893,931       1,720,420           3,228,306          3,283,420
                                            -------------   -------------       -------------      -------------

         Loss from operations                  (1,764,119)     (1,525,876)         (3,296,747)        (1,837,176)

Interest Expense, net                             (23,547)        (45,765)           (287,886)        (2,830,765)
                                            -------------   -------------       -------------      -------------

         Net loss                           $  (1,787,666)  $  (1,571,641)      $  (3,584,633)     $  (4,667,941)
                                            =============   =============       =============      =============

Net loss per share (Note 3):
   Basic and diluted net loss per share
    applicable to common stockholders       $       (0.13)  $       (0.17)      $       (0.28)     $       (0.61)
                                            =============   =============       =============      =============

   Basic and diluted weighted average
    common shares outstanding                  14,200,000       9,179,955          12,992,406          7,645,034
                                            =============   =============       =============      =============
</TABLE>

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

                                        2

<PAGE>

                        UNAUDITED CONDENSED CONSOLIDATED
                            STATEMENTS OF CASH FLOWS
                SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                                                       JUNE 30, 2002       JUNE 30, 2001
<S>                                                                   <C>                 <C>
Cash Flows from Operating Activities:
   Net loss                                                           $    (3,584,633)    $    (4,667,941)
   Adjustments to reconcile net loss to net cash
    used in operating activities-
     Depreciation and amortization                                            144,638             300,648
     Noncash interest expense on convertible debt                             225,260           2,700,000
     Issuance of stock options to a third party                                28,781                   -
     Changes in operating assets and liabilities
       Accounts receivable                                                    303,699             (90,037)
       Inventories                                                            130,703              27,743
       Prepaid expenses and other current assets                             (190,839)           (251,851)
       Deposits                                                                     -                   -
       Accounts payable                                                    (1,341,402)           (324,756)
       Accrued expenses                                                       (81,142)            232,172
       Customer advance                                                      (293,463)                  -
                                                                      ---------------     ---------------

         Net cash used in operating activities                             (4,658,398)         (2,074,022)
                                                                      ---------------     ---------------

Cash Flows from Investing Activities:
   Purchases of property and equipment                                        (74,600)            (61,245)
   Increase in other assets used in investing                                       -             (45,000)
                                                                      ---------------     ---------------

         Net cash used in investing activities                                (74,600)           (106,245)
                                                                      ---------------     ---------------
Cash Flows from Financing Activities:
   Net proceeds (payments) from bank borrowings                              (656,053)           (101,351)
   Proceeds from issue of common stock, net                                 8,530,870                   -
   Proceeds from issue of preferred stock, net                                      -           2,536,164
   Payments on convertible debt                                              (700,000)           (225,000)
   Payments on capital lease obligations                                      (22,428)            (24,711)

         Net cash provided by financing activities                          7,152,389           2,185,102
                                                                      ---------------     ---------------

Effect of Exchange Rate Changes                                                89,585              50,897
                                                                      ---------------     ---------------

Net Increase in Cash and Cash Equivalents                                   2,508,786              55,732

Cash and Cash Equivalents, beginning of period                                322,566             118,872
                                                                      ---------------     ---------------

Cash and Cash Equivalents, end of period                              $     2,831,352     $       174,604
                                                                      ===============     ===============

Supplemental Disclosure of Cash Flow Information:
   Cash paid for interest                                             $        71,335              89,285
                                                                      ===============     ===============
Supplemental Disclosure of Noncash Investing and
 Financing Activities:
   Conversion of convertible debt into common stock                   $             -     $     2,475,000
                                                                      ===============     ===============
   Reclassification of offering costs incurred in
     2001 to APIC                                                     $       387,133     $             -
                                                                      ===============     ===============
</TABLE>

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

                                        3

<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  OPERATIONS

     Diomed Holdings, Inc. and subsidiaries (the Company) specialize in
     developing and commercializing minimal and micro-invasive medical
     procedures that use its laser technologies and disposable products.

     Some of the Company's medical laser products and applications are in
     various stages of development, and as such, the success of future
     operations is subject to a number of risks similar to those of other
     companies in similar stages of development. Principal among these risks are
     the continued successful development and marketing of the Company's
     products, proper regulatory approval, the need to achieve profitable
     operations, competition from substitute products and larger companies, the
     need to obtain adequate financing to fund future operations and dependence
     on key individuals. The Company has incurred significant losses since
     inception and is devoting substantially all its efforts towards research
     and development, regulatory approvals, manufacturing and marketing its
     products.

     As discussed in Note 10, during the quarter ended March 31, 2002, the
     Company merged with another company, raised $10 million in additional
     funding through a private placement offering and paid certain of its debt
     outstanding at December 31, 2001. The Company believes that it will have
     sufficient cash or access to additional funding sources to fund operations
     through December 2002, primarily in reliance on the proceeds of the private
     placement financing related to the Diomed Merger and depending on the
     Company's ability to achieve its business plan pertaining to the commercial
     success of EVLT(TM) post-FDA clearance.

     The accompanying consolidated financial statements at June 30, 2002 and for
     the three-month and six-month periods ended June 30, 2002 and 2001 are
     unaudited. In management's opinion, these unaudited consolidated financial
     statements have been prepared on the same basis as the audited consolidated
     financial statements included in the Company's Annual Report on Form 10-K,
     as amended, for the year ended December 31, 2001, and include all
     adjustments, consisting of only normal recurring adjustments, necessary for
     a fair presentation of the results for such interim periods. These
     financial statements should be read in conjunction with the audited
     consolidated financial statements included in the Company's Annual Report
     on Form 10-K, as amended, for the year ended December 31, 2001. The results
     of operations for the three-month and six-month period ended June 30, 2002
     are not necessarily indicative of the results expected for the fiscal year
     ending December 31, 2002.

     Certain footnote disclosures normally included in financial statements
     prepared in accordance with generally accepted accounting principles have
     been condensed or omitted pursuant to such rules and regulations, although
     the Company believes that the disclosures in these financial statements are
     adequate to make the information presented not misleading.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying consolidated financial statements reflect the application
     of certain accounting policies as described below and elsewhere in these
     notes to consolidated financial statements.

     (a)  PRINCIPLES OF CONSOLIDATION

          These financial statements include the accounts of the Company and its
          wholly owned subsidiaries. All significant intercompany transactions
          have been eliminated.

     (b)  USE OF ESTIMATES

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States requires management
          to make estimates and assumptions that affect the amounts

                                        4

<PAGE>

          reported in the financial statements and accompanying notes. Actual
          results could differ from those estimates.

     (c)  CASH AND CASH EQUIVALENTS

          Cash and cash equivalents consists of short-term, highly liquid
          investments with original maturity dates of 90 days or less. Cash
          equivalents are carried at cost, which approximates fair value.

     (d)  FOREIGN CURRENCY TRANSLATION

          Assets and liabilities of the foreign subsidiaries are translated at
          the rate of exchange in effect at the balance sheet date. Results of
          operations are translated using the weighted average exchange rate in
          effect during the period. Translation adjustments, resulting from
          changes in the rate of exchange between the subsidiaries' functional
          currency and the U.S. dollar, are recorded as a separate component of
          stockholders' equity in the accompanying consolidated balance sheets.
          Transaction gains and losses, resulting from the revaluations of
          assets and liabilities denominated in other than the functional
          currency of the Company or its subsidiaries, are included in operating
          expenses for all periods presented.

     (e)  REVENUE RECOGNITION

          Revenue from product sales is recognized at the time of shipment to
          the customer as long as there is persuasive evidence of an
          arrangement, the sales price is fixed and determinable and collection
          of the related receivable is probable. The Company provides for
          estimated product returns and warranty costs at the time of product
          shipment. In December 1999, the Securities and Exchange Commission
          (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue
          Recognition in Financial Statements, which establishes guidance in
          applying generally accepted accounting principles to revenue
          recognition in financial statements and was effective beginning with
          the Company's fourth quarter of the year ended December 31, 2000. The
          Company has determined that its existing revenue recognition practices
          comply with the requirements of SAB No. 101 for all periods presented.

     (f)  INVENTORIES

          Inventories are valued at the lower of cost (first-in, first-out) or
          market. Work-in-progress a finished goods consist of materials, labor
          and manufacturing overhead. Inventories consist of the following:

                                     JUNE 30, 2002     DECEMBER 31, 2001

               Raw materials        $     1,303,068    $       1,211,870
               Work-in-progress             508,000            1,016,236
               Finished goods               460,411              174,076
                                    ---------------    -----------------

                                    $     2,271,479    $       2,402,182
                                    ===============    =================

     (g)  DEPRECIATION AND AMORTIZATION

          The Company provides for depreciation and amortization using both
          straight-line and accelerated methods by charges to operations in
          amounts that allocate the cost of the assets over their estimated
          useful lives as follows:

                                        5

<PAGE>

                                              ESTIMATED
           DESCRIPTION                        USEFUL LIFE

           Office equipment and furniture
            and fixtures                      2-5 years
           Manufacturing equipment            2-5 years
           Leasehold improvements             Lesser of estimated useful life or
                                              life of lease

     (h)  LONG-LIVED ASSETS

          The Company assesses the realizability of long-lived assets in
          accordance with Statement of Financial Accounting Standards (SFAS) No.
          144, Accounting for the Impairment or Disposal of Long-Lived Assets.
          Under SFAS No. 144, if qualitative factors suggest that an impairment
          may have occurred, the Company is required to assess the valuation of
          its long-lived assets. As of December 31, 2001 and June 30, 2002, the
          Company has determined that no material adjustment to the carrying
          value of its long-lived assets was required.

     (i)  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying amounts of the Company's cash, cash equivalents, accounts
          receivable, accounts payable and various debt instruments approximate
          fair value due to the short-term nature of these instruments. The
          carrying amounts of debt issued pursuant to agreements with banks
          approximate fair value as the interest rates on these instruments
          fluctuate with market interest rates.

     (l)  RESEARCH AND DEVELOPMENT EXPENSES

          The Company charges research and development expenses to operations as
          incurred.

     (m)  COMPREHENSIVE INCOME

          SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
          all components of comprehensive income. Comprehensive income is
          defined as the change in stockholders' equity of a business enterprise
          during a period from transactions and other events and circumstances
          from nonowner sources. For all periods presented, comprehensive income
          consists of the Company's net loss and changes in cumulative
          translation adjustment account as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                        JUNE 30, 2002     JUNE 30, 2001      JUNE 30, 2002      JUNE 30, 2001

         <S>                                            <C>               <C>                <C>                <C>
         Net loss                                       $  (1,787,666)    $  (1,571,641)     $  (3,584,633)     $  (4,667,941)

         Foreign currency translation adjustment             (155,352)          (43,300)          (153,282)           (58,632)
                                                        -------------     -------------      -------------      -------------

         Comprehensive loss                             $  (1,943,018)    $  (1,615,071)     $  (3,737,915)     $  (4,726,573)
                                                        =============     =============      =============      =============
</TABLE>

     (n)  INCOME TAXES

          The Company follows the provisions of SFAS No. 109, Accounting for
          Income Taxes. Deferred income taxes are provided on temporary
          differences that arise in the recording of transactions for financial
          and tax reporting purposes and result in deferred tax assets and
          liabilities. Deferred tax assets are reduced by an appropriate
          valuation allowance if it is management's judgment that part of the

                                        6

<PAGE>

          deferred tax asset will not be realized. Tax credits are accounted for
          as reductions of the current provision for income taxes in the year in
          which the related expenditures are incurred.

     (o)  RECENT ACCOUNTING PRONOUNCEMENTS

          In July 2001, the FASB issued SFAS No. 141, Business Combinations.
          SFAS No. 141 requires all business combinations initiated after June
          30, 2001 to be accounted for using the purchase method. This statement
          is effective for all business combinations initiated after June 30,
          2001.

          In July 2001, the FASB issued SFAS No. 142, Goodwill and Other
          Intangible Assets. This statement applies to goodwill and intangible
          assets acquired after June 30, 2001, as well as goodwill and
          intangible assets previously acquired. Under this statement, goodwill
          as well as certain other intangible assets determined to have an
          infinite life will no longer be amortized; instead, these assets will
          be reviewed for impairment on a periodic basis. This statement is
          effective for the Company for the first quarter in the fiscal year
          ended December 2002. As of June 30, 2002, the carrying value of the
          Company's intangible assets was $662,406. Related to those intangible
          assets, the Company recorded amortization expense of $49,136 and
          $44,000 for the three months ended June 30, 2002 and 2001,
          respectively, and $98,136, and $84,000 for the six months ended June
          30, 2002 and 2001, respectively.

          In August 2001, the FASB issued SFAS No. 144, Accounting for the
          Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No.
          121, Accounting for the Impairment of Long-Lived Assets and for
          Long-Lived Assets to Be Disposed Of. SFAS No. 144 further refines the
          requirements of SFAS No. 121 that companies (i) recognize an
          impairment loss only if the carrying amount of a long-lived asset is
          not recoverable based on its undiscounted future cash flows and (ii)
          measure an impairment loss as the difference between the carrying
          amount and the fair value of the asset. In addition, SFAS No. 144
          provides guidance on accounting and disclosure issues surrounding
          long-lived assets to be disposed of by sale. The Company's adoption of
          this statement has not had a material impact on its financial position
          or results of operations.

(3)  NET LOSS PER SHARE

     Net loss per share is computed based on the guidance of SFAS No. 128,
     Earnings per Share. SFAS No. 128 requires companies to report both basic
     loss per share, which is based on the weighted average number of common
     shares outstanding, and diluted loss per share, which is based on the
     weighted average number of common shares outstanding and the weighted
     average dilutive potential common shares outstanding using the treasury
     stock method. As a result of the losses incurred by the Company for the
     three and six months ended June 30, 2002 and 2001 all potential common
     shares were antidilutive and were excluded from the diluted net loss per
     share calculations.

     The following table summarizes securities outstanding as of each period-end
     which were not included in the calculation of diluted net loss per share
     since their inclusion would be antidilutive.

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                        JUNE 30, 2002     JUNE 30, 2001      JUNE 30, 2002      JUNE 30, 2001
          <S>                                              <C>                <C>               <C>                 <C>
          Common stock options and warrants                 2,055,232         1,469,447          2,055,232          1,469,447
                                                        =============     =============      =============      =============

          Convertible preferred stock                      14,765,690         5,450,000         14,765,690          5,450,000
                                                        =============     =============      =============      =============

          Convertible debt                                    411,330         1,165,000            411,330          1,165,000
                                                        =============     =============      =============      =============
</TABLE>

(4)  ACQUISITION OF MANUFACTURING RIGHTS

                                        7

<PAGE>

     Effective October 16, 2000, the Company acquired certain manufacturing
     rights and inventory of QLT, Inc. (QLT) necessary or useful to
     commercialize certain series of its OPTIGUIDE(R) fibers for $1.2 million in
     the form of two promissory notes, payable within two years. The first
     promissory note is payable in cash or in shares of common stock. The second
     promissory note is payable, at the election of the Company, in cash or in
     shares of common stock. In the event that the Company closes an initial
     public offering (IPO) of its securities within two years of the closing
     date, the due date of the balance payment would be accelerated to the time
     of completion of the IPO and QLT would receive payment in full in the form
     of common stock, at a 40% discount on the offering price per share to the
     public. This contingent beneficial conversion feature, valued at $556,667
     and computed in accordance with Emerging Issues Task Force (EITF) 00-27,
     Application of EITF Issue No. 98-5 to Certain Convertible Instruments,
     would be recorded upon the occurrence of an IPO as a discount to the debt
     and amortized ratably to interest expense over the remaining term of the
     debt, unless converted earlier. The Company has determined that the merger
     and private offering of common stock, as discussed in Note 10, does not
     qualify as an IPO. The aggregate purchase price of $1,200,000 was allocated
     based on the fair value of the tangible and intangible assets acquired as
     follows:

                  Inventory                        $       218,623
                  Manufacturing rights                     981,377
                                                   ---------------

                                                   $     1,200,000
                                                   ===============

     Amounts allocated to manufacturing rights are being amortized on the
     straight-line basis over a five-year period. Included in general and
     administrative expenses is amortization expense of approximately $98,000
     and $84,000 for the six months ended June 30, 2002 and 2001, respectively.

(5)  LINE-OF-CREDIT ARRANGEMENT

     Diomed, Ltd., the Company's subsidiary in the United Kingdom, has a line of
     credit with Barclays Bank, which is limited to the lesser of
     (pound)1,200,000 ($1,829,400 at June 30, 2002 and $1,745,160 at December
     31, 2001) or 80% of eligible accounts receivable. This line bears interest
     at 3% above Barclays Bank's base rate (4.00% at June 30, 2002 and 4.00% at
     December 31, 2001) and borrowings are due upon collection of receivables
     from customers. As of June 30, 2002, there were borrowings of
     (pound)143,258 ($218,396) outstanding under this line and available future
     borrowings of approximately $137,000.

(6)  CONVERTIBLE LOAN NOTES

     Between March and June 2000, the Company issued $2.7 million of 9%
     convertible subordinated notes (the Notes), which were due on March 31,
     2001. The original conversion rate for the Notes was $3.50 per share of
     common stock. The conversion rate was subject to adjustment in the event of
     certain circumstances occurring, including certain issues of common stock
     at a price below $3.50 per share.

     Pursuant to the Stock Purchase and Recapitalization Agreement (the
     Agreement), dated March 5, 2001, which provided certain existing
     shareholders with additional shares of common stock which had the effect of
     reducing their purchase price to $1.00 per share, the Company agreed to
     adjust the conversion price from $3.50 per share to $1.00 per share.
     Concurrent with the Agreement, the noteholders agreed to convert principle
     of $2,475,000 into 2,475,000 shares of common stock. The balance due of
     $225,000 was repaid in cash.

     In accordance with EITF 00-27, the Company recorded noncash interest
     expense totaling approximately $2.7 million in March 2001 due to the
     adjustment of the original conversion price.

                                        8

<PAGE>

(7)  DEBT

     As of December 31, 2001, the First Promissory Note in the amount of
     $339,336 and the Second Promissory Note in the amount of $835,664 due to
     QLT for the acquisition of the manufacturing rights to the OPTIGUIDE(R)
     fibers (see Note 4) are shown on the consolidated balance sheet as
     convertible debt. As of June 30, 2002, the Second Promissory Note due to
     QLT is shown on the consolidated balance sheet as convertible debt.

     With respect to the First QLT Promissory Note, by letter dated June 7,
     2001, QLT formally requested payment of the $339,336 balance due under that
     note. QLT also indicated that it would exercise its option under the
     Optiguide Asset Purchase Agreement to require the Company to issue to QLT
     shares of Company Common Stock having a value equal to $339,336. On October
     1, 2001 the Company advised QLT that it was prepared to issue 135,735
     shares based on a per share price of $2.50. The Company asked QLT to
     respond if the calculation was acceptable to it and also asked that, if the
     calculation was not acceptable, that the matter be referred to arbitration
     pursuant to the applicable provisions of the Optiguide Asset Purchase
     Agreement. On January 28, 2002, the Company issued QLT 135,735 shares of
     Company Common Stock. On February 11, 2002, QLT informed the Company it was
     accepting the 135,735 shares issued to it under protest as it disagreed
     with the per share price the Company had used in calculating the number of
     shares issued to it. It also asserted that the Company had failed, in
     connection with the issuance of those shares, to confirm certain
     registration rights and deliver a legal opinion. The Company believes that
     QLT may have been asserting that it was entitled up to an additional
     542,940 shares. The Company disputes this position based on the express
     terms of its agreement with QLT and the relevant facts. The terms of the
     agreement between the Company and QLT require senior management of both
     companies to meet for a period of 60 days to attempt to resolve disputes
     arising thereunder.

     From the time it received notice of QLT's assertions, the Company engaged
     in discussions with QLT to resolve the dispute amicably. On August 5, 2002,
     the Company and QLT entered into an agreement pursuant to which the Company
     issued to QLT, and QLT accepted from the Company, a total of 696,059 shares
     of Convertible Preferred Stock to both resolve the dispute as to the First
     Promissory Note and fully satisfy the Company's obligations under the
     Second Promissory Note.

     In October 2000, a customer, Axcan Pharma, advanced the Company $936,000 to
     secure certain key materials. In September 2001, the Company issued a
     promissory note to this customer in the amount of the advance. The note
     matures on January 1, 2004 and bears interest at a rate of 8.5% per year.
     The note does not provide for conversion rights.

     A summary of the Company's debt at June 30, 2002 is as follows:

                                                       CURRENT      LONG-TERM

            Convertible debt--QLT                      $   835,664  $         -
            Promissory note payable - Axcan Pharma               -      936,000
                                                       -----------  -----------

                                                       $   835,664  $   936,000
                                                       ===========  ===========

(8)  SEGMENT REPORTING

     The Company has adopted SFAS No. 131, Disclosures about Segments of an
     Enterprise and Related Information, which establishes standards for
     reporting information regarding operating segments in annual financial
     statements and requires selected information for those segments to be
     presented in interim financial reports issued to stockholders. SFAS No. 131
     also establishes standards for related disclosures about products and
     services and geographic areas.

                                        9

<PAGE>

     Operating segments are identified as components of an enterprise about
     which separate discrete financial information is available for evaluation
     by the chief operating decision maker, or decision making group, in making
     decisions on how to allocate resources and assess performance. The
     Company's chief decision making group, as defined under SFAS No. 131, is
     the Executive Management Committee.

     The Company's reportable segments are determined by product type: laser
     systems and fibers and other accessories. The accounting policies of the
     segments are the same as those described in Note 2. The Executive
     Management Committee evaluates segment performance based on revenue.
     Accordingly, all expenses are considered corporate level activities and are
     not allocated to segments. Also, the Executive Management Committee does
     not assign assets to its segments.

     This table presents revenues by reportable segment:

<TABLE>
<CAPTION>
                                  THREE MONTHS ENDED                 SIX MONTHS ENDED
                             JUNE 30, 2002   JUNE 30, 2001    JUNE 30, 2002    JUNE 30, 2001

         <S>                 <C>             <C>              <C>              <C>
         Laser systems       $     948,475   $   1,330,968    $   1,412,980    $   4,399,368
         Fibers and other
          accessories              220,033         297,577          712,165          713,877
                             -------------   -------------    -------------    -------------

              Total          $   1,168,508   $   1,628,545    $   2,125,145    $   5,113,245
                             =============   =============    =============    =============
</TABLE>

     The following table represents percentage of revenues by geographic
     destination:

<TABLE>
<CAPTION>
                                  THREE MONTHS ENDED                 SIX MONTHS ENDED
                             JUNE 30, 2002   JUNE 30, 2001    JUNE 30, 2002    JUNE 30, 2001

          <S>                          <C>             <C>              <C>              <C>
          North America                 54%             64%              52%              53%

          Asia/Pacific                  23%             13%              24%              22%

          Europe                        21%             19%              22%              23%

          Other                          2%              5%               3%               2%
                             -------------   -------------    -------------    -------------

               Total                   100%            100%             100%             100%
                             =============   =============    =============    =============
</TABLE>

     The following table represents long-lived assets by geographic location:

                                             JUNE 30, 2002    DECEMBER 31, 2001
              North America                  $     899,171    $       1,417,681
              Europe                             1,240,280            1,382,536
                                             -------------    -----------------

                   Total                     $   2,139,451    $       2,800,217
                                             =============    =================

(9)  BRIDGE LOANS FROM STOCKHOLDERS

     In September 2001, the Company received an aggregate of $500,000 from two
     stockholders of the Company, Winton Capital Holdings and Verus Investment
     Group Limited, in exchange for a bridge loan in the form of

                                       10

<PAGE>

     two secured promissory notes ("notes"), dated October 5, 2001. The notes
     mature on January 1, 2003 and bear an annual interest rate of 7.5%.

     The notes are convertible, at the election of the noteholders, into common
     stock prior to the maturity date under the following scenarios: 1) in the
     event the Company does not complete a reverse merger by October 31, 2001,
     the noteholders may exercise their call option issued in the March 2001
     Series A Preferred Stock financing and deliver their notes as payment, 2)
     in the event the Company completes a reverse merger, the notes are
     convertible into common stock at the lesser of $2.25 per share and the
     price per share in the reverse merger, 3) in the event of another type of
     financing transaction, as defined, the notes are convertible into common
     stock at the lesser of $2.25 per share and the price per share in the
     transaction, and 4) in the event of a merger or consolidation, excluding a
     reverse merger, the notes are convertible into common stock at the lesser
     of $2.25 per share and the price per share of any warrants issued in the
     transaction. However, if the Company successfully completes a reverse
     merger with a public company, where such public company has raised $10
     million in gross proceeds in a private placement financing prior to the
     reverse merger, the notes become due and payable in cash within 10 days of
     the effective closing date. The call option expired on October 31, 2001.

     In addition, the Company granted fully exercisable warrants to purchase an
     aggregate of 50,000 shares of common stock at a price per share equal to a
     maximum of $2.25, adjustable for certain events, as defined. The value of
     such warrants, calculated using the Black-Scholes option pricing model, was
     recorded as a debt discount totaling $43,000 and will be amortized to
     interest expense over the life of the note. In addition, the beneficial
     conversion feature attributable to the warrants, totaling $43,000, will be
     recorded as interest expense upon the occurrence of an event which will
     trigger the note's right to convert. In January 2002, due to the Company's
     delay in completing the reverse merger by December 31, 2001, the Company
     was required to issue up to an additional aggregate of 10,000 warrants,
     with terms identical to the initial grant. The warrants expire two years
     from the date of issuance. The value ascribed to these 10,000 warrants was
     $8,200 and was calculated using the Black-Scholes option pricing model. The
     $8,200 was recorded as a debt discount and will be amortized to interest
     expense over the life of the notes. In addition, the beneficial conversion
     feature attributable to the warrants totaling $8,200 will be recorded as
     interest expense upon the occurrence of an event which will trigger the
     note's right to convert.

     In December 2001, the Company received an additional aggregate of $200,000
     from the same two noteholders through issuance of additional promissory
     notes, with terms identical to those specified above, except as noted
     below. The maximum conversion price of the notes and the exercise price of
     the warrants is $2.00 per share, adjustable for certain events as defined.
     In addition, the Company granted fully exercisable warrants to purchase an
     aggregate of 20,000 shares of common stock at a price per share equal to a
     maximum of $2.00, adjustable for certain events, as defined. The Company
     completed a reverse merger by March 31, 2002, and accordingly did not have
     to issue any contingent warrants. Under the December 2001 notes, the
     conversion price of the notes and the exercise price of the warrants
     included under the October 2001 notes were reduced to a maximum of $2.00 to
     be consistent with the terms of the December 2001 notes. Such revision
     creates an additional beneficial conversion feature attributed to the
     reduction of the conversion price, totaling $62,500, to be recorded upon
     the occurrence of an event which will trigger the notes' right to convert.
     Additionally, such revision created an additional debt discount, attributed
     to the establishment of a new measurement date for the amended warrant,
     totaling $39,000.

     In February 2002, subsequent to the closing of the reverse merger, the
     $700,000 aggregate principal amount of the promissory notes, issued in
     October and December 2001, was repaid to the two stockholders, including
     cumulative interest. During the three month period ended March 31, 2002,
     the Company recorded $225,260 as additional non-cash interest expense
     related to warrants issued in connection with the bridge loan in 2001 and
     2002, as well as beneficial conversion features discussed above which were
     triggered by the acquisition discussed in Note 10.

                                       11

<PAGE>

(10) MERGER AND PRIVATE OFFERING OF COMMON STOCK

On February 14, 2002, Diomed Acquisition Corp. ("Acquisition"), a Delaware
corporation and a wholly-owned subsidiary of Diomed Holdings, Inc., a Nevada
corporation formerly known as Natexco Corporation (the "Parent"), merged with
and into the Company pursuant to an Agreement and Plan of Merger, dated as of
January 29, 2002. In the merger (the "Merger") that occurred under the Agreement
and Plan of Merger, the stockholders of the Company received shares of Parent.
As a condition to the Merger, Parent raised gross proceeds of $10,000,000 in a
private offering of shares of its common stock. The shares issued in the private
offering are not subject to refund, redemption or rescission and, accordingly,
will be included as a component of stockholders' equity, net of the applicable
costs. The merger agreement provides that the proceeds of that offering will be
available to the Company for payment of its existing obligations and, subject to
the approval of its board of directors, certain future expenses, including the
financing of product developments and acquisitions. Parent is obligated to use
its best efforts to file a registration statement with the Securities and
Exchange Commission to register for resale its common shares that it issued in
the private offering and those of its common shares that it issued to the
Company's former stockholders and to cause the registration statement to be
declared effective. In the event that the Parent fails to file or cause the
registration statement to be declared effective within 240 days of completing
the Merger, or remain effective through the first anniversary of the Merger, the
Parent will be required to issue additional shares of its common stock, up to a
maximum of 4% of the shares held by each party subject to the agreement.

After the Merger, the Company's former stockholders own approximately 51% of the
issued and outstanding shares of Parent (in terms of common share equivalents).
The shares of Parent into which the shares of the Company's existing common
stock and the Company's Series A preferred stock were converted in the Merger
will thereafter automatically convert into Parent's common stock in installments
beginning 60 days after Parent's registration statement has become effective and
continuing, unless interrupted under certain circumstances, until the second
anniversary of the Merger, at which time all such shares will automatically
convert into shares of Parent's common stock.

The Merger will be accounted for as a recapitalization. The historical records
of the Company are the historical records of Parent. Following the Merger, the
business conducted by Parent is the business conducted by the Company prior to
the Merger.

Costs of approximately $1.85 million related to the issuance of Parent's shares
in the offering and its preparation and negotiation of the documentation for the
Merger were incurred, and paid at the closing of the Merger and subsequent to
the Merger.

(11) MIGRATORY MERGER

In April 2002, the board of directors of the Company determined that it was in
the best interests of the Company and its stockholders for the Company to change
its state of incorporation from Nevada to Delaware. On May 13, 2002, the
reincorporation was effected by way of a merger of the Nevada corporation into a
newly-created Delaware corporation, also called Diomed Holdings, Inc (the
"Migratory Merger"). As a result of the Migratory Merger, each share of common
stock of the Nevada corporation outstanding as of the date of the consummation
of the Migratory Merger was converted into one share of Common Stock and each
share of Class A Convertible Preferred Stock of the Nevada corporation (the "Old
Class A Stock") was converted into four shares of Convertible Preferred Stock.
The rights and privileges of the Common Stock and the Convertible Preferred
Stock are virtually identical to the common stock of Diomed Holdings Nevada and
the Old Class A Stock, other than the one for four exchange of shares of Old
Class A Stock for shares of Convertible Preferred Stock, and a reduction in the
number of votes from four votes per share for Old Class A to one vote per share
for Convertible Preferred Stock.

In connection with the Migratory Merger, the Delaware corporation assumed the
obligations of the Nevada corporation with respect to the Nevada corporation's
outstanding stock options and warrants.

                                       12

<PAGE>

As a result of the Migratory Merger, the directors and officers of the Nevada
corporation became the directors and officers of the Delaware corporation,
providing continuity for the Company's board of directors.

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     In this Quarterly Report, the terms "Company" and "Diomed Holdings" both
refer to Diomed Holdings, Inc. The term "Diomed" refers to the Company's
principal subsidiary, Diomed, Inc. and its consolidated subsidiaries. We use the
terms "we," "our" and "us" when we do not need to distinguish among these
entities or their predecessors, or when any distinction is clear from the
context.

     This section contains forward-looking statements, which involve known and
unknown risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "may," "will," "should," "potential," "expects,"
"anticipates," "intends," "plans," "believes" and similar expressions. These
statements are based on our current beliefs, expectations and assumptions and
are subject to a number of risks and uncertainties. Our actual results could
differ materially from those discussed in these statements. Our Annual Report on
Form SEC 10-KSB (the "Annual Report") contains a discussion of certain of the
risks and uncertainties that affect our business. We refer you to the "Risk
Factors" on pages 5 through 16 of the Annual Report for a discussion of certain
risks, including those relating to our business as a medical device company
without a significant operating record and with operating losses, those risks
relating to our commercialization of our current and future products and
applications and those risks relating to our common stock and its market value.

     In view of our relatively limited operating history, we have limited
experience forecasting our revenues and operating costs. Therefore, we believe
that period-to-period comparisons of financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
To date, the Company has incurred substantial costs to create our products. As
of June 30, 2002, we had an accumulated deficit of approximately $35.0 million.
We may continue to incur operating losses due to spending on marketing and
administrative activities, research and development programs, clinical trials
and regulatory activities. This spending may not correspond with any meaningful
increases in revenues in the near term, if at all. As such, these costs may
result in negative operating cash flows until such time as the Company generates
sufficient revenue to offset such costs.

     The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes set forth above in this Quarterly
Report and our Annual Report.

OVERVIEW

     Diomed specializes in developing and commercializing minimal and
micro-invasive medical procedures that use its laser technologies and disposable
products. Minimal and micro-invasive medical procedures typically result in
reduced pain and scarring, shorter recovery periods and increased effectiveness
compared to traditional surgical procedures. Most of the pain associated with
traditional surgical procedures results from the slicing of the layers of skin
and muscle tissue, which also takes time to heal. This can be diminished by
using minimal and micro-invasive procedures instead of traditional surgical
treatments. In developing and marketing our clinical solutions, we use
proprietary technology and we aim to secure strong commercial advantages over
our competitors by gaining governmental approvals in advance of others and
through exclusive commercial arrangements. To participate in the rapidly growing
minimal and micro-invasive medical procedure industry, we seek to develop
medical applications for our laser technology, to incorporate disposable
products into these applications and to sell our products to physicians who
perform medical procedures using our products and the techniques that we
develop. To optimize our revenues, we focus on clinical procedures that require
the health care provider to own our equipment and also purchase our disposable
products, such as optical fibers. We sell our products to hospital and
office-based physicians, including specialists in vascular surgery, oncology,
interventional-radiology, phlebology, gynecology and dermatology.

                                       13

<PAGE>

     Using our proprietary technology in certain methods of synchronizing diode
light sources and in certain optical fibers, we currently focus on photodynamic
therapy (our PDT product line) for use in cancer treatments, and endovenous
laser treatment (our EVLT(TM) product line), for use in varicose vein treatments
and other clinical applications. Using high power semiconductor diodes as their
energy source, our diode lasers combine clinical efficacy, operational
efficiency and cost effectiveness in a versatile, compact, lightweight,
easy-to-use and easy-to-maintain system.

     Since the beginning of 2001, the composition of Diomed's product line has
changed. In the first half of 2001, Diomed abandoned its Laserlite business when
we withdrew from the aesthetic laser market. Diomed had acquired Laserlite LLC,
the distributor of Diomed's cosmetic laser systems, in May 1998. Diomed
subsequently migrated to its existing laser platform, and this led to a decision
to discontinue the sale of the Laserlite product line.

     In 2001, Diomed developed endovenous laser treatment (EVLT(TM)), an
innovative minimally invasive laser procedure for the treatment of varicose
veins caused by greater saphenous vein reflux. In September 2001, Diomed was the
first company to receive the CE mark of the European Economic Union for approval
for endovenous laser treatment with respect to marketing EVLT(TM) in Europe. On
January 22, 2002, Diomed was the first company to receive FDA clearance for
endovenous laser treatment, with respect to marketing EVLT(TM) in the U.S.

     Diomed expects that EVLT(TM) will be the primary source of revenue in 2002.
In the second quarter of 2002, Diomed sold 18 EVLT(TM) lasers and associated
disposable products totaling gross revenue of approximately $530,000, compared
to 11 lasers and associated disposable products sold during the first quarter of
2002 resulting in total gross revenue of approximately $283,000. Diomed believes
that EVLT(TM) will result in a high level of commercial acceptance due to its
quick recovery period, immediate return to one's normal routine barring vigorous
physical activities, reduced pain and minimal scarring, and reduced costs
compared to vein stripping, the current prevalent clinical treatment for
varicose veins. We developed our EVLT(TM) product line as a complete clinical
solution and marketing model, including a laser, disposable kit, clinical
training and marketing plan, to assist office-based and hospital-based
physicians in responding to the demand for treatment of varicose veins in a
minimally invasive manner. Diomed also published a health insurance
reimbursement guide as a sales and marketing tool to assist physicians in the
reimbursement submission process.

     Diomed expects that as the number of EVLT(TM) procedures performed
increases so will its sales of associated disposable items. Diomed believes that
the U.S. represents the single largest market for EVLT(TM). Diomed is targeting
its sales and marketing efforts at hospitals, private physician practices and
clinics, and focuses on leading hospitals. For example, in the second quarter,
Diomed sold EVLT(TM) to six hospitals. University of California at Los Angeles
Medical Center in Los Angeles, California, and Massachusetts General Hospital in
Boston, Massachusetts are among the hospitals currently performing EVLT (TM)
procedures. Diomed plans to expand sales to hospitals in the third and fourth
quarters and in 2003.

     Diomed has developed a website - www.evlt.com - to implement its push /
pull strategy to attract the interest of both patients and physicians. EVLT.com
provides patients with education about treatment options and benefits of
EVLT(TM) and provides physicians with education about the EVLT(TM) procedure.
Also, patients can inquire about the nearest physician performing EVLT(TM) by
inputting their city and state.

     The sales cycle for selling capital equipment, such as medical lasers, is a
dynamic one that can be prolonged by several factors, including:

     .    the customer's internal approval process;

     .    hospital determinations as to the speciality of physician performing
          the EVLT(TM) procedure and the facility where these procedures will be
          performed;

                                       14

<PAGE>

     .    the physician's desire to observe an EVLT(TM) procedure prior to
          making a purchase decision; and

     .    budget constraints for capital equipment.

The length of the sales cycle may vary according to the type of customer. For
example, a sale to a private physician may take just a few weeks, whereas a sale
to a hospital may take two months or longer. Diomed is providing hospital-based
and office-based physicians with marketing guidance as to how they can build an
EVLT(TM) business, which can facilitate the sales closing process and reduce the
sales cycle. Also, Diomed is directing interested patients to the nearest
performing physician via its website www.evlt.com.

     Based on the dynamics of the selling process, in late March 2002 Diomed
made the decision to hire a direct sales force to commercialize EVLT(TM). At the
end of May 2002, Diomed had hired, trained and deployed eight new direct sales
representatives in key strategic markets across the US to supplement its
existing sales infrastructure of independent sales representatives.

     Diomed is already experiencing the benefits of having a direct
sales force. The average volume of sales quotes for EVLT(TM) lasers issued in
June as compared to prior months increased substantially. Diomed anticipates
that the volume of quotes will continue to grow in the third quarter, which in
turn we expect will lead to increased sales. In addition, Diomed is establishing
long-term relationships with customers, which is key to developing a recurring
revenue stream from sales of disposable components. Diomed anticipates that
sales will grow through the third and fourth quarters of this year as the direct
sales force strengthens its selling skills in the field for the EVLT(TM) product
line and establish its sales territories. As a result, Diomed plans to double
the size of its direct sales force to approximately 16 sales persons by the end
of 2002 by expanding into territories that do not presently have sales coverage
and by adding new sales representatives in existing key strategic markets.

     Diomed's sales of its PDT product line are dependent to an extent upon the
clinical development process and the commercialization of PDT drugs by PDT drug
companies. As a result, our sales may fluctuate in relation to the timing of PDT
drug companies achieving their strategic initiatives. For the six months ended
June 30, 2002, our sales of PDT lasers were approximately $238,000, and our
sales of PDT disposable items were approximately $339,000.

     Diomed works jointly and early on with photodynamic therapy drug (PDT)
companies in their clinical development process in order to design a laser that
optimizes the most effective wavelength in combination with their PDT drugs. We
have long-term relationships with some of the world's leading photodynamic
therapy drug companies, including Axcan Pharma, DUSA, Pharmacyclics and QLT, and
have sold them lasers in support of their clinical trials for photodynamic
therapy applications. In August 2000, Axcan Pharma and Diomed together received
regulatory approval for Diomed's 630nm laser and OPTIGUIDE(R) fiber, and Axcan's
Photofrin drug used in the treatment for late stage lung and esophageal cancers.
Axcan Pharma is developing other clinical applications using Photofrin,
including treatment for Barrett's Esophagus, a pre-cursor to cancer of the
esophagus. Axcan Pharma is pursuing an application for FDA clearance for
Photofrin and Diomed's lasers and fibers for use in the treatment of Barrett's
Esophagus.

     In the US, regulatory approval by the FDA is given for each specific
treatment in response to a specific pre-market approval application, or "PMA."
Each PMA is generally addressed to a use for the device that the PMA specifies.
Our PDT line is a delivery system of laser technology, services and fiber
disposables to the global photodynamic therapy industry. The FDA considers
PDT a modality that requires a combination PMA approval, where the PDT
drug company, laser manufacturer and fiber manufacturer work together to obtain
regulatory approval for the complete medical procedure.

                                       15

<PAGE>

     Our technology and manufacturing capability has attracted OEM partners. In
a typical OEM relationship, we produce the laser and other products to the OEM's
specifications, which will then be marketed under the OEM's label. As a result,
sales of our products to OEM partners may fluctuate in relation to the
achievement of their strategic initiatives. Our most prominent OEM relationship
is with Olympus in Japan, which is using our technology for surgical and dental
applications. In addition we have a long-term partnership with Dentek
Lasersystems Vertriebs GmbH, which is using our laser module for dental
applications.

     In 2001, approximately one-third of our revenues were dependent upon a few
of our strategic partners and approximately 50% of our sales were generated
domestically versus internationally. Going forward, we believe that our annual
dependence on any individual customer or group of customers should decrease as
more of our revenues may derive from sales of EVLT(TM) in the U.S. market
directly to individual physician practices and less to large-scale distributors.
In addition, Diomed believes that its percentage of sales generated domestically
should increase as it grows the EVLT(TM) market in the U.S.

     Diomed envisions that by developing and marketing procedures to doctors
that involve selling key components - namely lasers and their related
disposables designed for a single use, including fibers and kits - it will have
the potential to create recurring sales. Diomed's plan is that each future
procedure will be accompanied with a disposable component.

     In fiscal 2002, Diomed expects to focus on the development and growth of
EVLT(TM) sales in the U.S. while simultaneously pursuing channels for future
sales worldwide, to support the development and approval of new applications for
PDT products, and to continue the development of new minimally invasive medical
procedures that offer long-term opportunities to the Company.

RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 2001

REVENUES
     Revenues for the three months ended June 30, 2002 were $1.1 million, a $0.5
million, or 28%, decrease from $1.6 million for the three months ended June 30,
2001.

     This decrease was principally due to a $0.7 million decrease in laser
sales. The decrease in laser sales was primarily attributable to three factors:
(1) a $0.5 million, or 78%, decrease in sales of PDT lasers, (2) a $0.1
million, or 88%, decrease in OEM sales, and (3) a $0.3 million, or 82%, decrease
in other surgical laser sales. These factors were offset by a $0.25 million, or
165%, increase in laser sales in our new EVLT(TM) product line.

     The decrease in sales of our PDT lasers was principally due to the
additional time needed by Axcan Pharma to sell the $1.0 million in lasers it
purchased in the first quarter of 2001 under our exclusive supply agreement.
Axcan Pharma purchased these lasers in support of its market launch for
Photofrin, the PDT drug used to treat late stage lung and esophageal cancers.

     The decrease in OEM sales is principally due to $165,000 in lasers
purchased by Dentek in the three months ended June 30, 2001 that were not
repeated in the three months ended June 30, 2002.

     The increase in EVLT(TM) sales is primarily due to sales in the U.S. after
obtaining FDA clearance for EVLT(TM) in January 2002.

COST OF REVENUES
     Cost of revenues for the three months ended June 30, 2002 was $1.0 million,
a $0.4 million, or 28%, decrease from $1.4 million for the three months ended
June 30, 2001. This decrease was principally due to the decreased sales volume
in the second quarter of 2002 as compared to the same time period in 2001, and a

                                       16

<PAGE>

headcount reduction in manufacturing resulting from the restructuring in
December 2001 of our subsidiary operations in the UK, offset by regulatory costs
incurred in the US in the second quarter 2002 that were not incurred in the same
period in 2001.

GROSS PROFIT (LOSS)
     Gross profit for the three months ended June 30, 2002 was $130,000, a
$65,000, or 33%, decrease from $195,000 in gross profit for the three months
ended June 30, 2001. This decrease was principally due to the decreased sales
volume in the second quarter of 2002 as compared to the same time period in
2001, and as a result the Company absorbed fixed costs for production quality,
regulatory and service that otherwise would have been covered.

RESEARCH AND DEVELOPMENT EXPENSES
     Research and development expenses for the three months ended June 30, 2002
were $212,000, a $209,000, or 50%, decrease from $421,000 for the three months
ended June 30, 2001. The decrease was principally due to a headcount reduction
resulting from the restructuring in December 2001 of our subsidiary operations
in the UK, offset by costs incurred in the second quarter of 2001 to wind-down
the aesthetic laser business, which was acquired from Laserlite LLC, that was
subsequently abandoned in the first half of 2001.

SELLING AND MARKETING EXPENSES
     Selling and marketing expenses for the three months ended June 30, 2002
were $734,000, a $171,000, or 30%, increase from $563,000 for the three months
ended June 30, 2001. The increase was principally due to staff and recruiting
costs for sales and marketing resources in the US, including the hiring of a
direct sales force, and costs associated with participation in industry trade
shows and other marketing initiatives that were incurred in the US in the second
quarter of 2002 post FDA clearance for EVLT(TM) that were not incurred in the
same period in 2001. These costs were offset by a headcount reduction resulting
from the restructuring in December 2001 of our subsidiary operations in the UK.

GENERAL AND ADMINISTRATIVE EXPENSES
     General and administrative expenses for the three months ended June 30,
2002 were $947,000, a $211,000, or 29%, increase from $736,000 for the three
months ended June 30, 2001. The increase was principally due to staffing costs
in the US in the second quarter of 2002 that were not incurred in the same
period in 2001, and incremental legal, investor relations, financial advisory,
accounting and other professional fees associated with becoming a public company
in the first quarter of 2002, offset by a headcount reduction resulting from a
restructuring in December 2001 of our subsidiary in the UK and attrition.

INTEREST EXPENSE, NET
     Interest expense for the three months ended June 30, 2002 was $24,000, a
$22,000, or 49%, decrease from $46,000 in the three months ended June 30, 2001.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001

REVENUES
     Revenues for the six months ended June 30, 2002 were $2.1 million, $3.0
million, or 58%, decrease from $5.1 million for the six months ended June 30,
2001.

     This decrease was principally due to an approximate $3.3 million decrease
in laser sales offset by increases of approximately $100,000 in disposable
sales, and $200,000 in service income. Sales of disposable items include
approximately $135,000 in disposable kits for the Company's new EVLT(TM) product
line. The decrease in laser sales was primarily attributable to four factors:
(1) a $1.7 million, or, 88%, decrease in sales of PDT lasers, (2) a $1.0
million, or, 89%, decrease in OEM sales, (3) the Company's withdrawal from the
aesthetic laser market (which had represented $420,000 in revenues in the first
half of 2001), and (4) a

                                       17

<PAGE>

$400,000, or 71%, decrease in sales of other surgical lasers. These factors
were offset by a $300,000, or 87% increase in laser sales of the Company's new
EVLT(TM) product line.

     The decrease in sales of our PDT lasers was principally due to the
additional time needed by Axcan Pharma to sell the $1.7 million in lasers it
purchased in the first half of 2001 under our exclusive supply agreement. Axcan
Pharma purchased these lasers in support of its market launch for Photofrin, the
PDT drug used to treat late stage lung and esophageal cancers.

     The decrease in OEM sales is principally due to the additional time needed
by Olympus Japan to sell the $0.8 million in surgical lasers it purchased in the
first quarter of 2001 to support its market launch.

     We abandoned our Laserlite business when we withdrew from the aesthetic
laser market. Diomed had acquired Laserlite, LLC, the distributor of its
cosmetic laser systems, in May 1998. Diomed subsequently migrated to its
existing laser platform, and this led to a decision to discontinue the sale of
the Laserlite product line.

COST OF REVENUES
     Cost of revenues for the six months ended June 30, 2002 was $2.2 million, a
$1.5 million, or 40%, decrease from $3.7 million for the six months ended June
30, 2001. This decrease was principally due to the decreased sales volume in the
first half of 2002 as compared to the same time period in 2001, and a headcount
reduction in manufacturing resulting from the restructuring in December 2001 of
our subsidiary operations in the UK, offset by regulatory costs incurred in the
US in the first half of 2002 that were not incurred in the same period in 2001.

GROSS PROFIT (LOSS)
     Gross (loss) for the six months ended June 30, 2002 was ($68,000), a $1.51
million, or 105%, decrease from $1.44 million in gross profit for the six months
ended June 30, 2001. This decrease was principally due to the decreased sales
volume in the first half of 2002 as compared to the same time period in 2001,
and as a result the Company absorbed fixed costs for production quality,
regulatory and service that otherwise would have been covered.

RESEARCH AND DEVELOPMENT EXPENSES
     Research and development expenses for the six months ended June 30, 2002
were $383,000, a $382,000, or 50%, decrease from $765,000 for the six months
ended June 30, 2001. The decrease was principally due to a headcount reduction
resulting from the restructuring in December 2001 of our subsidiary operations
in the UK, offset by costs incurred in the first half of 2001 to wind-down the
aesthetic laser business, which was acquired from Laserlite LLC, that was
subsequently abandoned in the first half of 2001.

SELLING AND MARKETING EXPENSES
     Selling and marketing expenses for the six months ended June 30, 2002 were
$1.1 million, a $100,000, or 8%, decrease from $1.2 million for the six months
ended June 30, 2001. The decrease was principally due to a headcount reduction
resulting from the restructuring in December 2001 of our subsidiary operations
in the UK, offset by staff and recruiting costs for sales and marketing
resources in the US, including the hiring of a direct sales force, and costs
associated with participation in industry trade shows and other marketing
initiatives that were incurred in the US in the second quarter of 2002 post FDA
clearance for EVLT(TM) that were not incurred in the same period in 2001.

GENERAL AND ADMINISTRATIVE EXPENSES
     General and administrative expenses for the six months ended June 30, 2002
were $1.7 million, a $0.4 million, or 31%, increase from $1.3 million for the
six months ended June 30, 2001. The increase was principally due to staffing
costs in the US in the first half of 2002 that were not incurred during the same
period in 2001, and incremental legal, investor relations, financial advisory,
accounting and other professional fees

                                       18

<PAGE>

associated with becoming a public company in the first quarter of 2002, offset
by a headcount reduction resulting from a restructuring in December 2001 of our
subsidiary in the UK.

INTEREST EXPENSE, NET
     Interest expense for the six months ended June 30, 2002 was $288,000, a
$2.5 million, or 90%, decrease from $2.8 million in the six months ended June
30, 2001.

     Interest expense in the six months ended June 30, 2002 includes non-cash
charges totaling approximately $225,000. In 2001, the Company issued Promissory
Notes, in the aggregate principal amount of $700,000, to two stockholders of the
Company in exchange for bridge loans and granted these two stockholders fully
exercisable warrants to purchase an aggregate of 80,000 shares of common stock.
We recorded the value of such warrants, calculated using the Black-Scholes
option pricing model, as a debt discount that would be amortized to interest
expense over the life of the notes. In addition, we recorded the beneficial
conversion feature attributable to the warrants as interest expense upon the
closing of the Merger, which triggered the right to convert the notes.

     Interest expense in the six months ended June 30, 2001 reflects a noncash
charge totaling $2.7 million. In March 2001, holders of our 9% convertible
subordinated notes, with a conversion price of $3.50 per share, agreed to
convert $2.5 million in principal amount of those notes into common stock. The
conversion rate was subject to adjustment in the event of certain circumstances,
including certain issues of common stock at a price below $3.50 per share.
Pursuant to our March 5, 2001 Stock Purchase and Recapitalization Agreement,
which provided certain shareholders with additional shares of common stock at a
purchase price of $1.00 per share, we adjusted the conversion price of the notes
from $3.50 per share to $1.00 per share. At the same time, the holders of the
notes converted $2.475 million of the notes into 2,475,000 shares of common
stock. We repaid the remaining $225,000 of notes in cash. In accordance with
Emerging Issues Task Force (EITF) 00-27, Application of EITF Issue No.98-5 to
certain Convertible Instruments, we recorded a non-cash interest expense charge
of $2.7 million due to the adjustment of the conversion price.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception through June 30, 2002, we have incurred a cumulative loss
of approximately $35.0 million and may continue to incur operating losses for
the next few years, dependent upon the commercial success of EVLT(TM) post-FDA
clearance. We have financed our operations primarily through private placements
of common stock and preferred stock, and private placements of convertible notes
and short-term notes and credit arrangements.

     We anticipate that we will have sufficient cash or access to additional
funding sources to fund operations through December 2002, in reliance on the
proceeds of the private placement financing related to the Merger and depending
on the Company's ability to achieve its business plan pertaining to the
commercial success of EVLT(TM) post-FDA clearance. If we are unable to achieve
our business plans, we may need to continue to rely on external sources of
financing to meet our cash needs for future acquisitions and internal expansion,
and if necessary, defer certain discretionary expenditures in order to continue
operations. Additional financing, through subsequent public offerings, or
private equity or debt financings, may not, however, be available on acceptable
terms or at all. The inability to obtain additional financing would cause us to
reduce or cease operations because we would not be able to fund the development
of our applications so that they may be commercialized and, thus, become
profitable.

     We had cash of approximately $2.8 million as of June 30, 2002. Cash as of
December 31, 2001 was approximately $323,000.

     Cash used in operations for the six months ended June 30, 2002 was
approximately $4.6 million. This is principally attributable to the paydown of
trade payables of approximately $1.5 million and repayment of a

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<PAGE>

customer advance of approximately $300,000 subsequent to completing the private
placement offering in connection with the Merger, and an increase in prepaid
expenses of approximately $500,000 for annual fees. In addition, the low sales
volume in the first half of 2002 has put a drain on our financial resources, and
the Company had to cover fixed costs such as rent, salaries, benefits and taxes.

     Cash used in investing activities for the six months ended June 30, 2002
was approximately $75,000. The net cash used in investing activities was
principally related to the purchase of office equipment, furnishings and
fixtures and leasehold improvements.

     Cash provided by financing activities for the six months ended June 30,
2002 was approximately $7.1 million. Cash provided by financing activities is
attributable to approximately $8.1 million in net proceeds from the sale of
Diomed Holdings common stock sold in the private placement offering in
connection with the Merger. Subsequent to closing the Merger, the Company repaid
the Promissory Notes issued to two stockholders in October and December 2001 in
exchange for bridge loans ($700,000) and paid down the Barclays bank line of
credit ($650,000).

CAPITAL TRANSACTIONS IN 2002
     On January 1, 2002, in accordance with the terms of the bridge financing
provided to us in October 2001, we issued warrants to purchase an additional
10,000 (in the aggregate) shares of common stock to the two stockholders who
provided that financing. The bridge financing agreement with these stockholders
required us to issue an additional 10,000 warrants to in that bridge financing
for each month after December 31, 2001 in which we did not consummate a reverse
merger with a public company. Because the Merger satisfied that requirement, no
additional warrants are issuable in respect of that financing.

     In February 2002, in connection with the Merger, we conducted a private
placement offering of common stock. In the private placement, investors
subscribed to purchase from Diomed an aggregate of 5 million shares of its
common stock at a price per share of $2.00 per share, which resulted in gross
proceeds of $10.0 million and net proceeds of approximately $8.1 million. In the
Merger, the shares of Diomed common stock issued in the private placement were
exchanged for an equal number of shares of the Company's common stock. After
completing the Merger, the Company paid back the $700,000 in convertible
promissory notes issued to two of our stockholders who provided bridge financing
in October and December 2001, including cumulative interest.

     As to our predecessor corporation, Natexco Corporation:

     On January 23, 2002, Natexco redeemed 400,000 shares of common stock owned
by Anthony Mulhall, a former director of Natexco.

     On February 5, 2002 Natexco redeemed all of the shares of preferred stock
owned by R.H. Consulting Group, Inc. and Desert Bloom Investments, Inc., which
represented all of Natexco's then outstanding preferred stock. All of such
shares of preferred stock were then canceled.

BANK LINE OF CREDIT
     During 2001 and 2002, our UK subsidiary has access to a line of credit with
Barclays Bank, which is limited to the lesser of (pound)1,200,000 (approximately
$1,745,000 at December 31, 2001 and approximately $1,829,400 at June 30, 2002)
or 80% of eligible accounts receivable. This line bears interest at 3% above
Barclays Bank's base rate (4% at December 31, 2001 and 4% at June 30, 2002), and
borrowings are due upon collection of receivables from customers. As of December
31, 2001, borrowings of approximately (pound)601,000 (approximately $874,000)
were outstanding, whereas as of June 30, 2002 borrowings of approximately
(pound)143,258 (approximately $218,396) were outstanding under this line. The
lower balance under the line of credit for the three and six month periods ended
June 30, 2002 are largely due to a decrease in accounts receivable and a change
in our customer order policy for financed orders, which we instituted in the
third quarter of 2001. Under this new policy, customer orders are generally be
supported by a letter of credit, advance payment or payment upon installation,
which reduces our reliance on our line of credit.

                                       20

<PAGE>

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of the Company's financial condition, results
of operations, and cash flows are based upon Diomed's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate these estimates,
including those related to bad debts, inventory valuation and obsolescence,
intangible assets, income taxes, warranty obligations, contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

     Our  critical accounting policies are as follows:

          .    revenue recognition;

          .    allowance for doubtful accounts;

          .    warranty obligation;

          .    excess and obsolete inventory; and

          .    valuation of long-lived and intangible assets.

     Revenue Recognition. We derive our revenue from primarily two sources: (i)
product revenue which includes lasers, instrumentation, and disposable items,
and (ii) service revenue. The Company recognizes revenue on products and
services when the persuasive evidence of an arrangement is in place, the price
is fixed or determinable, collectibility is reasonably assured, and title and
risk of ownership has been transferred. Transfer of title and risk of ownership
generally occurs when the product is shipped to the customer or when the
customer receives the product, depending on the nature of the arrangement. The
Company currently provides for the estimated cost to repair or replace products
under warranty at the time of sale. Service revenue is recognized as the
services are performed.

     Allowance for Doubtful Accounts. We assess the credit worthiness of our
customers prior to making a sale in order to mitigate the risk of loss from
customers not paying us. However, to account for the inevitability that a
customer may not pay us, we maintain an allowance for doubtful accounts. We
estimate losses based on the overall business climate, our accounts receivable
aging profile, and an analysis of the circumstances associated with specific
accounts which are past due.

     Warranty Obligation. We engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
component suppliers. In addition to these proactive measures, we also provide
for the estimated cost of product warranties at the time revenue is recognized.

     Excess and Obsolete Inventory. We maintain reserves for our estimated
obsolete inventory. The reserves are equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those projected by management, additional inventory reserves may be
required.

                                       21

<PAGE>

     Valuation of Long-Lived and Intangible Assets. We assess the impairment of
identifiable intangibles and long-lived assets on an annual basis and whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. When we determine that the carrying value of intangibles and
long-lived assets may not be recoverable, we measure any impairment based on a
projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
model. If cash generated in the future by the acquired asset is different from
current estimates, or if the appropriate discount rate were to change, then the
net present value of the asset would be impacted, and this could result in a
charge to earnings.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Accordingly, we will account for the
Merger using the purchase method.

     In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement applies to goodwill and intangible assets acquired after
June 30, 2001, as well as goodwill and intangible assets previously acquired.
Under this statement, goodwill as well as certain other intangible assets
determined to have an infinite life will no longer be amortized; instead, these
assets will be reviewed for impairment on a periodic basis. This statement was
effective for the first quarter in the fiscal year ended December 31, 2002. The
adoption of this new accounting standard is not expected to have a material
impact on our financial statements.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supercedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS No. 144 further refines the requirements of SFAS No. 121 that companies (i)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable based on its undiscounted future cash flows and (ii) measure
an impairment loss as the difference between the carrying amount and the fair
value of the asset. In addition, SFAS No. 144 provides guidance on accounting
and disclosure issues surrounding long-lived assets to be disposed of by sale.
The Company has yet to complete its impairment review, but we do not anticipate
adoption of this new accounting standard to have a material impact on the
financial statements.

PART II:  OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     During the second quarter of 2002, the Company issued options to purchase
up to 37,500 shares of its Class A Stock, and upon conversion of those shares
150,000 shares of its common stock, at a purchase price of $5.35 per underlying
share to The Investor Relations Group, Inc., the Company's new investor and
public relations firm, and issued options to purchase up to 330 shares of its
Class A Stock, and upon conversion of those shares 330 shares of its common
stock, at a purchase price of $2.25 per underlying share to two consultants, as
follows:

                                                     OPTIONS GRANTED
       OPTIONEE                           (EXPRESSED IN SHARES OF COMMON STOCK)
       --------                           -------------------------------------

       The Investor Relations Group (IR/PR firm)            150,000
       Robert Min (consultant)                                  275
       Steven Zimmet (consultant)                                55

     In April 2002, we entered into an agreement with The Investor Relations
Group, Inc., referred to as "IRG," for investor relations and public relations
services. In connection therewith, we granted to IRG

                                       22

<PAGE>

Options to purchase up to 150,000 shares of Class A Stock at an exercise price
of $5.35 per share. These Options were not granted under the 2001 Plan, but are
subject to the terms and conditions of the 2001 Plan as if granted thereunder.
IRG's Options shall vest and become exercisable ratably at the end of each month
beginning May 2002, over 24 months (1/24 per month) from April 2002, when IRG
began providing services to us, so long as our agreement with IRG remains in
effect, and these Options shall expire on the earlier of 48 months from the date
of the IRG agreement or 24 months after the termination of the IRG agreement.
Any unvested Options shall terminate upon the termination of the IRG agreement.
The Company calculated the fair value of these stock options, based on the
Black-Scholes option pricing model, and will record stock-based compensation
over the two-year vesting period. In the second quarter of 2002, the Company
recorded stock-based compensation expense in the amount of approximately
$29,000.

     Diomed issued options to the above-listed optionees in reliance upon the
exemption from registration set forth under Section 4(2) of the Securities Act
of 1933, as amended. Each optionee agreed that neither the options nor the
underlying securities would be resold without registration under the Securities
Act or exemption therefrom. Each optionee also represented his or her intention
to acquire the securities for investment only, and not with a view to the
distribution thereof. Prior to making any offer or sale, Diomed had reasonable
grounds to believe and believed that the purchaser was capable of evaluating the
merits and risks of the investment and was able to bear the economic risk of the
investment represented by the options granted.

     In May 2002, simultaneously with the consummation of the Migratory Merger
(discussed under Item 4 of this Report), the Company (i) issued shares of Common
Stock to the holders of common stock of Diomed Holdings Nevada to replace the
shares of Diomed Holdings Nevada common stock that were cancelled in the
Migratory Merger, and (ii) issued shares of Convertible Preferred Stock to the
holders Old Class A Stock to replace the shares of Old Class A Stock that were
cancelled in the Migratory Merger, and (iii) issued options and warrants to
replace the stock options and warrants issued by the Company's predecessor which
were cancelled in the Migratory Merger.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     In April 2002, the board of directors of the Company determined that it was
in the best interests of the Company and its stockholders for the Company to
change its state of incorporation from Nevada to Delaware. At a stockholders
meeting on May 13, 2002 to consider the proposed reincorporation, the
stockholders granted their approval, and the reincorporation was effected by the
merger of the Company into a newly-formed Delaware corporation (referred to as
the "Migratory Merger"), which occurred on that same date. As a result of the
Migratory Merger, each share of common stock of Diomed Holdings Nevada
outstanding as of the date of the consummation of the Migratory Merger was
converted into one share of Common Stock, and each share of Old Class A Stock
was converted into four shares of Class A Convertible Preferred Stock of the
Company (referred to as the "Convertible Preferred Stock"). The rights and
privileges of the Common Stock and the Convertible Preferred Stock are virtually
identical to the common stock of Diomed Holdings Nevada and the Old Class A
Stock, other than the one for four exchange of shares of Old Class A Stock for
shares of Convertible Preferred Stock, and a reduction in the number of votes
from four votes per share for Old Class A Stock to one vote per share for
Convertible Preferred Stock. The surviving Delaware corporation also assumed the
obligations of the former Nevada corporation with respect to outstanding Options
and Warrants.

     The Migratory Merger did not result in any change in the restrictions on
transfer attaching to the 5,000,000 shares of the common stock sold in the
Company's February 2002 private placement.

ITEM 5.  OTHER

        ARTHUR ANDERSEN

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<PAGE>

     In June 2002, our independent accountant, Arthur Andersen, was found guilty
of certain federal obstruction of justice charges arising from the government's
investigation of Enron Corp. This conviction could adversely affect us in that
the ruling against Arthur Andersen is likely to impair its ability to satisfy
any claims arising from the provision of auditing services to us and also may
impede our access to the capital markets for future offerings.

     While the SEC currently permits companies to include audited financial
statements prepared by Arthur Andersen without including Arthur Andersen's
consent if the company is unable to obtain such consent despite making
reasonable efforts, there can be no assurances that the SEC will continue this
policy. In that case, we would be unable to access the public capital markets
unless another independent accounting firm is able to audit the financial
statements originally audited by Arthur Andersen. Any delay or inability to
access the public capital markets caused by these circumstances could increase
our financing costs or cause us to miss attractive market opportunities.

     On August 5, 2002, our Board of Directors resolved to change the
Corporation's independent accountants. Accordingly, on that date we dismissed
Arthur Andersen LLP and appointed BDO Seidman LLP to serve as our independent
public accountants for the fiscal year ending December 31, 2002. Having
completed its standard client acceptance procedures with respect to its
engagement by us, BDO Seidman, LLP accepted its appointment as of August 5,
2002.

     The Company filed a Current Report on Form 8-K on August 6, 2002 in
connection with its change in auditors from Arthur Andersen, LLP to BDO Seidman,
LLP.

     QLT, INC.
     On August 5, 2002, we settled a potential dispute with QLT, Inc. and
converted indebtedness of $835,664 plus accrued interest of $72,691 into
Convertible Preferred Stock. The potential dispute arose from our conversion in
January 2002 of convertible debt we had issued to QLT in 2000. We issued this
convertible debt to QLT when we acquired certain assets, primarily manufacturing
rights and inventory related to our OPTIGUIDE(R) optical fibers product. The
total purchase price was $1.2 million. We paid QLT $25,000 in cash and issued to
QLT $1,175,000 of convertible debt in the form of two promissory notes. The
principal amounts of the promissory notes were $339,336 and $835,664, they were
payable within two years from issuance and Diomed had the option of paying them
in cash or in stock. In January, 2002, Diomed issued 135,735 shares of its
common stock in payment of the first of these notes (in the principal amount of
$339,336), based on a conversion price of $2.50 per share.

     In February 2002, QLT informed Diomed that it disagreed with the per share
conversion price Diomed had used in calculating the number of shares issued to
QLT. From the time it received notice of QLT's disagreement, the Company engaged
in discussions with QLT to resolve the dispute amicably. On August 5, 2002, the
Company and QLT entered into an agreement pursuant to which the Company issued
to QLT, and QLT accepted from the Company, a total of 696,059 shares of
Convertible Preferred Stock to both resolve the dispute as to the previously
converted promissory note and to fully satisfy the Company's obligations under a
then-outstanding promissory note.

     As a result of the conversion of the QLT convertible debt, in the third
quarter of 2002, the Company's balance sheet will reflect a reduction in debt
and an increase in capital in the amount of approximately $836,000.

     CHAIRMAN OF THE BOARD
     Mr. James Arkoosh, the Company's Chairman of the Board, has informed the
Company of his intention to retire at the end of this year, and has tendered his
resignation as our chairman and a director, effective December 31, 2002.

                                       24

<PAGE>

     EVLT(TM) PATENT
     On June 4, 2002, the United States Patent and Trademark Office issued
Patent No. 6,398,777 captioned "Endovascular laser device and the treatment of
varicose veins." This method patent essentially covers the EVLT(TM) procedure
that Diomed has developed. In 2001, the Company had obtained a license to use
and sub-license the process that the patent covers from Robert J. Min, one of
the named co-inventors.

     PDT AND BARRETT'S ESOPHAGUS
     In a letter dated July 15, 2002, the Food and Drug Administration notified
Diomed that its premarket approval application (PMA) supplement covering its
630nm diode laser and OPTIGUIDE(R) were sufficiently complete to permit a
substantive review and therefore accepted for filing. Diomed's 630nm diode laser
and OPTIGUIDE(R) fiber optic diffuser are (in conjunction with Axcan Pharma
Inc's Photfrin drug) under review for the treatment of Barrett's Esophagus. The
letter reflects only the current progress of the FDA's review of the Company's
application. The FDA's decision to file the PMA does not imply that the agency
had performed an in-depth evaluation of the safety and effectiveness of the
laser and fiber optic diffuser or that the agency had made any decision
regarding the approvability of the PMA.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

Exhibit No. 99.1   Statement Under Oath of Principal Financial Officer Regarding
                   Facts and Circumstances Relating to Exchange Act Filings

Exhibit No. 99.2   Statement Under Oath of Principal Executive Officer Regarding
                   Facts and Circumstances Relating to Exchange Act Filings

(b)  REPORTS ON FORM 8-K

     The Company filed a Current Report on Form 8-K on May 14, 2002 in
connection with a reincorporation as a Delaware corporation. In April 2002, the
board of directors of the Company determined that it was in the best interests
of the Company and its stockholders for the Company to change its state of
incorporation from Nevada to Delaware. On May 13, 2002, we completed the
reincorporation by way of a migratory merger under Nevada and Delaware law of
the Company with and into a wholly-owned subsidiary of the Company incorporated
in Delaware that we created for purposes of achieving the reincorporation. In
the migratory merger we converted each share of Common Stock of the Nevada
corporation into one share of the Delaware corporation, and we converted each
share of Class A Convertible Preferred Stock into four shares of Diomed
Holdings' Convertible Preferred Stock, and reduced the number of votes to which
each holder of each of these shares of Class A Convertible Preferred Stock was
entitled to exercise from four to one. As a result, shares of our Common Stock
and our Convertible Preferred Stock now each have one vote. The surviving
Delaware corporation also assumed the obligations of the former Nevada
corporation with respect to outstanding Options and Warrants.

     The migratory merger did not result in any change in the restrictions on
transfer attaching to the 5,000,000 shares of the common stock sold in the
February 2002 private placement.

                                       25

<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.

                              DIOMED HOLDINGS, INC.
                              (Registrant)


                              By:    /s/ Peter Klein
                                 -----------------------------------------------
                              Name:      Peter Klein
                              Title:     President and Chief Executive Officer,
                                         Director

                                Date:  August 14, 2002


                              By:    /s/ Lisa Bruneau
                                 -----------------------------------------------
                              Name:      Lisa Bruneau
                              Title:     Principal Financial Officer, Vice
                                         President, Finance, Secretary and
                                         Treasurer

                                       26