<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 September 30, 2003

                                       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 September 30, 2003,  there were  29,711,749  shares of common  stock,  par
value $0.001, outstanding.





<PAGE>



                     DIOMED HOLDINGS, INC. AND SUBSIDIARIES

                         Quarterly Report on Form 10-QSB
          For the Three Months and Nine Months Ended September 30, 2003

                                Table of Contents
<TABLE>
<CAPTION>

       Item Number                                                                                             Page Number

                            Part I - Financial Information

<S>         <C>                                                                                                      <C>
            1               Consolidated Balance Sheets -                                                          F-1
                            September 30, 2003 (unaudited) and December 31, 2002

                            Unaudited Consolidated Statements of Operations -                                      F-3
                            Three Months and Nine Months Ended September 30, 2003 and 2002

                            Unaudited Consolidated Statements of Cash Flows -                                      F-4
                            Nine Months Ended September 30, 2003 and 2002


                            Notes to Consolidated Condensed Financial Statements                                   F-6


            2               Management's Discussion and Analysis or Plan of Operation                               1

            3               Controls and Procedures                                                                 11

                            Part II - Other Information                                                             11
            1               Legal Proceedings                                                                       11
            2               Changes in Securities and Use of Proceeds                                               12

            6               Exhibits and Reports on Form 8-K                                                        17
                            Signatures                                                                              18

</TABLE>


<PAGE>


                              Diomed Holdings, Inc.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

Assets                                                                  SEPTEMBER 30,     DECEMBER 31,
                                                                            2003              2002
                                                                        (unaudited)        (audited)
Current Assets:
<S>                                                                     <C>             <C>
   Cash and cash equivalents                                            $   1,537,240   $     1,848,646
   Restricted cash                                                                  -            75,000
   Accounts receivable, net of allowance for doubtful accounts of
     $304,000 and $308,000 in 2003 and 2002, respectively                   1,166,629           676,444
   Inventories                                                              1,580,904         2,012,141
   Prepaid expenses and other current assets                                  555,081           214,253
                                                                       ---------------  ---------------

         Total current assets                                               4,839,854         4,826,484

Property and Equipment:
   Office equipment and furniture and fixtures                              1,486,519         1,229,307
   Manufacturing equipment                                                    829,752           731,787
   Leasehold improvements                                                     816,949           652,141
                                                                       ---------------  ---------------

                                                                            3,133,220         2,613,235

   Less--Accumulated depreciation and amortization                          2,115,061         1,548,085
                                                                       ---------------  ---------------

Property and Equipment, net                                                 1,018,159         1,065,150

Intangible Manufacturing Asset, net of accumulated amortization of
   $564,000 and $417,000 in 2003 and 2002, respectively (Note 2j)             417,059           564,270

Intangible EVLT Technology, net of accumulated amortization of
   $24,000 and zero in 2003 and 2002, respectively (Notes 2j, 5f and 11)    4,677,733                 -
                                                                       ---------------  ---------------

        Total intangible assets, net                                        5,094,792           564,270

Other Assets:

   Deposits                                                                   169,088           597,426

   Deferred offering costs (Note 10)                                          605,343                 -

   Deferred financing costs, net of accumulated amortization of
   $133,000 and zero in 2002 and 2003, respectively (Notes 5d, 5e and 10)     609,959            80,000
                                                                       ---------------  ---------------

         Total other assets                                                 1,384,390           677,426

                                                                       $   12,337,195   $     7,133,330
                                                                       ===============  ===============

</TABLE>

                                      F-1
<PAGE>


<TABLE>
<CAPTION>
                                                         Diomed Holdings, Inc.
                                                      Consolidated Balance Sheets
                                                              (continued)

<S>                                                                    <C>              <C>
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
   Bank loan                                                           $      310,754   $       216,307
   Related party redeemable Debt ($1,200,000 face value,
   net of $140,000 in debt discount at September 30, 2003) (Note 5d)        1,060,000                 -
   Promissory notes (Notes 5a and 5b)                                       1,369,544           445,208
   Convertible Debt ($2,000,000 in related party debt)
      (Notes 5e and 10)                                                     6,995,000                 -
   Accounts payable                                                         1,673,500         1,608,621
   Accrued expenses                                                         1,983,064         1,444,100
   Current maturities of EVLT Technology Payable ($1,000,000 face
     value, net of $35,609 debt discount at September 30, 2003)
     (Notes 5f and 11)                                                        964,391                 -
   Other current liabilities                                                   57,483            33,993
                                                                       ---------------  ---------------
         Total current liabilities                                         14,413,736         3,748,229
                                                                       ---------------  ---------------
Promissory Note Payable, less current maturities                                    -           936,000

Related Party Convertible Debt, less current maturities ($2,000,000
face value, net of $2,000,000 debt discount at December 31, 2002)(Note 5c)          -                 -

Capital Lease Obligations, less current maturities                                  -            10,018

EVLT Technology Payable, less current maturities ($1,500,000 face value,
  net of $207,516 debt discount at September 30, 2003) (Notes 5f and 11)    1,292,484                 -
                                                                       ---------------  ---------------

                Total liabilities                                          15,706,220         4,694,247
                                                                       ---------------  ---------------

Commitments and Contingencies

Stockholders' Equity (Deficit):

   Preferred stock., $0.001 par value
     Authorized - 20,000,000 shares
         Designated Class A convertible preferred stock, $0.001 par value
            Authorized--18,000,000 shares
             Issued and outstanding--zero shares at September 30, 2003
             and 14,688,662 shares at December 31, 2002                            -0-          14,689


         Designated Class E preferred stock, $0.001 par value (Note 9)
             Authorized--20 shares
             Issued and outstanding--20 shares at September 30, 2003
             and zero shares at December 31, 2002                           2,000,000                -
         Designated Class F preferred stock, $0.001 par value (Note 9)
             Authorized--24 shares
             Issued and outstanding--24 shares at September 30, 2003
             and zero shares at December 31, 2002                             240,000                -

   Common stock, $0.001 par value
        Authorized - 80,000,000 shares
        Issued and outstanding - 29,711,749 and 15,023,087 shares at
        September 30, 2003 and December 31, 2002, respectively                 29,712           15,023

   Additional paid in capital                                              40,858,785       41,704,774
   Accumulated comprehensive income                                           263,533          158,312
   Accumulated deficit                                                    (46,761,055)     (39,453,715)
                                                                       ---------------  ---------------

         Total stockholders' equity (deficit)                              (3,369,025)       2,439,083
                                                                      ---------------- ---------------

                                                                      $    12,337,195  $     7,133,330
                                                                      ===============  ===============
</TABLE>

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

                                      F-2
<PAGE>



                              Diomed Holdings, Inc.
                      Consolidated Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>

                                             Three Months     Three Months     Nine Months      Nine Months
                                                 Ended            Ended           Ended            Ended
                                              September 30,   September 30,    September 30,    September 30,
                                                  2003             2002           2003              2002
                                            -------------    -------------    -------------    -------------
<S>                                           <C>               <C>             <C>              <C>
Revenues                                      $ 2,371,768       $1,945,333      $ 6,644,118      $ 4,070,478

Cost of Revenues                                1,540,003        1,287,064        4,211,409        3,480,650
                                           --------------    -------------     ------------    -------------

Gross profit                                      831,765          658,269        2,432,709          589,828

Operating Expenses:
   Research and development                       248,467          280,532          635,253          663,775
   Selling and marketing                          870,403        1,019,101        2,892,381        2,096,154
   General and administrative                   1,047,705          890,181        2,829,422        2,658,259
                                           --------------    -------------     ------------    -------------

         Total operating expenses               2,166,575        2,189,814        6,357,056        5,418,188
                                           --------------    -------------     ------------    -------------

         Loss from operations                  (1,334,810)      (1,531,545)      (3,924,347)      (4,828,360)



Interest Expense, non-cash (Notes 5c and 5d)    1,995,484                0        2,933,333          225,260

Interest Expense, cash  (Notes 5c, 5d and 5e)     218,778           29,192          449,661            91,879
                                           --------------    -------------     ------------    -------------

         Total interest expense                 2,214,262           29,192        3,382,994          317,139
                                           --------------    -------------     ------------    -------------


         Net loss                            $(3,549,072)     $(1,560,737)     $(7,307,341)     $(5,145,499)
                                           =============    =============    =============    =============



Net loss per share (Note 3):
   Basic and diluted net loss per share
   applicable to common stockholders       $     (0.12)     $     (0.11)     $     (0.29)     $     (0.38)
                                           =============    =============    =============    =============

   Basic and diluted weighted average common
     shares outstanding                      29,711,749       14,200,000       25,178,002       13,399,361
                                           =============    =============    =============    =============

</TABLE>

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


                                      F-3
<PAGE>



                              Diomed Holdings, Inc.
                      Consolidated Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                      September 30, 2003      September 30, 2002

Cash Flows from Operating Activities:
<S>                                                                      <C>                    <C>
   Net loss                                                              $(7,307,341)           $(5,145,499)
   Adjustments to reconcile net loss to net cash used in
   operating activities-
     Depreciation and amortization                                           460,234                250,635
     Noncash interest expense on related party
      debt                                                                 2,933,333                225,260
     Issuance of stock options to a third party                                8,600                 63,318
     Changes in operating assets and liabilities
       Accounts receivable                                                  (490,185)              (272,613)
       Inventories                                                           431,238                203,527
       Prepaid expenses and other current assets                            (340,828)                (7,152)
       Deposits                                                              452,094                      -
       Accounts payable                                                    1,029,270             (1,409,798)
       Accrued expenses                                                      538,964                  6,312
       Customer advance                                                            -               (293,463)
                                                                        ------------              ----------

         Net cash used in operating activities                            (2,284,621)            (6,379,473)
                                                                        ------------              ----------

Cash Flows from Investing Activities:
   Purchases of property and equipment                                      (194,627)              (157,326)
   Acquisition of intangible EVLT Technology                              (2,144,500)                     -
                                                                        ------------              ----------
                Net cash used in investing activities                     (2,339,127)              (157,326)
                                                                        ------------              ----------

Cash Flows from Financing Activities:
   Net proceeds (payments) from bank borrowings                               94,447               (595,751)
   Proceeds from issue of common stock, net                                        -              8,381,999

   Proceeds from convertible debt                                          6,500,000                      -
   Proceeds from redeemable debt                                           1,200,000                      -
   Increase in deferred financing costs                                     (683,991)                     -
   Increase in deferred offering costs                                      (605,343)                     -
   Payments on related party debt                                         (2,000,000)                     -
   Payments on convertible debt                                                    -               (700,000)
   Payments on promissory notes                                              (11,664)                     -
   Payments on capital lease obligations                                     (15,610)               (34,231)
                                                                         ------------             ----------

         Net cash provided by financing activities                         4,477,839              7,052,017
                                                                        ------------              ----------

Effect of Exchange Rate Changes                                             (165,497)               219,078
                                                                        ------------              ----------

Net Increase (Decrease) in Cash and Cash Equivalents                        (311,406)               734,296

Cash and Cash Equivalents, beginning of period                             1,848,646                322,566
                                                                        ------------              ----------

Cash and Cash Equivalents, end of period                                  $1,537,240             $1,056,862
                                                                         ===========            ============
</TABLE>

                                      F-4
<PAGE>


                              Diomed Holdings, Inc.
                      Consolidated Statements of Cash Flows
                                   (unaudited)
                                   (continued)

<TABLE>
<CAPTION>

Supplemental Disclosure of Cash Flow Information:
<S>                                                                      <C>                      <C>
   Cash paid for interest                                                $    67,077              $ 104,035
                                                                         ===========             ===========
Supplemental Disclosure of Noncash Investing and Financing
Activities:
   Conversion of convertible debt into common stock                     $         -              $ 908,355
                                                                        ===========             ===========
   Reclassification of offering costs incurred in 2001 to
     APIC                                                               $         -              $ 387,133
                                                                        ===========             ===========
   Fair value options granted to consultants                            $         -              $ 212,978
                                                                        ===========             ==========

   Value ascribed to debt discount
   related to redeemable debt                                          $   240,000              $        -
                                                                        ===========             ===========

   Value ascribed to debt discount
   related to related party debt                                       $ 2,000,000              $        -
                                                                        ===========             ===========

   Value ascribed to stock options issued in connection
    with acquisition of EVLT Technology                                $   312,078              $        -
                                                                        ===========             ===========

   Debt associated with EVLT technology acquisition                    $ 2,245,647              $        -
                                                                        ===========             ===========

</TABLE>

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


                                      F-5

<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

(1)      OPERATIONS, BASIS OF PRESENTATION

          (a)  Operations

     Diomed Holdings,  Inc. (the "Company") and its  subsidiaries  specialize in
developing and commercializing laser and related disposable product technologies
used in minimally and micro-invasive medical procedures.

     Previously,  the operations of the Company were that of Diomed, Inc., which
was  incorporated  in December 1997 under the laws of the State of Delaware.  On
February 14, 2002,  Diomed,  Inc.  became a wholly  owned  subsidiary  of Diomed
Holdings, Inc. through a reverse merger. (See Note 8)

          The Company's  medical laser and disposable  product  technologies 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 sales and marketing of its products.

          Between December 2002 and May 2003, the Company obtained $3,200,000 of
bridge  financing  from Gibralt US, Inc.,  an  affiliate of Samuel  Belzberg,  a
director and  significant  stockholder  of the Company,  James A. Wylie,  Jr., a
director and the Company's  chief executive  officer and Peter Norris,  a former
director and a  stockholder  of the  Company.  (See Notes 5c and 5d) In order to
fund its  operations in 2003,  the Company  requires  additional  debt or equity
financing to support the  Company's  commercialization  of EVLT(R).  The Company
will require the proceeds of any such financing,  together with its current cash
resources,  to  continue  as a going  concern.  As a  result  of the  additional
financing  needed to support  operations in 2003, the auditors'  opinion for the
year ended  December 31, 2002  expressed  substantial  doubt about the Company's
ability to continue as a going concern.

         On September  2, 2003,  the Company  entered  into an equity  financing
transaction  (the "Equity  Financing")  in which 119  accredited  investors (the
"Investors")  agreed to  purchase  254,437,500  shares  of  Common  Stock for an
aggregate  purchase  price of  $23,200,000.  Twenty two  million  dollars of the
aggregate  purchase  price is payable in cash,  and  $1,200,000  will be paid by
conversion of the Company's  outstanding  debt  previously  issued in connection
with the Company's May 2003 bridge financing. (See Note 10)

         The first  closing of the Equity  Financing  occurred on  September  3,
2003. At that time, the Investors  funded  $6,500,000 of the Equity Financing in
the form of secured  bridge loans.  The second  closing of the Equity  Financing
will occur  after we satisfy  the  conditions  to the second  closing,  which we
expect to be within 90 days after the first closing.  The notes that the Company
issued in  connection  with the secured  bridge loans at the first  closing will
convert into Common  Stock at the second  closing at a price of $0.08 per share.
Also at the second closing,  the remaining  $16,700,000 of the Equity  Financing
will be provided to us by the  Investors  for the  purchase of Common Stock at a
price of $0.10 per share.  Of the $16,700,000 to be provided by the Investors at

                                      F-6
<PAGE>

                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

the  second  closing,  $15,500,000  will be paid by the  Investors  in cash  and
$1,200,000 will be paid by conversion of the Company's outstanding Class D notes
due 2004 that we issued in  connection  with loans made in its May 2003  interim
financing transaction.  The $15,500,000 in cash payable at the second closing is
currently on deposit with a third party acting as our escrow agent.

         The Company believes that the Equity Financing is absolutely  essential
to its  continued  existence.  If the  Company  is unable to obtain  stockholder
approval and complete the Equity  Financing within 90 days of the first closing,
or December 2, 2003,  the Company will be  obligated  to return the  $15,500,000
held in escrow  for the  second  closing  to the  Investors.  Our  inability  to
complete  the  Equity  Financing  would  cause  the  Company  to reduce or cease
operations, seek a sale of the Company or enter into a business combination with
a third party. If the Company does not complete the Equity  Financing,  then the
Company  will  attempt to sell its  business  and assets,  to merge with another
Company or to enter into some other  business  combination.  The Company has not
begun any discussions  with any third parties to enter into any such transaction
if the Company does not complete the Equity  Financing.  If the  Company's  cash
inflows and cash outflows  continue at their  historic rate for the remainder of
2003, and if the Equity Financing is not completed,  then the Company expects to
exhaust its current cash resources at the end of 2003.

         (b)  Basis of Presentation

         The accompanying  consolidated  condensed  financial  statements of the
Company at September 30, 2003 and for the  three-month  and  nine-month  periods
ended September 30, 2003 and 2002 are unaudited.  In management's opinion, these
unaudited  consolidated condensed 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-KSB, as amended,  for the year ended December
31,  2002,  and include all  adjustments,  consisting  of only normal  recurring
adjustments,  necessary for a fair  presentation of the results for such interim
periods.  These unaudited  consolidated condensed financial statements should be
read in conjunction with the audited consolidated  financial statements included
in the Company's Annual Report on Form 10-KSB/A,  as amended, for the year ended
December 31, 2002. The results of operations for the  three-month and nine-month
periods ended September 30, 2003 are not  necessarily  indicative of the results
expected for the fiscal year ending December 31, 2003.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          The  accompanying   consolidated   financial  statements  reflect  the
application  of certain  accounting  policies  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  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 end of the period.  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 included
in other  comprehensive  income (loss) with the cumulative  effect included 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.


                                      F-7
<PAGE>

                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          (e)     Revenue Recognition

         Revenue is derived  primarily  from  product  revenue,  which  includes
lasers,  instrumentation,  and  disposables,  and 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,  collectability  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. Service revenue is recognized as the services are
performed.

          (f)     Warranty Obligation

          The  Company  engages  in  extensive   product  quality  programs  and
processes,  including  actively  monitoring  and  evaluating  the quality of our
component suppliers.  In addition to these proactive measures,  the Company also
provides for the  estimated  cost of product  warranties  at the time revenue is
recognized.

          (g)     Inventories

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

<TABLE>
<CAPTION>
                                   September 30, 2003               December 31, 2002

<S>                                <C>                              <C>
Raw materials                      $                804,602         $              982,622
Work-in-progress                                    334,727                        446,820
Finished goods                                      441,575                        582,699
                                   ------------------------         ----------------------
                                   $              1,580,904         $            2,012,141
                                   ========================         ======================
</TABLE>

         (h)      Excess and Obsolete Inventory

         The Company maintains  reserves for its 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.

         (i)      Property and Equipment

          The Company  records  property and equipment at cost, and 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:

<TABLE>
<CAPTION>
<S>                                                                   <C>
Description                                                           Estimated 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
</TABLE>

          Depreciation  expense for the nine-month  periods ended  September 30,
2003 and 2002 was approximately $289,000 and $103,000, respectively.


                                      F-8
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          (j)     Intangible Assets

         Intangible  assets are  recorded at cost and  consist of  manufacturing
rights acquired in 2001 and the EVLT(R) patent rights acquired in September 2003
(Note  11).  The  manufacturing  rights  are being  amortized  over a  five-year
estimated  useful life.  Amortization  expense  relating to these  manufacturing
rights of  approximately  $49,000  is  included  in general  and  administrative
expenses for each of the  three-month  periods ended September 30, 2003 and 2002
and amortization expense relating to these manufacturing rights of approximately
$147,000  is included in general  and  administrative  expenses  for each of the
nine-month  periods ended September 30, 2003 and 2002. The EVLT(R) patent rights
are  being  amortized  over  the  remaining  16-year  life of the  patents,  and
amortization  expense  relating  to the  EVLT(R)  patent  rights of  $24,000  is
included in the cost of goods sold for the three and nine -month  periods  ended
September 30, 2003.

          (k)     Long-Lived Assets

          The Company evaluates  long-lived  assets,  such as intangible assets,
equipment and certain other assets,  for impairment in accordance with Statement
of Financial  Standards No. 144 (SFAS 144),  "Accounting  for the  Impairment or
Disposal  of  Long-Lived  Assets."  The  Company  records an  impairment  charge
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets are written down to fair value.

          (l)     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.

          (m)     Concentration of Credit Risk and Significant Customers

          The  Company  places  its  cash and cash  equivalents  in  established
financial  institutions.   The  Company  has  no  significant  off-balance-sheet
concentration  of  credit  risk  such as  foreign  exchange  contracts,  options
contracts  or  other  foreign  hedging  arrangements.   The  Company's  accounts
receivable  credit risk is not concentrated  within any one geographic area. The
Company has not experienced any significant  losses related to receivables  from
any individual  customers or groups of customers in any specific  industry or by
geographic area. Due to these factors,  no additional credit risk beyond amounts
provided for  collection  losses is believed by management to be inherent in the
Company's accounts receivable.

          Accounts  receivable are customer  obligations  due under normal trade
terms. The Company sells its products to private physicians,  hospitals,  health
clinics,  distributors and OEM customers.  The Company typically requires signed
sales agreements, non-refundable advance payments and purchase orders, depending
upon the type of customer,  and in certain  cases,  letters of credit.  Accounts
receivable  are stated at the amount  billed to the  customer  less a  valuation
allowance for doubtful accounts.

          Senior  management  reviews accounts  receivable on a monthly basis to
determine if any receivables  could  potentially be  uncollectible.  The Company
includes  specific  accounts  receivable  balances  that  are  determined  to be
uncollectible,  along  with a general  reserve,  in its  overall  allowance  for
doubtful  accounts.  After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on available information,
the Company  believes its  allowance  for doubtful  accounts as of September 30,
2003 is adequate.

          (n)     Accounting for Stock-Based Compensation


                                      F-9
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          The Company  accounts  for its  stock-based  compensation  plans under
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," utilizing the intrinsic value method. Accordingly, compensation cost
for stock options issued to employees is measured as the excess,  if any, of the
fair  market  price of the  Company's  stock at the date of the  grant  over the
amount an employee must pay to acquire the stock. SFAS No. 123,  "Accounting for
Stock-Based  Compensation,"  establishes a fair value based method of accounting
for stock-based  compensation plans. The Company has adopted the disclosure-only
alternative  under SFAS No.  123,  which  requires  disclosure  of the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been  adopted,
as well as certain other information, as follows: (See Note 6)

<TABLE>
<CAPTION>
                                                       Three-Months  Ended September 30,  Nine-Months    Ended September 30,
                                                           2003             2002             2003              2002

<S>                                                    <C>             <C>                <C>               <C>
Net (loss)as reported                                  ($3,549,072)    ($1,560,737)        ($7,307,341)       ($5,145,499)


Add : Stock-based employee compensation;                       -0-            -0-                -0-               -0-
         expense included in reported net (loss),
         net of tax

Deduct : total stock-based employee compensation;
          expense determined under the fair value
          based method for all awards, net of tax         ($71,060)       ($75,847)          ($211,729)         ($462,949)
                                                       --------------   -----------        -----------        ------------

Pro forma net (loss)                                    ($3,620,132)   ($1,636,584)        ($7,519,070)       ($5,608,448)
                                                       ==============   ===========        ============        ===========


Earnings per share:

   Basic and diluted - as reported                            (0.12)          (0.11)             (0.29)            (0.38)

   Basic and diluted - pro forma                              (0.12)          (0.12)             (0.30)            (0.42)

</TABLE>

          (o)     Research and Development Expenses

                   The Company  charges  research  and  development  expenses to
operations incurred.

          (p)     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
resulting from  transactions and other events and  circumstances  from non-owner
sources. For all periods presented, comprehensive loss consists of the Company's
net loss and changes in cumulative  translation  adjustment  account.  (See Note
2(d)) The Company has disclosed  comprehensive net income (loss) for all periods
presented in the accompanying  consolidated  statements of stockholders'  equity
(deficit), as follows:

<TABLE>
<CAPTION>
                                                Three Months         Three Months         Nine Months          Nine Months
                                                   Ended                Ended                Ended                 Ended
                                            September 30, 2003    September 30, 2002   September 30, 2003     September 30, 2002
                                                -----------          -----------          -----------          -----------
<S>                                             <C>                  <C>                  <C>                  <C>
Net loss                                        $(3,549,072)         $(1,560,737)         $(7,307,341)         $(5,145,499)
Foreign currency translation adjustment             255,591              (39,439)             105,221             (114,513)
                                                -----------          -----------          -----------          -----------
Comprehensive loss                              $(3,293,481)         $(1,600,176)         $(7,202,120)         $(5,260,012)
                                                ===========          ===========          ===========          ===========
</TABLE>



                                      F-10
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          (q)     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 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.

(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  months and nine  months  ended
September 30, 2003 and 2002, 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                              Nine Months Ended
                                      September 30,             September 30,         September 30,             September 30,
                                          2003                      2002                  2003                      2002
                                     --------------            --------------        --------------            --------------
<S>                                  <C>                       <C>                   <C>                       <C>
Convertible Debt                         99,437,500(A)                    -0-            99,437,500(A)                    -0-
                                     ==============            ==============        ==============            ==============

Convertible Preferred Stock                     -0-                15,461,750(B)                -0-                15,461,750(B)
                                     ==============            ==============        ==============            ==============

Exchangeable Preferred Stock             30,138,792(C)                    -0-            30,138,792(C)                    -0-
                                     ==============            ==============        ==============            ==============

Common Stock Options                      3,431,838(D)              1,784,878             3,431,838(D)              1,784,878
                                     ==============            ==============        ==============            ==============

Common Stock Warrants                    41,000,987(E)                121,924(D)         41,000,987(E)                121,924(D)
                                     ==============            ==============        ==============            ==============
</TABLE>


         (A) On September 2, 2003, the Company entered into an equity  financing
transaction  providing for an aggregate investment of $23,200,000.  At the first
closing  of the equity  financing  on  September  3, 2003,  the  Company  issued
$6,995,000  in principal  amount of Secured  Bridge Notes that will convert into
87,437,500  shares of common  stock at $0.08 per share at the second  closing of
the equity  financing.  (See Note 10) In addition,  the  $1,200,000 in principal
amount of notes issued in May 2003 will convert into 12,000,000 shares of common
stock at $0.10 per share in the second closing. (See Note 5d)




                                      F-11
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          (B) On February 14, 2002,  the Company  completed a reverse merger and
issued  Diomed Inc.  shareholders  Diomed  Holdings,  Inc.  Class A  Convertible
Preferred Stock (the "Class A Stock") that was convertible into Diomed Holdings,
Inc.  Common  Stock  by  February  14,  2004.  On  December  31,  2002,  monthly
installments of the Class A Stock began converting into Common Stock at the rate
of 773,087  shares per month.  The remaining  4,638,531  shares of Class A Stock
were to have  converted  into Common Stock in February  2004. On March 31, 2003,
the Company accelerated the conversion of those shares of Class A Stock that had
not yet been converted  into Common Stock.  As of the close of business on March
31, 2003, no shares of Class A Stock were outstanding:

          (C) On  August  22,  2003,  the  Company  issued  20 shares of Class E
Preferred  Stock (the "Class E Stock") and 24 shares of Class F Preferred  Stock
(the  "Class F Stock").  The Class E Stock was issued in  exchange  for an equal
number of shares of Class C  Convertible  Preferred  Stock (the "Class C Stock')
and the Class F Stock was issued in  exchange  for an equal  number of shares of
Class D Convertible  Preferred Stock (the "Class D Stock").  On May 7, 2003, the
Company had issued the Class C Stock to the December 2002 noteholders and issued
the Class D Stock to the May 2003 noteholders. (See Notes 5d and 9)

         (D) See Note 6.

         (E) On September 3, 2003,  the Company  issued  40,879,063  warrants to
purchase Common Stock to a placement  agent for services  rendered in the equity
financing. (See Note 10)

(4)      LINE-OF-CREDIT ARRANGEMENT

          Diomed, Ltd., the Company's United Kingdom-based subsidiary,  utilizes
a line of credit with  Barclays  Bank,  limited to the lesser of  (pound)350,000
($582,000 at September  30, 2003) or 80% of eligible  accounts  receivable.  The
credit line bears  interest at a rate of 3% above  Barclays  base rate (4.00% at
September 30, 2003) and borrowings are due upon  collection of receivables  from
customers. As security interest,  Barclay's Bank has a lien on all of the assets
of Diomed Ltd., excluding inventory and certain intellectual property.

          As of September  30, 2003,  there were  borrowings  of  (pound)186,976
($310,754)  outstanding under this line and available future borrowing  capacity
of approximately $16,000.

(5)      DEBT

          a)      Promissory Note Issued to Customer

          In October 2000,  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  promissory  note matures on
January 1, 2004 and bears interest,  at an annual rate of 8.5%, which is payable
quarterly  in arrears.  As of September  30, 2003 and  December  31,  2002,  the
balance  outstanding to this promissory note was $936,000,  and accrued interest
was $20,053.

          b)      Promissory Notes Issued to Service Providers

          In  December  2002,  the  Company  converted  amounts  due  for  legal
services,  in the amount of $416,102,  into a  promissory  note.  Payment  terms
include  $100,000 paid upon  completion of the  $2,000,000  bridge  financing on
December 27, 2002 and the balance due upon  completion of a longer-term  capital
financing in fiscal 2003. The  promissory  note bears interest at an annual rate
of 6% and is payable upon  maturity.  As of September  30, 2003 and December 31,
2002, the balance outstanding to this promissory note was $316,102,  and accrued
interest was $15,796 and $1,611, respectively.



                                      F-12
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          In December  2002, the Company  converted  $183,016 due a professional
service  provider for external  marketing  initiatives  into a promissory  note.
Payment terms include  $50,000 paid upon  completion  of the  $2,000,000  bridge
financing  on December  27,  2002,  with the balance  due upon  completion  of a
longer-term  financing  in fiscal  2003.  The  promissory  note is  non-interest
bearing.  As of September  30, 2003 and December 31, 2002,  the note balance was
$117,442 and $129,106, respectively.

          c)      Bridge Loan from Related Party - December 27, 2002

         On December 27, 2002,  the Company  completed a $2,000,000  bridge note
financing  with Gibralt US, Inc (the "December 2002  noteholder"  and,  together
with the three persons to whom Gibralt US subsequently  transferred  $500,000 of
the notes, the "December 2002 noteholders"),  whose principal,  Samuel Belzberg,
is a  member  of the  Company's  Board  of  Directors.  The  financing  included
$1,000,000  in Class A secured notes and  $1,000,000 in Class B unsecured  notes
due January 1, 2004. The notes accrued interest at an annual rate of 8%, payable
upon maturity.

         The notes were  convertible  into common  stock at the  election of the
December 2002 noteholders  upon the occurrence of: (i) a financing  transaction,
(ii) a liquidity event,  (iii) a merger or  reorganization,  or (iv) at any time
during the life of the notes at the  election of the holders of at least 66 2/3%
of the outstanding principal amount of the notes. The notes, including principal
and accrued  interest,  were  convertible into common stock at 80% of the common
stock price at the time of conversion.

         As  security  for the notes,  the  Company  formed a new  wholly  owned
subsidiary ("PDT Co."),  transferred its assets for photodynamic  therapy to PDT
Co., including  intellectual  property,  manufacturing rights and trademarks for
lasers and disposable Optiguide(R) fibers, and pledged 100% of the shares of PDT
Co. to the  December  2002  noteholders.  As  additional  security,  the Company
granted a security interest in the following  unencumbered assets of Diomed Inc.
to the December 2002 noteholders:  equipment,  inventory,  accounts  receivable,
intellectual property and cash deposit accounts.  The December 2002 noteholders'
lien on the inventory is subordinate  to Axcan Pharma's lien on inventory.  (See
Note 5a)

         As additional  consideration  for the financing,  the Company issued to
the December 2002  noteholders  warrants to purchase  8,333,333 shares of common
stock,  based upon the $0.24  closing  price of the  Company's  common  stock on
December 26,  2002.  The warrants  were  exercisable  for a period of five years
beginning  June 27,  2003 at an exercise  price of $0.26,  which was 110% of the
market price of the stock on December 26, 2002. If, prior to the exercise of the
warrants, the Company issued common stock or common stock equivalents at a price
per share less than the exercise  price of the warrants,  the number of warrants
and the exercise  price of the  warrants  were to be adjusted to the lower price
per  share.  In the  event of a merger  or  reorganization,  the  warrants  were
convertible into the kind and number of shares of common stock, other securities
or  property  into  which the  warrants  would have been  converted  into if the
warrants had been  converted  into common stock based on the  provisions  of the
merger or reorganization.

         The notes and  warrants  were  transferable  in part or in whole by the
December 2002 noteholders to one or more third parties in accordance with all of
the same  terms  granted  the  noteholder  by the  Company.  The  December  2002
noteholders  could  designate a member to the Company's Board of Directors while
the notes were  outstanding.  The  Company  was  required  to obtain the advance
approval by the December  2002  noteholders  for future  financing  transactions
during the life of the notes.

         On March 18,  2003,  the  initial  December  2002  noteholder  sold and
transferred to three investors in a private  transaction (i) $500,000  aggregate
principal  amount of notes ($250,000 of which were Class A notes and $250,000 of
which were Class B notes) and (ii)  warrants  to  purchase  2,083,334  shares of
common stock. Accordingly, after the taking effect of this transfer, the initial
noteholder  owned  $1,500,000  aggregate  principal amount of notes ($750,000 of
which were Class A notes and  $750,000 of which were Class B notes) and warrants
to purchase 6,249,999 shares of common stock.



                                      F-13
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

         In   accordance   with   Emerging   Issues  Task  Force  (EITF)  00-27,
"Application of EITF No. 98-05 to Certain Convertible  Instruments," the Company
recognized  the  $2,000,000  fair  value  of the  warrants  and  the  beneficial
conversion  feature  related  to the  immediate  convertibility  of the notes to
equity as a discount  to the  notes.  The value  ascribed  to the  warrants  was
approximately  $1,200,000,  as calculated using the Black-Scholes option pricing
model, and the value ascribed to the beneficial  conversion feature of the notes
was  $800,000.  The discount  was to be amortized  over the term of the notes to
non-cash interest expense,  with a corresponding  increase in additional paid in
capital,  such that the full amount of the  discount  was to be amortized by the
earlier of the maturity date of the notes or the  convertability of the notes to
equity. The net impact on stockholders' equity/(deficit) was to be zero when the
net loss,  including  the  discount,  was  fully  reflected  in the  accumulated
deficit.  Accordingly,  the notes were originally  recorded at net value of zero
(after the $2,000,000  discount).  In the nine-month  period ended September 30,
2003,  $833,000 was recognized in non-cash  interest expense  pertaining to this
amortization of the discount due to the May 2003 exchange transaction  discussed
below.

         In connection with the bridge  financing,  the Company incurred $80,000
in related legal fees. As of December 31, 2002,  these costs were capitalized as
deferred  financing costs and were to be amortized to general  interest  expense
over the life of the notes, such that the full amount of costs were amortized by
the  earlier  of the  maturity  date of the notes or by the month the notes were
converted  into  equity.  In May 2003,  the Company  expensed the balance of the
deferred  financing costs upon completion of the May 2003 exchange  transaction.
In the  nine-month  period  ended  September  30, 2003,  the Company  recognized
$80,000 in general  interest  expense  pertaining  to this  amortization  of the
deferred  financing  costs,  and,  accordingly,  the  balance  of  the  deferred
financing costs was zero as at September 30, 2003.

         During the first quarter of 2003,  it became clear that the  successful
operations of the Company would require  additional  working  capital.  In April
2003, the Company began discussions with Gibralt US with a view to its providing
interim  financing  in addition to that it had  provided in December  2002.  The
Company also began to consider a subsequent financing expected to begin later in
the quarter that would address its longer term capital needs. In late April, the
Company elected to obtain up to $1,200,000 of interim  financing from Gibralt US
and two of its directors. At the same time, the Company proposed a restructuring
of the securities issued in December 2002 to improve its access to the financial
markets and enhance the  likelihood of a subsequent  financing.  Therefore,  the
Company  offered to  repurchase  from the December 2002  noteholders  certain of
their rights that,  in light of current  market  conditions,  might have made it
more difficult to  successfully  complete a subsequent  financing in the current
market.

          Using the Black Scholes valuation methodology,  the Company calculated
the monetary  value of the rights of the December  2002  noteholders  to convert
their notes into  shares of common  stock and the  monetary  value of the common
stock  purchase  warrants.  The  Company  further  engaged  Marshall  & Stevens,
Incorporated,  a  professional  valuation  firm, to provide an opinion as to the
valuations that it had calculated. The price per share that the Company employed
to calculate  the number of shares to equal to the monetary  value of the rights
that the December 2002 noteholders  would be surrendering was the presumed price
per share of its common  stock  after  giving  effect to the  issuance  of those
shares.

          At the time when the Class A secured notes and Class B unsecured notes
were issued,  the Company  could not issue more than  $1,000,000 in secured debt
without obtaining prior approval by its preferred  stockholders  under the terms
of its Class A Stock. On March 31, 2003, the Company  converted all of its Class
A Stock into  common  stock to  eliminate  its  convertibility  feature  and its
apparent   negative  impact  on  the  Company's  ability  to  obtain  additional
financing.  On May 7,  2003,  the  December  2002  noteholders  exchanged  their
$1,000,000  principal  amount of secured Class A notes and $1,000,000  principal
amount of unsecured  Class B notes for  $2,000,000  principal  amount of secured
Class C notes due January 1, 2004.  On May 7, 2003,  the  Company  issued to the
December  2002  noteholders  20 shares of its  Class C Stock,  convertible  into
27,117,240 shares of common stock in exchange for eliminating the convertibility
feature of the $2,000,000 principal amount of notes and the warrants to purchase
8,333,333  shares of common stock, as well as certain other rights.  The Class C
Stock was exchanged for Class E Stock on August 22, 2003. (See Note 9)



                                      F-14
<PAGE>

                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          On May 28, 2003, the Company and the December 2002 noteholders amended
certain of the terms of the May 7, 2003 capital restructuring to: (i) extend the
due date of the Class C notes from January 1, 2004 until  January 1, 2006,  (ii)
increase  the rate of interest  payable on the Class C notes from 8.0% to 12.5%,
(iii)  provide for  mandatory  prepayments  of principal of the Class C notes in
amounts  up to 50% of  positive  quarterly  cash flow,  (iv) limit the  security
interest in inventory  that secures the Class C notes at  $3,271,000,  (v) waive
the  noteholders'  right of approval of future  financing  transactions and (vi)
extend  the  deadline  by  which  the  financing  was  to be  completed  without
triggering the noteholders' right of rescission,  from June 30, 2003 to July 31,
2003 (under the terms of the  restructuring if the  contemplated  financing were
not  completed by July 31, 2003 the December 2002  noteholders  had the right to
rescind the May 7, 2003 exchange transaction). On July 31, 2003, the deadline by
which the  financing was to be completed  without  triggering  the  noteholders'
right of rescission was extended until November 15, 2003. The Class C notes were
exchanged  for Class E notes  reflecting  these  modified  terms,  in  principal
amounts  equal to the principal  amounts of the Class C notes so exchanged.  The
Class E notes were repaid in full with a portion of the proceeds  from the first
closing of the equity financing.

          The  exchange  of debt and  preferred  stock  for the  elimination  of
warrants and  modification of the December 2002 notes in May 2003 was treated as
an extinguishment of the $2,000,000 debt. As a result,  the fair market value of
the  warrants  and other  consideration,  which  was  limited  to the  remaining
unamortized  discount on the December 2002 notes, was recorded as a reduction in
additional  paid in  capital  in the  amount  of  $1,167,000  and the  remaining
unamortized discount was reduced to zero.

         In   accordance   with   Emerging   Issues  Task  Force  (EITF)  00-27,
"Application of EITF No. 98-05 to Certain Convertible  Instruments," the Company
recognized  the  $2,000,000  fair value of the  preferred  stock issued with the
Class E notes,  which was recorded as a discount to the notes.  The discount was
to be amortized over the term of the notes to non-cash  interest  expense,  with
the offset as an increase in preferred  stock,  such that the full amount of the
discount was to be amortized by the earlier of the maturity date of the notes or
early retirement of the notes. The net impact on stockholders'  equity/(deficit)
was to be zero when the net loss, including the discount, was fully reflected in
the accumulated deficit.  Accordingly, the notes were originally recorded at net
value of zero (after the  $2,000,000  discount).  On September 3, 2003 the notes
were fully retired in advance of their January 1, 2006 maturity date in order to
expand the security  interest  base  available  to the holders of the  September
Secured Bridge Notes while the Company obtained stockholder approval to complete
the Equity  Financing.  (See Notes 5e and 10) In the  three-month and nine-month
periods  ended  September  30,  2003,  the  Company  recognized  $1,935,000  and
$2,000,000,  respectively,  in  non-cash  interest  expense  pertaining  to this
amortization of the discount.

          d)      Bridge Loans from Related Parties - May 7, 2003

          On May 7, 2003, Gibralt US and two of the Company's  directors,  James
A.  Wylie,  Jr. and Peter  Norris  (the "May 2003  noteholders"),  committed  to
provide  financing of up to  $1,200,000 in the form of Class D secured notes due
May 6, 2004.  The Company  issued the May 2003  noteholders  an  aggregate of 24
shares of Class D Stock,  convertible into 3,021,552 shares of common stock. The
Class C Stock was exchanged  for Class F Stock on August 22, 2003.  (see Note 9)
The  Class D notes  accrue  interest  at an  annual  rate  of 8%,  payable  upon
maturity.  As of September 30, 2003, the entire  $1,200,000 in interim financing
had been funded. At the second closing of the Equity  Financing,  the $1,200,000
in Class D notes and accrued  interest  will  convert into common stock at $0.10
per  share.  (See  Note 10) The May  2003  noteholders  have  the same  security
interest and registration  rights granted to the December 2002  noteholders,  as
described in Note 5e. The notes are not  transferable  without the prior consent
of the Company.

         The May 2003 noteholders have the right to participate in the Company's
financing  contemplated  for the  second  half of 2003  on the  same  terms  and
conditions as the new investors by redeeming  their notes.  In  determining  the
price at which the Company sold its notes, an independent committee of the board
of directors  considered the added risk that the May 2003  noteholders  would be
accepting in light of the  uncertainty  of the  completion  of the  contemplated
financing.  The December 2002 notes provided that the corresponding  noteholders
had the right to  participate in the next financing of the Company at a discount
of 20% to the price to be paid by  investors.  Using this  discount  factor as a
benchmark  for  assessing  the  risk  that  the May  2003  noteholders  would be
assuming, among other factors, the independent committee authorized the issuance
of preferred shares convertible into 3,021,552 shares of common stock, allocated
according to the noteholder's respective loan commitments.



                                      F-15
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

         On May 28,  2003,  the  Company  and the May 2003  noteholders  amended
certain  of the  terms  of the  May 7,  2003  interim  financing  to:  (i) add a
requirement  that 100% of the Class D notes be redeemed into common stock in the
contemplated  financing at the same price per share and on the same terms as the
new investors if the Company  raises  $6,000,000  or more in gross  proceeds and
(ii) extend the deadline for completion of the  contemplated  financing  without
triggering  the right of the May 2003  noteholders  to declare the Class D notes
due and  payable  to July 31,  2003.  On July 31,  2003,  this date was  further
extended to November 15, 2003. On August 21, 2003, this deadline was extended to
the business day following any date after  November 15, 2003,  which the Company
and the Investors in the Equity  Financing  agree to as the second closing date.
(See Note 10)

         In   accordance   with   Emerging   Issues  Task  Force  (EITF)  00-27,
"Application of EITF No. 98-05 to Certain Convertible  Instruments," the Company
recognized  an amount of  $240,000  for the fair  value of the  preferred  stock
issued, which has been recorded as a discount to the Class D notes. The discount
will be amortized over the term of the notes to non-cash interest expense,  with
a corresponding  increase in preferred  stock,  such that the full amount of the
discount  will be amortized  by the earlier of the maturity  date of the Class D
notes or by the  month  the Class D notes are  converted  into  equity.  The net
impact  on  stockholders'  equity/(deficit)  will be  zero  when  the net  loss,
including the discount,  is fully reflected in the accumulated  deficit.  In the
three-month  and  nine-month  periods  ended  September  30,  2003,  the Company
recognized  $60,000 and $100,000,  respectively,  in non-cash  interest  expense
pertaining to this  amortization of the discount and,  accordingly,  the Class D
notes were recorded at $1,060,000 as of September 30, 2003.

         In   accordance   with   Emerging   Issues  Task  Force  (EITF)  00-27,
"Application of EITF No. 98-05 to Certain Convertible  Instruments," the Company
will recognize a beneficial conversion feature in the amount of $960,000,  which
will be recorded as a discount to the notes, upon favorable stockholder approval
of the equity financing at the annual meeting.  This contingent discount will be
fully amortized to non-cash  interest expense in the period in which the Class D
notes convert to equity,  with a  corresponding  increase in additional  paid in
capital. The net impact on stockholders'  equity/(deficit) will be zero when the
net loss, including the discount, is fully reflected in the accumulated deficit.

         In connection with the interim financing,  the Company incurred $51,000
in related legal fees. As of September 30, 2003, these costs were capitalized as
deferred  financing costs and will be amortized to general interest expense over
the life of the  Class D notes,  such  that the  full  amount  of costs  will be
amortized  by the  earlier of the  maturity  date of the Class D notes or by the
month  the Class D notes are  converted  into  equity.  In the  three-month  and
nine-month  periods ended September 30, 2003, the Company recognized $12,775 and
$21,292,   respectively,   in  general  interest  expense   pertaining  to  this
amortization of the deferred financing costs, and,  accordingly,  the balance of
the deferred financing costs was $29,809 as of September 30, 2003.

          e) Secured Bridge Notes - September 3, 2003

         On September 2, 2003, the Company  entered into agreements that provide
for the Equity  Financing  with 119  Investors  who agreed to purchase  from the
Company  254,437,500  shares of Common Stock for an aggregate  purchase price of
$23,200,000.  Twenty two  million  dollars of the  aggregate  purchase  price is
payable in cash,  and  $1,200,000  will be paid by  conversion of certain of the
Company's Class D notes at the second closing. (See Note 10)

         At the first  closing  of the  Equity  Financing,  the  Company  issued
$6,995,000  in principal  amount of Secured  Bridge Notes due  September 3, 2004
(the "Secured Bridge Notes"), which accrue interest at an annual rate of 8%. The
notes are  secured  by a security  interest  in  collateral  that  includes  the
Company's  rights to U.S.  Patent No.  6,398,777 and related foreign patents for
endovenous laser treatment of varicose veins (the "EVLT Patent").  These patents
relate  to the  technology  that the  Company  acquired  on  September  3,  2003
underlying  the  Company's  EVLT(R)  product line (See Note 11) and the security
interest  previously  granted to the December 2002 noteholders (See Notes 5c and
5d).  The Class E notes  were  fully  paid at the first  closing  of the  Equity
Financing  in  advance of the  January 1, 2006  maturity  date to  increase  the
collateral available for the September Secured Bridge Notes.



                                      F-16
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

         Under the terms of the Equity  Financing,  at the second  closing,  the
aggregate   principal   amount  of  the  Secured   Bridge  Notes  converts  into
approximately 87,437,500 shares of Common Stock at a purchase price of $0.08 per
share. Additional shares are to be issued to pay accrued interest on the Secured
Bridge Notes,  also at $0.08 per share. Of the Secured Bridge Notes,  $6,500,000
in aggregate  principal amount was issued at the first closing in exchange for a
purchase price equal to $6,500,000 paid in cash.  Gibralt US and the other three
holders of the Company's  Class E notes  purchased  $2,000,000 of Secured Bridge
Notes at $0.08 per share at the same price as the other  Investors paid. Each of
the  other  Investors  who  subscribed  to  purchase  securities  in the  Equity
Financing purchased on a pro rata basis $4,500,000 in aggregate principal amount
of the Secured  Bridge  Notes.  The Company  also issued  $495,000 in  principal
amount of the Secured Bridge Notes to the placement  agent in partial payment of
its fee.

          If the Company defaults on any indebtedness  exceeding  $500,000,  the
holders of at least twenty five (25%) of the outstanding principal amount of the
Secured Bridge Notes may declare the outstanding Secured Bridge Notes,  together
with all accrued and unpaid interest thereon, to be immediately due and payable.

         In   accordance   with   Emerging   Issues  Task  Force  (EITF)  00-27,
"Application of EITF No. 98-05 to Certain Convertible  Instruments," the Company
will  recognize a  beneficial  conversion  feature in the amount of  $6,995,000,
which will be recorded as a discount to the notes,  upon  favorable  stockholder
approval of the Equity Financing at the annual meeting. This contingent discount
will be fully amortized to non-cash  interest  expense in the period the Secured
Bridge Notes convert to equity, with a corresponding increase in additional paid
in capital. The net impact on stockholders'  equity/(deficit)  will be zero when
the net loss,  including the  discount,  is fully  reflected in the  accumulated
deficit.  Accordingly,  as of September 30, 2003,  the Secured Bridge Notes were
recorded at their full face value of $6,995,000.

         In connection with the first closing,  the Company incurred $632,891 in
placement agent and legal fees,  including the fee due to be paid in cash to the
placement  agent in the amount of $495,000 that the placement  agent invested in
the Secured Bridge Notes. As of September 30, 2003, these costs were capitalized
as deferred  financing costs and will be amortized to general  interest  expense
over the life of the notes, such that the full amount of costs will be amortized
by the earlier of the  maturity  date of the notes or by the month the notes are
converted into equity.  In the three-month  period ended September 30, 2003, the
Company  recognized  $52,741  in general  interest  expense  pertaining  to this
amortization of the deferred  financing costs,  and accordingly,  the balance of
the deferred financing costs was $580,150 as of September 30, 2003.

         In connection  with the first  closing,  the Company will  recognize an
additional placement agent fee, in the amount of approximately  $1,800,000,  for
6,187,500 warrants issued to a placement agent. The warrant fee will be recorded
as a deferred financing cost upon favorable  stockholder  approval of the Equity
Financing.  This  contingent  cost will be fully  amortized to general  interest
expense in the period in which the Secured Bridge Notes convert to equity,  with
a  corresponding  increase  in  additional  paid in  capital.  The net impact on
stockholders'  equity/(deficit)  will be zero when the net loss,  including  the
deferred financing cost, is fully reflected in the accumulated deficit.

          f) EVLT(R) Technology Acquisition - September 3, 2003

         On September 3, 2003, the Company  acquired  rights to the EVLT Patent,
which relates to the technology  underlying the Company's  EVLT(R) product line.
As part of the transaction, the Company entered into an agreement with Endolaser
Associates.  On  September  3,  2003,  the  Company  paid  Endolaser  Associates
$1,500,000 in payments in cash in exchange for the  exclusive  license and is to
make additional  payments  totaling  $2,500,000 in 10 quarterly  installments of
$250,000  each,  commencing  with the quarter  following  the  completion of the
equity financing. (See Note 11)



                                      F-17
<PAGE>

                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

      The  following  summarizes  the  Company's  current  and long term debt at
December 31, 2002 and September 30, 2003:

<TABLE>
<CAPTION>
                                                                  December 31, 2002     December 31, 2002
                                                                      Current              Long-Term
                                                                   -------------         -------------
<S>                                                               <C>                    <C>
      Promissory notes payable                                    $      445,208         $           -

      Non-convertible debt                                                    -                936,000
      Related party convertible debt (face value)                             -              2,000,000
      Capital equipment leases                                            33,993                10,018
                                                                   -------------         -------------
                                                                  $      479,201         $   2,946,018
                                                                  ==============         =============


                                                                September 30, 2003    September 30, 2003
                                                                     Current               Long-Term
                                                                 ---------------       --------------
       Promissory notes payable                                  $       433,554         $          -
       Non-convertible debt                                              936,000                    -
       Related party redeemable debt (face value)                      1,200,000                    -
       Convertible debt ($2,000,000 related party
       debt)(face value)                                               6,995,000                    -
       EVLT technology payable (face value)                            1,000,000            1,500,000
       Capital equipment leases                                           18,383                    -
                                                                 ---------------       --------------
                                                                 $    10,582,937         $  1,500,000
                                                                 ===============       ==============
</TABLE>


(6)      Stock Options

          (a) In November 1998 and May 2001,  respectively,  the Company's board
of  directors  approved the 1998  Incentive  Plan (the "1998 Plan") and the 2001
Stock Option Plan (the "2001 Plan") (collectively,  the "Plans"), permitting the
granting of stock options to  employees,  directors,  consultants  and advisors,
which may be either  incentive stock options or  nonqualified  options and stock
awards.  The Board has reserved 750,000 and 1,750,000 shares of common stock for
issuance under the 1998 Plan and the 2001 Plan, respectively.

          The  exercise  price  and  vesting  are  determined  by the  board  of
directors at the date of grant.  Options  generally vest over two and four years
and expire 10 years after the date of grant.  Incentive  stock options under the
Plans are granted at not less than fair market  value per share of common  stock
on the date of grant or 110% of fair market value for any  stockholder who holds
more than 10% of the total combined  voting power of all classes of stock of the
issuer.

          A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                          Average
                                                       Range of        Number of         Exercise
                                                    Exercise Price      Shares            Price
                                                     -------------   -------------    -------------
<S>                                                  <C>             <C>              <C>
         Outstanding, December 31, 2002              $   0.34-8.23       1,603,285    $        2.90
                                                     -------------   -------------    -------------

            Granted                                      0.08-0.34       2,126,790             0.14
            Forfeited                                    0.33-5.51        (298,237)            2.40
                                                     -------------   -------------    -------------

         Outstanding, September 30, 2003             $   0.08-8.23       3,431,838    $        1.28
                                                     =============   =============    =============

         Exercisable, December 31, 2002              $   0.34-8.23       1,150,115    $        3.49
                                                     =============   =============    =============

         Exercisable, September 30, 2003             $   0.08-8.23       2,510,758    $        1.53
                                                     =============   =============    =============
</TABLE>




                                      F-18
<PAGE>

                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

       As of September  30, 2003,  849,441  options  were  available  for future
grants  under  the  Plans,  including  614,671  options  under the 1998 Plan and
321,870  options  under the 2001 Plan.  However,  the Company in the years ended
December  31,  2001 and  2002,  and the  three  and nine  -month  periods  ended
September  30,  2003 has granted  options  only under the 2001 Plan and does not
intend to grant options under the 1998 Plan.

       On June 4, 2003, the board of directors authorized the grant of 2,137,500
stock  options to purchase  shares of Common  Stock to directors  and  officers,
non-executive employees and a third party service provider.  These stock options
were granted  pursuant to the  Company's  2003 Omnibus  Incentive  Plan and were
granted  with an exercise  price of $0.46 per share,  the  closing  price of the
Company's  Common  Stock on June 4,  2003.  The  Company  will seek  stockholder
approval  of the 2003  Omnibus  Incentive  Plan at its 2003  annual  meeting  of
stockholders, to be held on November 25, 2003.

       The  following  table  summarizes   information   relating  to  currently
outstanding and exercisable options as of September 30, 2003.

<TABLE>
<CAPTION>
                                  OUTSTANDING                                 EXERCISABLE

                                     Weighted
                                      Average
                                     Remaining
                    Number of       Contractual      Weighted Average        Number of     Weighted Average
 Exercise Price       Shares      Life (in Years)    Exercise Price            Shares       Exercise Price
 --------------       ------      ---------------    --------------            ------       --------------
<C>    <C>          <C>                <C>           <C>                      <C>        <C>
$ 0.08-2.00         2,762,170          8.9           $      0.42              1,885,758  $      0.40
  2.25-3.54           246,468          3.9                  2.74                217,426         2.76
  4.00-6.56           407,200          3.2                  5.92                391,575         5.98
  8.05-8.23            16,000          2.4                  8.27                 16,000         8.27
                  -----------                        -----------             ----------  -----------
                    3,431,838                        $      1.28              2,510,758  $      1.52
                  ===========                        ===========             ==========  ===========
</TABLE>

          The fair value of each option  grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants during the applicable period:


<TABLE>
<CAPTION>
                                           December 31,              September 30,
                                               2002                       2003
<S>                                       <C>                          <C>
Risk-free interest rate                   1.84 - 4.74%                 1.23-3.37%
Expected dividend yield                             -%                         -%
Expected lives                                 5 years                    5 years
Expected volatility                                75%                        75%
Weighted average grant date
   fair value per share                   $       1.05                  $    0.15
Weighted average remaining
   contractual life of options
   outstanding                               6.9 years                  7.6 years
</TABLE>



         (b) In January 2003, the Company granted fully  exercisable  options to
purchase  60,000 shares of Common Stock at the exercise price per share of $0.26
and 930  options to purchase  shares of Common  Stock at the  exercise  price of
$0.34 per share to two  consultants  in exchange  for  marketing  services.  The
Company  recorded  the fair value of such  options,  based on the  Black-Scholes
option pricing model, as stock-based compensation expense totaling $8,600 in the
statement of operations for the three-month period ended March 31, 2003.

          On September 3, 2003, the Company  acquired rights to the EVLT Patent,
which relates to the technology  underlying the Company's  EVLT(R) product line.
As part of the  transaction,  the Company  entered  into an  agreement  with Dr.
Robert Min pursuant to which the Company  granted Dr. Min  options,  to purchase
1,000,000  shares of Common Stock.  The Company recorded the fair value of these
options,  in the amount of $312,078,  based on the Black-Scholes  option pricing
model,  and capitalized  this cost as part of the related  intangible asset that
will be amortized over the remaining life of the EVLT Patent.  The  amortization
of the  intangible  asset will be recorded as a component of cost of goods sold.
(See Note 11)



                                      F-19
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          (c) A summary of warrant activity is as follows:

<TABLE>
<CAPTION>
                                                                                                                 Weighted
                                                                                                                 Average
                                                                                                                 Remaining
                                                                                            Weighted            Contractual
                                                   Range of           Number of              Average             Life (in
                                               Exercise Price          Shares            Exercise Price            Years)
                                               -------------        -----------          -------------         -------------
<S>                                                <C>  <C>             <C>                       <C>                    <C>
    Outstanding, December 31, 2001                 2.00-3.50            111,924                   2.56                   1.6

      Granted to stockholders                           2.00             10,000                   2.00                   0.5

      Granted to related party                          0.26          8,333,333                   0.26                   5.5

      Forfeited                                         --                 --                     --                    --
                                               -------------        -----------          -------------         -------------

Outstanding, December 31, 2002                   $ 0.26-3.50          8,455,257          $        0.29                   5.4
                                               =============        ===========          =============         =============

      Exchanged                                                      (8,333,333)                  0.26
      Granted to Placement Agent  $ 0.001-0.10                       40,879,063                   0.05                   5.0
                                               -------------        -----------          -------------         -------------
Outstanding, September 30, 2003                 $ 0.001-3.50         41,000,987          $        0.06                   5.0
                                               =============        ===========          =============         =============
</TABLE>

(7)      SEGMENT REPORTING

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

<TABLE>
<CAPTION>
                                        Three Month Period Ended         Nine Month Period Ended
                                      September 30,     September 30,  September 30,  September 30,
                                          2003              2002            2003          2002
                                       -----------      -----------       -----------   -----------
<S>                                    <C>              <C>              <C>           <C>
Laser systems                          $ 1,504,234      $ 1,404,664      $ 4,205,931   $ 2,540,724
Fibers, accessories and service            867,534          540,669        2,438,187     1,529,754
                                       -----------      -----------       -----------   -----------

Total                                  $ 2,371,768      $ 1,945,333      $ 6,644,118    $4,070,478
                                       ===========      ===========       ===========   ===========
</TABLE>





                                      F-20
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

The following table represents percentage of revenues by geographic destination:

<TABLE>
<CAPTION>
                              Three-Month Period Ended           Nine-Month Period Ended
                                    September 30,                     September 30,
                                 2003          2002                2003          2002

<S>                                  <C>             <C>                <C>           <C>
North America                        59%             57%                60%           54%
Asia/Pacific                         19%             31%                23%           27%

Europe                               18%             10%                15%           16%

Other                                 4%              2%                 2%            3%
                            ------------    ------------      ------------    -----------

Total                               100%            100%                100%          100%
                            ============    ============      ============    ===========

</TABLE>

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


                                September 30, 2003       December 31, 2002

North America                     $    6,897,157       $    1,175,410
Europe                                   600,184            1,131,437
                                  --------------       --------------

     Total                        $    7,497,341       $    2,306,847
                                  ==============       ==============


(8)      MERGER AND PRIVATE OFFERING OF COMMON STOCK

         The Company is a  corporation  originally  formed under the laws of the
State of Nevada on March 3, 1998 under the name Natexco Corporation. On February
11,  2002,  the Company  changed  its name from  Natexco  Corporation  to Diomed
Holdings,  Inc. On February 14, 2002,  the Company  acquired  Diomed,  Inc. in a
merger. As a result of the merger, Diomed, Inc. became a wholly-owned subsidiary
of the Company. The merger was accounted for as a recapitalization. Accordingly,
the historical records of Diomed,  Inc. became the historical records of Natexco
and, after the merger, the Company.  After the merger, the business conducted by
the Company was the business conducted by Diomed, Inc. prior to the merger.

         Under the terms of the merger,  the Company issued Class A Stock to the
former  stockholders  of Diomed,  Inc.  These  shares of Class  Stock have since
converted into Common Stock, and no Class Stock remains outstanding.

         Concurrently  with the merger,  the Company issued  5,000,000 shares of
Common  Stock in a private  placement  offering  at a price of $2.00 per  share,
resulting  in gross  proceeds  to the  Company of  $10,000,000  from the private
offering.  The common stock issued in this private  offering were not subject to
refund, redemption or rescission and, accordingly,  were included as a component
of stockholders'  equity,  net of applicable  costs. The Company  registered the
shares  of  Common  Stock  issued  in the  private  offering  with  the SEC in a
registration statement that the SEC declared effective on October 24, 2002.

         After the merger, 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,
after obtaining  stockholder  approval,  the  reincorporation  was effected by a
migratory merger, and the Company is now a Delaware corporation.

(9)  Exchange of Class C  Convertible  Preferred  Stock and Class D  Convertible
Preferred Stock

         On July 28,  2003,  the  Company  was named as a  defendant  in a class
action  lawsuit,  Augenbaum  v. Diomed  Holdings,  Inc.  On August 6, 2003,  the
Company  entered into a  stipulation  of  settlement  to resolve this suit.  The
stipulation of settlement became final on October 15, 2003.



                                      F-21
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

         In connection with the  stipulation of settlement,  on August 22, 2003,
the Company  entered into an agreement  with the holders of the Class C Stock by
which the holders  tendered  all 20 shares of Class C Stock in  exchange  for an
equal  number  of  shares  of Class E Stock,  and the  Company  entered  into an
agreement  with the holders of the Class D Stock by which the  holders  tendered
all 24 shares  of Class D Stock for an equal  number of shares of Class F Stock.
The Class E Stock  and the Class F Stock  entitle  the  holders  to one vote per
share.  Following  the  exchange  of Class C Stock for Class E Stock and Class D
Stock  for  Class  F  Stock,  both  the  Class C Stock  and  Class D Stock  were
eliminated.

          Following  stockholder  approval  of the  issuance of shares of Common
Stock to be issued  in  exchange  for the  Class E Stock and Class F Stock,  the
Company has the right to purchase from the holders of the Class E Stock, and the
holders  of the Class E Stock are  obligated  to sell,  all 20 shares of Class E
Stock in exchange for 27,117,240 shares of Common Stock, and the Company has the
right to purchase from the holders of the Class F Stock,  and the holders of the
Class F Stock are obligated to sell,  all 24 shares of Class F Stock in exchange
for 3,021,552  shares of Common  Stock.  Upon a sale,  lease,  exchange or other
disposition of all or substantially all of the Company's assets,  the holders of
the Class E Stock and Class F Stock have the right to tender all shares of their
preferred  stock in exchange for the  corresponding  numbers of shares of Common
Stock noted above.

          Shares of Class E Stock and Class F Stock are preferred in liquidation
to the extent  that  before any  distribution  is made to the  holders of Common
Stock,  there must be a distribution  to the holders of the Class E Stock in the
amount of $108,469 per share of Class E Stock and a distribution  to the holders
of the Class F Stock in the  amount of $10,072  per share of Class F Stock.  The
holders of Common Stock share pro rata in the  remainder of the net  liquidation
proceeds.

(10)     September 2003 Equity Financing

         On September 2, 2003, the Company  entered into agreements that provide
for the Equity Financing in which 119 Investors  agreed to purchase  254,437,500
shares  of  Common  Stock  for  an  aggregate  purchase  price  of  $23,200,000.
Twenty-two  million dollars of the aggregate  purchase price is payable in cash,
and  $1,200,000  will be paid  by  conversion  of the  Class D notes  issued  in
connection with the Company's May 2003 bridge financing.

         The first  closing of the Equity  Financing  occurred on  September  3,
2003. At that time, the Investors  funded  $6,500,000 of the Equity Financing in
the form of Secured  Bridge Notes.  The second  closing of the Equity  Financing
will occur after the Company  satisfies the  conditions  to the second  closing,
which is  expected  to be within 90 days after the first  closing.  The  Secured
Bridge Notes  issued at the first  closing will convert into Common Stock at the
second closing at a price of $0.08 per share.  Also at the second  closing,  the
remaining $16,700,000 of the Equity Financing will be provided to the Company by
the Investors for the purchase of Common Stock at a price of $0.10 per share. Of
the  $16,700,000  to be  provided  by  the  Investors  at  the  second  closing,
$15,500,000 will be paid by the Investors in cash and $1,200,000 will be paid by
conversion of the Company's  outstanding  Class D notes. The $15,500,000 in cash
payable at the  second  closing  is being  held by a third  party  acting as our
escrow agent.

          Three of the  Investors  in the Equity  Financing  are  related to the
Company.  These Investors are Gibralt US, Inc., an affiliate of Samuel Belzberg,
a director and significant  stockholder of the Company,  James A. Wylie,  Jr., a
director and the Company's  chief executive  officer and Peter Norris,  a former
director and a stockholder of the Company.  Gibralt US loaned  $1,500,000 to the
Company at the first closing and, accordingly,  the Company issued $1,500,000 in
Secured  Bridge Notes to him.  Gibralt US also owns  $1,100,000 of Class D notes
that will be converted  into Common Stock at the second  closing,  and Mr. Wylie
and Mr.  Norris  each own $50,000 of Class D notes that will be  converted  into
Common Stock at the second closing.

         Before the Company can complete  the Equity  Financing,  the  following
must occur:

         o        the  stockholders  must approve an amendment to the  Company's
                  Certificate  of   Incorporation  to  increase  the  number  of
                  authorized shares of Common Stock to 500,000,000,



                                      F-22
<PAGE>
                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

         o        the   stockholders   must   approve  the  issuance  of  up  to
                  298,500,000  shares of Common  Stock to the  Investors  in the
                  Equity Financing, and the American Stock Exchange (the "AMEX")
                  must  approve the listing of the shares of Common  Stock to be
                  issued  to  the  Investors  in  connection   with  the  Equity
                  Financing, and

         o        the  stockholders  must  approve the  issuance  of  30,138,792
                  shares of Common  Stock to be issued in  exchange  for Class E
                  Stock and Class F Stock, and the AMEX must approve the listing
                  of the shares of Common  Stock to be issued to the  holders of
                  the Class E Stock and the Class F Stock.

          The Company  anticipates that,  assuming  stockholder  approval at the
annual  meeting,  the Equity  Financing will be completed  within three business
days after the annual meeting.

          In  connection  with the  Equity  Financing,  the  Company  has issued
warrants to purchase up to  40,879,063  shares of Common Stock to its  placement
agent. The warrants issued to the placement agent are exercisable for five years
beginning upon approval by  stockholders  of the Equity  Financing at the annual
meeting,  and at exercise prices of $0.001, $0.08 and $0.10. The placement agent
also participated as an investor in the Equity Financing by reinvesting $495,000
of its fee in exchange  for Secured  Bridge  Notes  convertible  into  6,187,500
shares of Common Stock. The original agreement with the placement agent provided
that the Company pay the placement agent a cash fee equal to 10% of the funds it
raised in a  financing  and issue to the  placement  agent  warrants to purchase
shares of Common Stock equal to 10% of the aggregate  number of shares of Common
Stock that were purchased by the Investors in the Equity Financing.

          On August 28, 2003, the agreement with the placement agent was amended
to raise the maximum amount of the financing  approved by the board of directors
and to provide  for the  deposit of all of the  Investors'  funds into an escrow
pending the second  closing.  The Company  further  agreed that it would pay the
cash portion of the fee due to the placement agent in connection with the Equity
Financing  in  securities  rather than in cash.  The  placement  agent agreed to
reinvest its financing fee, and the parties agreed that they would calculate the
financing fee on the total amount invested in the Company,  exclusive of amounts
to be invested  by the  holders of the Class D notes and the Class E notes,  but
inclusive of the amount the placement  agent  reinvested.  On September 3, 2003,
the  Company  amended  its  agreement  with the  placement  agent to reflect the
increased maximum amount of the offering from $21,200,000 to $23,200,000.

          As of September 30, 2003, the Company incurred $1,238,234 in placement
agent and legal fees in connection with the Equity Financing. In connection with
the first closing,  the Company incurred $632,891 of these costs,  including the
placement agent's  investment of its $495,000 in the Secured Bridge Notes. As of
September 30, 2003, these costs were capitalized as deferred financing costs and
will be amortized to general interest  expense over the life of the notes,  such
that the full amount of costs will be  amortized  by the earlier of the maturity
date of the notes or by the month the notes are  converted  into equity.  In the
three-month  period ended September 30, 2003, the Company  recognized $52,741 in
general  interest  expense  pertaining  to  this  amortization  of the  deferred
financing  costs,  and as of  September  30,  2003,  the balance of the deferred
financing costs was $580,150.

          In  connection  with the first  closing of the Equity  Financing,  the
Company  will  recognize   additional  placement  agent  fees  of  approximately
$1,800,000  for the  6,187,500  Common Stock  warrants  issued to the  placement
agent. The fee related to the warrants will be recorded as a deferred  financing
cost  upon  favorable  stockholder  approval  of  the  Equity  Financing.   This
contingent  cost will be fully  amortized  to  general  interest  expense in the
period in which the Secured Bridge Notes convert to equity, with a corresponding
increase  in  additional  paid in  capital.  The  net  impact  on  stockholders'
equity/(deficit) will be zero when the net loss including the deferred financing
cost is fully reflected in the accumulated deficit.

          In  connection  with the second  closing,  the  Company  had  incurred
$605,343 in legal fees through  September 30, 2003. These costs were capitalized
as deferred offering costs and will be offset against additional paid in capital
in  stockholders  equity  upon  completion  of the second  closing of the Equity
Financing.



                                      F-23
<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                  (Unaudited)

          The Company entered into a registration rights agreement providing for
the Company to register  with the SEC the shares  purchased by the investors and
the shares  underlying the warrants  issued to the placement agent for resale to
the public.  The registration  rights  agreement  requires the Company to file a
registration  statement for these shares  within 5 days after the  completion of
the Equity  Financing.  The  Company is  obligated  to issue  additional  shares
ratably to the Investors at the rate of 3% of the  Investors'  shares per month,
subject  to a limit of 12%,  if the  Company  does  not  file  the  registration
statement  timely  or if the SEC does not  declare  the  registration  effective
within 70 days after filing the registration statement.

(11)     Acquisition of Exclusive EVLT(R) Technology

         On September 3, 2003, the Company  acquired  rights to U.S.  Patent No.
6,398,777 and related foreign patents for endovenous laser treatment of varicose
veins.  The EVLT  Patent  relates to the  technology  underlying  the  Company's
EVLT(R) product line. This acquisition resulted from two transactions.

         In the first  transaction,  the Company  purchased  the interest in the
EVLT Patent owned by Dr.  Robert J. Min, one of the five named  inventors of the
EVLT Patent.  This transaction was completed under a purchase  agreement between
the  Company  and Dr.  Min  entered  into  on July  23,  2003.  Pursuant  to the
agreement,  on September 3, 2003,  the Company paid  $500,000 in cash and issued
options to purchase  1,000,000  shares of Common Stock in exchange for Dr. Min's
assignment to the Company of his interest in the EVLT Patent.  The stock options
are fully vested, have an exercise price of $0.08 per share (the price per share
paid by the  Investors  in the first  closing of the Equity  Financing)  and are
exercisable  for ten  years.  The  Company  also has  agreed  to pay to Dr.  Min
variable payments based on the Company's sales of products using the EVLT Patent
over the remaining 16-year life of the EVLT Patent. Dr. Min previously  licensed
the EVLT Patent to the Company and had served as a  consultant  to the  Company.
Dr.  Min's  consulting  agreement  with the  Company  was amended to reflect the
changes  in the  relationship  between  him and the  Company  as a result of the
acquisition  of his  EVLT  Patent  rights.  Dr.  Min will  continue  to act as a
consultant to the Company under the revised consulting agreement.

         In the second transaction,  the Company licensed, on an exclusive basis
(except for Spain), the EVLT Patent from Endolaser Associates, LLC, the assignee
of interest in the EVLT Patent from the other four named  inventors  of the EVLT
Patent.  This  transaction was completed under a license  agreement  between the
Company and Endolaser  Associates entered into on July 11, 2003. On September 3,
2003, the Company paid Endolaser Associates $1,500,000 for the exclusive license
granted by Endolaser Associates on behalf of the four inventors who had assigned
their interest in the EVLT Patent to Endolaser Associates. The Company agreed to
make additional  payments  totaling  $2,500,000 in 10 quarterly  installments of
$250,000 each,  commencing upon the second closing of the Equity Financing.  The
Company has agreed to pay Endolaser  Associates  variable royalties based on the
Company's  sales of products  using the EVLT Patent over the  remaining  16-year
life of the EVLT Patent.

         The Company  recorded an intangible  technology  asset in the amount of
$4,702,000 to record the  acquisition of the EVLT Patent.  The intangible  asset
will be amortized over the remaining 16-year life of the EVLT Patent.




                                      F-24
<PAGE>

Item 2.  Management's Discussion and Analysis or Plan of Operation

         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/A (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,  our risks relating to the  commercialization  of our current and future
products and applications, and 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  September  30,  2003,  we  had  an  accumulated   deficit  of  approximately
$46,761,000,  including $5,859,000 in non-cash interest expense. We may continue
to incur operating losses due to spending on research and development  programs,
clinical trials, regulatory activities, marketing and administrative 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 losses 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 the Annual Report.

Overview

         Diomed specializes in developing and commercializing  laser and related
disposable  product  technologies used in minimally and  micro-invasive  medical
procedures.  Minimally 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 can be  significantly  diminished  with minimally and
micro-invasive procedures.

         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
minimally 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 market 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 to purchase our  disposable
products, such as kits and optical fibers.

         Using our  proprietary  technology,  including our exclusive  rights to
U.S. Patent No.  6,398,777 and related foreign patents for the endovenous  laser
treatment of varicose veins,  we currently  focus on endovenous  laser treatment
(our EVLT(R)  product  line) for use in varicose vein  treatments,  photodynamic
therapy (our PDT product line) for use in cancer 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.



                                       1
<PAGE>

         In 2001,  Diomed  developed  endovenous laser treatment  (EVLT(R)),  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(R) in Europe.  On
January 22,  2002,  Diomed was the first  company to receive FDA  clearance  for
endovenous laser treatment, with respect to marketing EVLT(R) in the U.S.

         EVLT(R) was a primary source of revenue in 2002 and has continued to be
a primary source of revenue in 2003. Diomed believes that EVLT(R) will achieve a
high level of commercial  acceptance due to its related short  recovery  period,
immediate return to one's normal routine barring vigorous  physical  activities,
reduced  pain and minimal  scarring,  and reduced  costs  compared to other vein
treatments  for  varicose  veins.  We  developed  our EVLT(R)  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  has also  published  a health
insurance   reimbursement  guide  to  assist  physicians  in  the  reimbursement
submission process.  We believe that these attributes,  in addition to EVLT(R)'s
superior  clinical trial  results,  favorable  peer reviews,  and  comparatively
larger and longer  follow-up  data reports  provide  EVLT(R) with a  competitive
advantage  over  competing  traditional  and  minimally  invasive  varicose vein
treatment products.

         Diomed expects that as the number of EVLT(R) procedures  increases,  so
will its sales of associated  disposable  items.  Diomed  believes that the U.S.
represents the single largest market for EVLT(R).  Diomed is targeting its sales
and marketing efforts at hospitals,  private physician practices and clinics. We
sell our products to hospital and  office-based  physicians in major  population
centers  throughout  the  U.S.,  including   specialists  in  vascular  surgery,
interventional-radiology,    general   surgery,   phlebology,   gynecology   and
dermatology.

         Diomed  has  developed  and  maintains  a website -  www.EVLT.com  - to
implement  both the "push" and "pull"  components of its  marketing  strategy to
attract the interest of both patients and physicians. EVLT.com provides patients
with  education  about  treatment  options and  benefits of EVLT(R) and provides
physicians with education about the EVLT(R) procedure. At www.EVLT.com, patients
can also locate the nearest physician performing EVLT(R) by inputting their city
and state.

         The sales cycle for selling capital equipment,  such as medical lasers,
can be affected by several factors, including:

         o        the customer's internal approval process,

         o        hospital  determinations  as to  the  specialty  of  physician
                  performing the EVLT(R)  procedure and the facility where these
                  procedures will be performed,

         o        the physician's desire to observe an EVLT(R)procedure prior to
                  making a purchase decision, and

         o        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 as little as two
to three  months,  whereas a sale to a  hospital  may take six months or longer.
Diomed provides both  hospital-based and office-based  physicians with marketing
guidance as to how they can build an EVLT(R)  business,  facilitating  the sales
closing process and reducing the sales cycle.

         Prior to 2002, the Company sold its products through  independent sales
representatives in the U.S. and through distributors  internationally.  In March
2002,   Diomed  made  the  decision  to  execute  a  direct  sales  strategy  to
commercialize EVLT(R) in the U.S. In addition, in September 2002, Diomed engaged
Sigmacon Health Products  Corporation of Toronto,  Ontario as its distributor in
the Canadian  market.  The Company will continue to monitor sales activities and
strategies,  and  adjust the number of direct  sales  representatives,  indirect
sales representatives and distributors to address market needs and opportunities
in the future.



                                       2
<PAGE>

         Diomed  works  jointly  and  early  on in the  development  cycle  with
photodynamic  therapy drug (PDT) companies in their clinical development process
in order to design a laser that optimizes  wavelength  with their PDT drugs.  We
have  long-term  relationships  with  some  of  the  world's  leading  PDT  drug
companies, including Axcan Pharma, and have sold them lasers in support of their
clinical trials for PDT applications.

         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. In 2001, our collaborative partner, Axcan Pharma, lead the sales
effort for PDT in conjunction with Axcan Pharma's drug, Photofrin. We are unable
to reliably  predict our  revenues  from PDT because  EVLT(R) and not PDT is our
primary  source of revenue for 2002 and because  Photofrin is the first PDT drug
brought  to  market  by  Axcan  Pharma,  and  there is not  sufficient  relevant
historical data on which to base sales assumptions.

         In the U.S.,  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 PDT  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.

         Our technology  and  manufacturing  capability  has attracted  original
equipment  manufacturing  (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
uses our technology for surgical and dental applications.  In addition we have a
long-term  partnership with Dentek  Lasersystems  Vertriebs GmbH, which uses our
laser module for dental applications.

         In 2002,  approximately 55% of our sales were generated in the U.S. and
45% in other markets  around the world.  Diomed  believes that its percentage of
sales generated domestically will increase as it grows the EVLT(R) market in the
U.S.  In the  first  nine  months  of  2003,  the  percent  of  sales  generated
domestically increased to 60%.

         In 2003,  Diomed has focused,  and for the remainder of 2003 expects to
continue to focus,  on the  development  and growth of EVLT(R) 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  enhancements  to our products in order to further
improve their effectiveness and manufacturing efficiency.

Results of Operations

         Three  Months  Ended  September  30, 2003  Compared to the Three Months
         Ended September 30, 2002

Revenue

         Revenue for the three months ended  September 30, 2003 was  $2,372,000,
increasing  approximately  $427,000, or 22%, from $1,945,000 for the same period
in 2002. In the three months ended September 30, 2003, approximately $1,504,000,
or 63%,  of our total  revenue  was  derived  from laser  sales,  as compared to
approximately  $1,404,000,  or 72%,  in the same  period  in 2002.  In the three
months ended September 30, 2003,  approximately  $868,000,  or 37%, of our total
revenues were derived from sales of disposable fibers and kits,  accessories and
service,  as compared to approximately  $541,000,  or 28%, in the same period in
2002.

         The increase in revenue is attributable primarily to:

         o        increased penetration in the EVLT(R) market,



                                       3
<PAGE>

         o        the  compounding  impact of the recurring  revenue stream from
                  disposable sales to both new and existing customers, and

         o        the  impact of new sales  management  and  development  of our
                  sales team.

Cost of Revenue and Gross Profit

         Cost of Revenue  for the three  months  ended  September  30,  2003 was
$1,540,000,  increasing  approximately $253,000, or 20%, from the same period in
2002.  This  resulted in gross profit for the three months ended  September  30,
2003 of $832,000,  an increase of approximately  $173,000, or 26%, from the same
period in 2002.

         The increase in Cost of Revenue was driven by:

         o        new royalties from the EVLT(R) patent acquisition (see Note 11
                  to the accompanying financial statements), and

         o        the  corresponding  increase  in  the  number  of  lasers  and
                  disposable  products  sold,  offset,  on a percentage of sales
                  basis, by the leverage of fixed  manufacturing  costs across a
                  greater number of units.

Operating Expenses

         Research and Development  Expenses for the three months ended September
30, 2003 remained largely  unchanged at $248,000,  a $32,000,  or 11%,  decrease
from  $280,000  for the same  period  in 2002.  This  slight  downward  trend is
expected  to be reversed in 2004 after the  completion  of our Equity  Financing
(discussed  under  "Liquidity,  Capital  Resources  and  Capital  Transactions,"
below).

         Selling and Marketing Expenses for the three months ended September 30,
2003 were $870,000,  decreasing  approximately $149,000, or 15%, from $1,019,000
for the same period in 2002. In 2003,  selling and marketing  expenses decreased
due to the decreased commission rate of an in-house sales force (offset somewhat
by their associated fixed costs) and reduced  discretionary  marketing  spending
prior  to the  completion  of the  Equity  Financing.  The  Company  anticipates
increased  spending in sales and  marketing  programs  to support the  continued
commercialization of EVLT(R) after the completion of the Equity Financing.


         General  and  Administrative   Expenses  for  the  three  months  ended
September 30, 2003 were $1,048,000,  increasing  approximately $158,000, or 18%,
from  $890,000 for the same period in 2002.  In the third  quarter of 2003,  the
Company  recognized  additional  expense in the amount of $150,000 in legal fees
paid for the settlement of the Augenbaum litigation.

Loss from Operations

         Loss from  operations for the three months ended September 30, 2003 was
$1,335,000,  decreasing  approximately $197,000, or 13%, from $1,532,000 for the
same period in 2002.

Interest Expense, net

         Interest  expense for the three  months  ended  September  30, 2003 was
$2,214,000,  compared  to  approximately  $29,000  for the same  period in 2002.
Interest expense in the three months ended September 30, 2003 included  non-cash
charges  totaling  $2,000,000  and  amortization  of  deferred  financing  costs
totaling $66,000 related to the December 2002 and May 2003 debt financings.  The
non-cash  interest  charges  resulted from the  accelerated  amortization of the
balance of discount  associated  with the notes we issued in the  December  2002
debt  financing  upon the  retirement of those notes at the first closing of the
Equity Financing.


Net Loss Applicable to Common Stockholders



                                       4
<PAGE>

         Net loss applicable to common  stockholders  for the three months ended
September 30, 2003,  including  $2,000,000  in non-cash  interest  expense,  was
approximately  $3,549,000,  or $0.12 per share, a $1,988,000,  or 127%, increase
from $1,561,000, or $0.11 per share, for the same period in 2002.

Nine Months Ended September 30, 2003 Compared to the Nine Months Ended September
30, 2002.

Revenue

         Revenue for the nine months ended  September 30, 2003 were  $6,644,000,
increasing approximately $2,574,000, or 63%, from $4,070,000 for the same period
in 2002. In the nine months ended September 30, 2003, approximately  $4,206,000,
or 63%, of our total  revenues  were derived  from laser  sales,  as compared to
approximately $2,540,000, or 62%, in the same period in 2002. In the nine months
ended  September  30,  2003,  approximately  $2,438,000,  or 37%,  of our  total
revenues were derived from sales of disposable fibers and kits,  accessories and
service, as compared to approximately  $1,530,000, or 38%, in the same period in
2002.

         The increase in revenue is attributable primarily to:

         o        increased penetration in the EVLT(R) market,

         o        the  compounding  impact of the recurring  revenue stream from
                  disposable sales to both new and existing customers, and

         o        the  impact of new sales  management  and  development  of our
                  sales team.

Cost of Revenue and Gross Profit

         Cost of  Revenue  for the nine  months  ended  September  30,  2003 was
$4,211,000,  increasing  approximately $731,000, or 21%, from $3,480,000 for the
same period in 2002. Cost of Revenue,  as a percentage of sales,  decreased from
86% to 63% on a year-to-year basis.

         Gross  profit  for  the  nine  months  ended  September  30,  2003  was
$2,433,000,  increasing approximately $1,843,000, or 312%, from $590,000 for the
same period in 2002. On a percent-of-sales-basis,  the gross margin increased 23
percentage points from 14% to 37%.

         The increase in Cost of Revenue was driven by:

         o        new royalties from the EVLT(R) patent acquisition (see Note 11
                  to the accompanying financial statements), and

         o        the  corresponding  increase  in  the  number  of  lasers  and
                  disposable  products  sold,  offset,  on a percentage of sales
                  basis, by the leverage of fixed  manufacturing  costs across a
                  greater number of units.

Operating Expenses

         Research and  Development  Expenses for the nine months ended September
30, 2003 remained largely unchanged at $635,000, a $29,000, or 4%, decrease from
$664,000 for the same period in 2002.  This slight downward trend is expected to
be reversed in 2004 after the completion of our Equity Financing.

         Selling and Marketing  Expenses for the nine months ended September 30,
2003 were $2,892,000, increasing approximately $796,000, or 38%, from $2,096,000
for the same  period in 2002.  In 2003,  the  increased  selling  and  marketing
expenses resulted primarily from incremental  commissions on a higher sales base
(offset  somewhat  by a lower  commission  rate)  and  from a  higher  level  of
marketing   spending  during  the  first  two  quarters  of  2003.  The  Company
anticipates an increased  investment in sales and marketing  programs to support
the continued  commercialization  of EVLT(R) after the  completion of the Equity
Financing.



                                       5
<PAGE>

         General and Administrative Expenses for the nine months ended September
30, 2003 remained  largely  unchanged at  $2,829,000,  increasing  approximately
$171,000,  or 6%,  from  $2,658,000  for the same  period in 2002.  In the third
quarter of 2003,  the  Company  recognized  additional  expense in the amount of
$150,000 in legal fees paid for the settlement of the Augenbaum litigation.

Loss from Operations

         As a result of the above,  the loss from operations for the nine months
ended September 30, 2003 was $3,924,000,  decreasing  approximately $904,000, or
19%, from $4,828,000 for the same period in 2002.

Interest Expense, net

         Interest  expense  for the nine  months  ended  September  30, 2003 was
$3,383,000,  compared to $317,000 for the same period in 2002.  Interest expense
in the nine months ended September 30, 2003 included  non-cash  charges totaling
approximately  $2,933,000 and amortization of deferred  financing costs totaling
$154,000 related to the December 2002 and May 2003 debt financings.

         Two million  dollars of non-cash  interest  charges  resulted  from the
accelerated  amortization  of the balance of the  discount  associated  with the
notes we issued in the December 2002 debt financing upon the retirement of those
notes at the first closing of the Equity  Financing.  An additional  $833,000 in
non-cash  interest  expense  resulted from the  amortization  of the discount on
Class A Secured Notes and Class B Unsecured Notes we issued in the December 2002
financing prior to their exchange for Class C notes  contemporaneously  with the
May 2003 debt financing.

         In the fourth quarter of 2003, upon stockholder  approval of the Equity
Financing and the conversion into equity of the $6,995,000  principal  amount of
Secured  Bridge  Notes  due 2004  (the  "Secured  Bridge  Notes")  we  issued on
September 3, 2003 at the first closing of the Equity  Financing,  the contingent
discount  associated  with the  $6,995,000 in Secured Bridge Notes will be fully
amortized to non-cash interest expense with an offsetting increase in additional
paid in capital. The net impact on stockholders'  equity/(deficit)  will be zero
when net loss  including  the  discount  is fully  reflected  in the  accumulate
deficit.

         In the fourth quarter of 2003, in connection  with the first closing of
the Equity  Financing,  the Company  will  recognize  approximately  $580,000 in
general interest expense related to the corresponding  legal and placement agent
fees  upon  stockholder  approval  of the  Equity  Financing.  Otherwise,  these
unamortized costs will continue to be amortized over the life of the notes.

         In the fourth quarter of 2003, in connection  with the first closing of
the Equity Financing,  the Company will recognize an additional  placement agent
fee, in the amount of approximately $1,800,000, for 6,187,500 warrants issued to
the placement  agent.  The warrant fee will be recorded as a deferred  financing
cost upon  stockholder  approval of the Equity  Financing.  This contingent cost
will be fully amortized to general  interest  expense in the period in which the
Secured  Bridge  Notes  convert  to equity,  with a  corresponding  increase  in
additional  paid in capital.  The net impact on  stockholders'  equity/(deficit)
will be zero when the net loss,  including the deferred financing cost, is fully
reflected in the accumulated deficit.

         In the fourth quarter of 2003, in accordance  with Emerging Issues Task
Force  (EITF)  00-27,  "Application  of EITF No.  98-05 to  Certain  Convertible
Instruments," the Company will recognize a beneficial conversion feature related
to the Class D notes,  in the amount of  $960,000,  which will be  recorded as a
discount to the notes, upon stockholder  approval of the Equity Financing.  This
contingent  discount will be fully amortized to non-cash interest expense in the
period  in which the  Class D notes  convert  to  equity,  with a  corresponding
increase  in  additional  paid in  capital.  The  net  impact  on  stockholders'
equity/(deficit)  will be zero when the net loss,  including  the  discount,  is
fully reflected in the accumulated deficit.

                                       6
<PAGE>


Net Loss Applicable to Common Stockholders

         As  a  result  of  the  above,   the  net  loss  applicable  to  common
stockholders for the nine months ended September 30, 2003,  including $2,933,000
in non-cash interest  expense,  was $7,307,000,  or $0.29 per share,  increasing
approximately  $2,162,000,  or 42%, from $5,145,000,  or $0.38 per share, in the
same period in 2002.

Liquidity, Capital Resources and Capital Transactions

         Since  inception we have  incurred a cumulative  loss of  approximately
$46,761,000,  including  approximately  $5,859,000 in non-cash interest expense,
and may  continue  to incur  operating  losses,  dependent  upon the  commercial
success of EVLT(R).  The Company has financed its operations  primarily  through
private  placements of common stock and preferred stock, and private  placements
of convertible notes and short-term notes and credit arrangements.

          Between December 2002 and May 2003, the Company obtained $3,200,000 of
bridge  financing  from Gibralt US, Inc.,  an  affiliate of Samuel  Belzberg,  a
director and  significant  stockholder  of the Company,  James A. Wylie,  Jr., a
director and the Company's  chief executive  officer and Peter Norris,  a former
director and a stockholder  of the Company.  In order to fund its  operations in
2003,  the  Company  requires  additional  debt or equity  financing  and, as an
additional  option,  to put in place a credit  facility to support the Company's
commercialization  of  EVLT(R).  We  will  require  the  proceeds  of  any  such
financing,  together  with our current  cash  resources,  to continue as a going
concern. As a result of the additional financing needed to support operations in
2003,  the  auditors'  opinion for the year ended  December  31, 2002  expressed
substantial doubt about the Company's ability to continue as a going concern.

         September 2003 Equity Financing Transaction

         On September 2, 2003, the Company  entered into agreements that provide
for the equity  financing  transaction  (the  "Equity  Financing")  in which 119
accredited  investors  (the  "Investors")  agreed to  purchase  from the Company
254,437,500   shares  of  common  stock  for  an  aggregate  purchase  price  of
$23,200,000.  Twenty-two  million  dollars of the  aggregate  purchase  price is
payable  in cash,  and  $1,200,000  will be paid by  conversion  of the  Class D
Secured Notes (the "Class D notes") issued in connection  with the Company's May
2003 debt financing.

         The first  closing of the Equity  Financing  occurred on  September  3,
2003. At that time, the Investors  funded  $6,500,000 of the Equity Financing in
the form of Secured  Bridge Notes.  The second  closing of the Equity  Financing
will occur after the Company  satisfies the  conditions  to the second  closing,
which is  expected  to be within 90 days after the first  closing.  The  Secured
Bridge Notes  issued at the first  closing will convert into common stock at the
second closing at a price of $0.08 per share.  Also at the second  closing,  the
remaining $16,700,000 of the Equity Financing will be provided to the Company by
the Investors for the purchase of common stock at a price of $0.10 per share. Of
the  $16,700,000  to be  provided  by  the  Investors  at  the  second  closing,
$15,500,000 will be paid by the Investors in cash and $1,200,000 will be paid by
conversion of the Company's  outstanding  Class D notes. The $15,500,000 in cash
payable at the  second  closing  is being  held by a third  party  acting as our
escrow agent.

          Three of the  Investors  in the Equity  Financing  are  related to the
Company.  These Investors are Gibralt US, Inc., an affiliate of Samuel Belzberg,
a director and significant  stockholder of the Company,  James A. Wylie,  Jr., a
director and the Company's  chief executive  officer and Peter Norris,  a former
director and a stockholder of the Company.  Gibralt US loaned  $1,500,000 to the
Company at the first closing and, accordingly,  the Company issued $1,500,000 in
Secured  Bridge Notes to him.  Gibralt US also owns  $1,100,000 of Class D notes
that will be converted  into common stock at the second  closing,  and Mr. Wylie
and Mr.  Norris  each own $50,000 of Class D notes that will be  converted  into
common stock at the second closing.



                                       7
<PAGE>

         Before the Company can complete  the Equity  Financing,  the  following
must occur:

         o        the  stockholders  must approve an amendment to the  Company's
                  Certificate  of   Incorporation  to  increase  the  number  of
                  authorized shares of common stock to 500,000,000,

         o        the   stockholders   must   approve  the  issuance  of  up  to
                  298,500,000  shares of common  stock to the  Investors  in the
                  Equity Financing, and the American Stock Exchange (the "AMEX")
                  must  approve the listing of the shares of common  stock to be
                  issued  to  the  Investors  in  connection   with  the  Equity
                  Financing, and

         o        the  stockholders  must  approve the  issuance  of  30,138,792
                  shares of common  stock to be issued in  exchange  for Class E
                  Preferred  Stock (the  "Class E Stock")  and Class F Preferred
                  Stock (the  "Class F Stock"),  and the AMEX must  approve  the
                  listing  of the  shares  of  common  stock to be issued to the
                  holders of the Class E Stock and the Class F Stock.

          The Company  anticipates that,  assuming  stockholder  approval at the
annual  meeting,  the Equity  Financing will be completed  within three business
days after the annual meeting.

          In  connection  with the  Equity  Financing,  the  Company  has issued
warrants to purchase up to  40,879,063  shares of common stock to its  placement
agent. The warrants issued to the placement agent are exercisable for five years
beginning upon approval by  stockholders  of the Equity  Financing at the annual
meeting,  and at exercise prices of $0.001, $0.08 and $0.10. The placement agent
also participated as an investor in the Equity Financing by reinvesting $495,000
of its fee in exchange  for Secured  Bridge  Notes  convertible  into  6,187,500
shares of common stock. The original agreement with the placement agent provided
that the Company pay the placement agent a cash fee equal to 10% of the funds it
raised in a  financing  and issue to the  placement  agent  warrants to purchase
shares of common stock equal to 10% of the aggregate  number of shares of common
stock that were purchased by the Investors in the Equity Financing.

          On August 28, 2003, the agreement with the placement agent was amended
to raise the maximum amount of the financing  approved by the board of directors
and to provide  for the  deposit of all of the  Investors'  funds into an escrow
pending the second  closing.  The Company  further  agreed that it would pay the
cash portion of the fee due to the placement agent in connection with the Equity
Financing  in  securities  rather than in cash.  The  placement  agent agreed to
reinvest its financing fee, and the parties agreed that they would calculate the
financing fee on the total amount invested in the Company,  exclusive of amounts
to be invested by the holders of the Class D notes and the Class E Secured Notes
issued in  connection  with the  December  2002  debt  financing  (the  "Class E
notes"),  but  inclusive  of the  amount  the  placement  agent  reinvested.  On
September 3, 2003, the Company amended its agreement with the placement agent to
reflect  the  increased  maximum  amount of the  offering  from  $21,200,000  to
$23,200,000.

          As of September 30, 2003, the Company incurred $1,238,234 in placement
agent and legal fees in connection with the Equity Financing. In connection with
the first closing,  the Company incurred $632,891 of these costs,  including the
placement agent's  investment of its $495,000 in the Secured Bridge Notes. As of
September 30, 2003, these costs were capitalized as deferred financing costs and
will be amortized to general interest  expense over the life of the notes,  such
that the full amount of costs will be  amortized  by the earlier of the maturity
date of the notes or by the month the notes are  converted  into equity.  In the
three-month  period ended September 30, 2003, the Company  recognized $52,741 in
general  interest  expense  pertaining  to  this  amortization  of the  deferred
financing  costs,  and as of  September  30,  2003,  the balance of the deferred
financing costs was $580,150.

          In  connection  with the first  closing of the Equity  Financing,  the
Company  will  recognize   additional  placement  agent  fees  of  approximately
$1,800,000  for the  6,187,500  common stock  warrants  issued to the  placement
agent. The fee related to the warrants will be recorded as a deferred  financing
cost  upon  favorable  stockholder  approval  of  the  Equity  Financing.   This
contingent  cost will be fully  amortized  to  general  interest  expense in the
period in which the Secured Bridge Notes convert to equity, with a corresponding
increase  in  additional  paid in  capital.  The  net  impact  on  stockholders'
equity/(deficit) will be zero when the net loss including the deferred financing
cost is fully reflected in the accumulated deficit.



                                       8
<PAGE>

          In  connection  with the second  closing,  the  Company  had  incurred
$605,343 in legal fees through  September 30, 2003. These costs were capitalized
as deferred offering costs and will be offset against additional paid in capital
in  stockholders  equity  upon  completion  of the second  closing of the Equity
Financing.

          The Company entered into a registration rights agreement providing for
the Company to register  with the SEC the shares  purchased by the investors and
the shares  underlying the warrants  issued to the placement agent for resale to
the public.  The registration  rights  agreement  requires the Company to file a
registration  statement for these shares  within 5 days after the  completion of
the Equity  Financing.  The  Company is  obligated  to issue  additional  shares
ratably to the Investors at the rate of 3% of the  Investors'  shares per month,
subject  to a limit of 12%,  if the  Company  does  not  file  the  registration
statement  timely  or if the SEC does not  declare  the  registration  effective
within 70 days after filing the registration statement.

         September 2003 Acquisition of Exclusive EVLT(R) Technology

         On September 3, 2003, the Company  acquired  rights to U.S.  Patent No.
6,398,777 and related foreign patents for endovenous laser treatment of varicose
veins.  The EVLT  Patent  relates to the  technology  underlying  the  Company's
EVLT(R) product line. This acquisition resulted from two transactions.

         In the first  transaction,  the Company  purchased  the interest in the
EVLT Patent owned by Dr.  Robert J. Min, one of the five named  inventors of the
EVLT Patent.  This transaction was completed under a purchase  agreement between
the  Company  and Dr.  Min  entered  into  on July  23,  2003.  Pursuant  to the
agreement,  on September 3, 2003,  the Company paid  $500,000 in cash and issued
options to purchase  1,000,000  shares of common stock in exchange for Dr. Min's
assignment to the Company of his interest in the EVLT Patent.  The stock options
are fully vested, have an exercise price of $0.08 per share (the price per share
paid by the  Investors in the first  closing of the Equity  Financing),  and are
exercisable  for ten  years.  The  Company  also has  agreed  to pay to Dr.  Min
variable payments based on the Company's sales of products using the EVLT Patent
over the remaining 16-year life of the EVLT Patent. Dr. Min previously  licensed
the EVLT Patent to the Company and had served as a  consultant  to the  Company.
Dr.  Min's  consulting  agreement  with the  Company  was amended to reflect the
changes  in the  relationship  between  him and the  Company  as a result of the
acquisition  of his  EVLT  Patent  rights.  Dr.  Min will  continue  to act as a
consultant to the Company under the revised consulting agreement.

         In the second transaction,  the Company licensed, on an exclusive basis
(except for Spain), the EVLT Patent from Endolaser Associates, LLC, the assignee
of interest in the EVLT Patent from the other four named  inventors  of the EVLT
Patent.  This  transaction was completed under a license  agreement  between the
Company and Endolaser  Associates entered into on July 11, 2003. On September 3,
2003, the Company paid Endolaser Associates $1,500,000 for the exclusive license
granted by Endolaser Associates on behalf of the four inventors who had assigned
their interest in the EVLT Patent to Endolaser Associates. The Company agreed to
make additional  payments  totaling  $2,500,000 in 10 quarterly  installments of
$250,000 each,  commencing upon the second closing of the Equity Financing.  The
Company has agreed to pay Endolaser  Associates  variable royalties based on the
Company's  sales of products  using the EVLT Patent over the  remaining  16-year
life of the EVLT Patent.

         The Company  recorded an intangible  technology  asset in the amount of
$4,702,000 to record the  acquisition of the EVLT Patent.  The intangible  asset
will be amortized over the remaining life of the EVLT Patent.

Cash Position and Cash Flow

         The  Company  had  cash  balances  of   approximately   $1,500,000  and
$1,900,000 at September 30, 2003 and December 31, 2002, respectively.

         Cash used in  operations  for the nine months ended  September 30, 2003
was  approximately  $2,300,000.  This  principally  results from the approximate
$3,900,000  loss from  operations,  offset by  changes in  working  capital  and
(non-cash)


                                       9
<PAGE>

depreciation  expense,  and reflects the external marketing  initiatives and the
costs of a direct sales force in support of the commercialization of EVLT(R).

         Cash used in investing  activities for the nine months ended  September
30,  2003 was  approximately  $2,300,000.  On  September  3, 2003,  the  Company
acquired  rights to U.S.  Patent No.  6,398,777 and related  foreign patents for
endovenous laser treatment of varicose veins (the "EVLT Patent"),  which patents
relate to the  technology  underlying  the  Company's  EVLT(R)  product line. In
connection  with this technology  acquisition,  the Company paid an aggregate of
$2,000,000  to Dr.  Robert Min and  Endolaser  Associates,  LLC, and $144,000 in
other costs.  Net cash used by investing  activities  also includes  $200,000 in
property,  plant and  equipment,  principally  for  demonstration  equipment for
customer trial programs and for use by the direct sales force in the field.

         Cash  provided  by  financing  activities  for the  nine  months  ended
September 30, 2003 was  approximately  $4,500,000.  This includes the $1,200,000
proceeds  from the May interim  financing and the  $6,500,000  proceeds from the
first  closing of  September  2003 Equity  Financing,  offset by  $1,290,000  in
financing  costs, and the retirement of the December 2002 notes in the aggregate
principal amount of $2,000,000.

Bank Line of Credit

          Diomed, Ltd., the Company's United Kingdom-based subsidiary,  utilizes
a line of credit with  Barclays  Bank,  limited to the lesser of  (pound)350,000
($582,000 at September  30, 2003) or 80% of eligible  accounts  receivable.  The
credit line bears  interest at a rate of 3% above  Barclays  base rate (4.00% at
September 30, 2003) and borrowings are due upon  collection of receivables  from
customers. As security interest,  Barclay's Bank has a lien on all of the assets
of Diomed Ltd., excluding inventory and certain intellectual property.

          As of September  30, 2003,  there were  borrowings  of  (pound)186,976
($310,754)  outstanding under this line and available future borrowing  capacity
of approximately $16,000.

Critical Accounting Policies

         Our  discussion  and  analysis of the  Company's  financial  condition,
results of  operations,  and cash flows are based on the Company'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 include:

         o        revenue recognition;

         o        allowance for doubtful accounts;

         o        warranty obligation;

         o        allowances for excess and obsolete inventory; and

         o        valuation of long-lived and intangible assets.



                                       10
<PAGE>

         Revenue Recognition.  We derive our revenue from primarily two sources:
(i) revenues from products including lasers,  instrumentation,  and disposables,
and (ii) revenues from service.  The Company  recognizes revenue on products and
services when  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.  Accounts  receivable  are customer
obligations  due under  normal trade  terms.  The Company  sells its products to
private physicians,  hospitals, health clinics,  distributors and OEM customers.
The Company generally requires signed sales agreements,  non-refundable  advance
payments and purchase orders, and in certain  circumstances,  depending upon the
type of customer,  letters of credit.  Some customers  seek equipment  financing
from third party  leasing  agents.  Accounts  receivable is stated at the amount
billed to the customer less a valuation allowance for doubtful accounts.

         Senior  management  reviews  accounts  receivable on a monthly basis to
determine if any receivables  could  potentially be  uncollectible.  The Company
includes  specific  accounts  receivable  balances  that  are  determined  to be
uncollectible,  along  with a general  reserve,  in its  overall  allowance  for
doubtful  accounts.  After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on available information,
the Company  believes its  allowance  for doubtful  accounts as of September 30,
2003 is adequate.

         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.

         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,  resulting  in a charge to
earnings.

Item 3.   Controls and Procedures

          (a) Evaluation of disclosure controls and procedures.

         The Company's  principal  executive officer and its principal financial
officer have carried out an evaluation of the  effectiveness  of our  disclosure
controls and  procedures  (as defined in Rules 13a -15e and 15d-15(e)  under the
Securities  Exchange  Act of 1934) as of September  30, 2003 and have  concluded
that, as of such date, the Company's disclosure controls and procedures in place
are adequate to ensure  material  information  and other  information  requiring
disclosure is identified and communicated on a timely basis.

          (b) Changes in internal control over financial reporting.

          During  the  period  covered  by  this  report,  there  have  been  no
significant  changes in our internal control over financial  reporting that have
materially  affected or are reasonably  likely to materially affect our internal
control over financial reporting.



                                       11
<PAGE>

Part II:  Other Information

Item 1.  Legal Proceedings

         On July 28,  2003,  the  Company  was named as a  defendant  in a class
action  lawsuit,  Augenbaum  v. Diomed  Holdings,  Inc.  On August 6, 2003,  the
Company  entered into a  stipulation  of  settlement  to resolve  this suit.  On
September 15, 2003,  after a hearing,  the judge entered an order  approving the
stipulation of settlement as submitted.  The  stipulation  of settlement  became
final on  October  15,  2003,  when the  applicable  appeal  period of the order
approving  the  stipulation  of  settlement  expired with no appeal  having been
filed.

Item 2.  Changes in Securities and Use of Proceeds

         Issuance of Secured  Bridge  Notes to  Investors  in Equity  Financing.
Pursuant to our Equity  Financing,  on September 3, 2003, we issued an aggregate
principal  amount  of  $6,995,000  in  Secured  Bridge  Notes  due  2004  to 119
accredited investors. The principal and accrued interest on these Secured Bridge
Notes will convert into shares of common stock at the conversion  price of $0.08
per share when we complete the Equity  Financing.  The names of the investors in
the Equity  Financing to whom we issued  Secured  Bridge  Notes,  the  principal
amount of the Secured  Bridge Notes issued to each such  investor and the number
of shares of common  stock into which the Secured  Bridge Notes will convert are
set forth below.  These investors  include Gibralt US, Inc., an affiliate of one
of the Company's directors, Samuel Belzberg.

<TABLE>
<CAPTION>
                                                                                                      Shares of common stock to Be
                                                                                                   Issued at Final Closing of Equity
                                                                                                      Financing upon Conversion of
                                                               Secured Bridge Notes Purchased       Secured Bridge Notes (Excluding
                                                            September 3, 2003 at First Closing of       Shares to Be Issued upon
                     Name of Investor                                 Equity Financing              Conversion of Accrued Interest)
----------------------------------------------------------- ---------------------------------------- -------------------------------
<S>                                                         <C>                                      <C>
Gibralt US, Inc.                                            $1,500,000                               18,750,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Morris Belzberg                                             300,000                                  3,750,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Charles Diamond                                             100,000                                  1,250,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Steven Schraiberg                                           100,000                                  1,250,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Sunrise Securities Corp.                                    $495,000                                 6,187,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Sanford Antignas                                            $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
BPW Israel Ventures LLC                                     $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Emilio Bassini                                              $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
HUG Funding LLC                                             $90,000                                  1,125,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
West End Convertible Fund, L.P.                             $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
F. Berdon Defined Benefit Plan                              $9,000                                   112,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Chana Braun                                                 $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Smithfield Fiduciary, LLC                                   $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Meredith A. Rauhut                                          $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Sean B. Curran                                              $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Incap Company Limited                                       $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Bel-Cal Holdings, Ltd.                                      $45,000                                  562,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
SDS Merchant Fund, LP                                       $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
BayStar Capital II, LP                                      $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Craig Drill Capital                                         $101,250                                 1,265,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Joseph Duchman                                              $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------- ---------------------------------------- -------------------------------
Bear  Stearns  Securities  Corp.,  Custodian  for J.
<S>                                                         <C>                                      <C>
Steven Emerson IRA II                                       $135,000                                 1,687,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Michael D. Farkas                                           $16,875                                  210,937.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
The Riverview Group, LLC                                    $317,250                                 3,965,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Robert Schecter                                             $6,750                                   84,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Shimon S. Fishman                                           $3,375                                   42,187.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Platinum Partners Global Macro Fund, LP                     $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Platinum Partners Value Arbitrage Fund, LP                  $168,750                                 2,109,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Melton Management Ltd.                                      $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Asher Gottesman                                             $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
James G. Groninger                                          $13,500                                  168,750
----------------------------------------------------------- ---------------------------------------- -------------------------------
Yehuda Harats                                               $45,000                                  562,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
David Hirsch and Ruth Hirsh                                 $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
J.M. Hull Associates, LP                                    $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Benjamin J. Jesselson 8/21/74 Trust                         $33,750                                  421,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
Michael G. Jesselson 4/8/71 Trust                           $33,750                                  421,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
Ron Katz                                                    $33,750                                  421,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
Joseph Klein III                                            $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Abraham Koot                                                $1,125                                   14,062.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
ProMed Offshore Fund, Ltd.                                  $16,425                                  205,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
ProMed Partners, LP                                         $96,075                                  1,200,937.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Dwight E. Lee                                               $6,750                                   84,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Jonathan Leifer                                             $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
David Leiner                                                $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Ruth Low                                                    $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Avi Lyons                                                   $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Jason Lyons                                                 $1,125                                   14,062.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
David D. May                                                $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Balestra Capital Partners, LP                               $45,000                                  562,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Monmouth Consulting Inc.                                    $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
MTD Holdings LLC                                            $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Israel Nekritz                                              $1,125                                   14,062.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Tammy Newman                                                $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Pequot Navigator Offshore Fund, Inc.                        $135,000                                 1,687,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Pequot Navigator Onshore Fund, LP                           $78,750                                  984,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Pequot Scout Fund, LP                                       $236,250                                 2,953,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Piers Playfair                                              $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
William J. Ritger                                           $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Orion Biomedical Fund, LP                                   $92,418.75                               1,155,234.38
----------------------------------------------------------- ---------------------------------------- -------------------------------
Orion Biomedical Offshore Fund, LP                          $20,081.25                               251,015.63
----------------------------------------------------------- ---------------------------------------- -------------------------------
Reuven Y. Rosenberg                                         $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Joan Schapiro                                               $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Rock Associates                                             $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Alexander Scharf                                            $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
David Scharf                                                $6,750                                   84,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Abraham Schwartz                                            $3,375                                   42,187.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Rivie Schwebel                                              $5,625                                   70,312.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Morton Seelenfreund IRA                                     $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Sherleigh Associates Inc. Profit Sharing Plan               $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Terrapin Partners                                           $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------- ---------------------------------------- -------------------------------
<S>                                                         <C>                                      <C>
Stanley B. Stern                                            $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
David Stone                                                 $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Richard B. Stone                                            $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Peter Sugarman                                              $45,000                                  562,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Langley Partners, L.P.                                      $45,000                                  562,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Ellis International Ltd.                                    $56,250                                  703,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Fred Weber & Chaya Weber JT Ten                             $4,500                                   56,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
George Weinberger                                           $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Congregation Mishkan Sholom                                 $33,750                                  421,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
North Sound Legacy Fund LLC                                 $10,125                                  126,562.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
North Sound Legacy Institutional Fund LLC                   $102,375                                 1,279,687.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
North Sound Legacy International Ltd.                       $112,500                                 1,406,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
East Hudson Inc. (BVI)                                      $13,275                                  165,937.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
The Conus Fund (QP), LP                                     $11,025                                  137,812.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
The Conus Fund Offshore Ltd.                                $9,675                                   120,937.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
The Conus Fund, LP                                          $78,525                                  981,562.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Bull & Co.                                                  $14,625                                  182,812.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Albert L. Zesiger                                           $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Cudd & Co.                                                  $16,650                                  208,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Barrie Ramsay Zesiger                                       $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
City of Milford Pension & Retirement Fund                   $155,250                                 1,940,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
City of Stamford Firemen's Pension Fund                     $74,250                                  928,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Domenic J. Mizio                                            $22,500                                  281,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Francois deMenil                                            $15,750                                  196,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
HBL Charitable Unitrust                                     $14,625                                  182,812.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Cudd & Co.                                                  $18,000                                  225,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
James F. Cleary                                             $2,250                                   28,125
----------------------------------------------------------- ---------------------------------------- -------------------------------
Jeanne L. Morency                                           $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
John J. & Catherine H. Kayola                               $1,800                                   22,500
----------------------------------------------------------- ---------------------------------------- -------------------------------
Hare & Co.                                                  $15,750                                  196,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
Meehan Foundation                                           $14,625                                  182,812.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Morgan  Trust Co. of the  Bahamas  Ltd.  As  Trustee  U/A/D $48,375                                  604,687.5
11/30/93
----------------------------------------------------------- ---------------------------------------- -------------------------------
Murray Capital, LLC                                         $18,000                                  225,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Huland & Co.                                                $42,750                                  534,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Huland & Co.                                                $7,875                                   98,437.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Huland & Co.                                                $33,750                                  421,875
----------------------------------------------------------- ---------------------------------------- -------------------------------
Peter Looram                                                $6,750                                   84,375
----------------------------------------------------------- ---------------------------------------- -------------------------------
Psychology Associates                                       $4,500                                   56,250
----------------------------------------------------------- ---------------------------------------- -------------------------------
Mellon Bank NA, Custodian for PERSI-Zesiger Capital         $270,000                                 3,375,000
----------------------------------------------------------- ---------------------------------------- -------------------------------
Robert K. Winters                                           $675                                     8,437.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Susan Uris Halpern                                          $30,375                                  379,687.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Theeuwes Family Trust, Felix Theeuwes, Trustee              $14,625                                  182,812.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
William B. Lazar                                            $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Wolfson Investment Partners, LP                             $11,250                                  140,625
----------------------------------------------------------- ---------------------------------------- -------------------------------
Zinc Partners II, LP                                        $505.80                                  6,322.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Zinc Partners Offshore, Ltd.                                $37,521                                  469,012.5
----------------------------------------------------------- ---------------------------------------- -------------------------------
Zinc Partners, LP                                           $40,723.20                               509,040
----------------------------------------------------------- ---------------------------------------- -------------------------------
</TABLE>



                                       14
<PAGE>

         We received  gross  proceeds  of  $6,500,000  from the  issuance of the
Secured  Bridge Notes.  We applied a portion of these  proceeds to repay in full
all of our outstanding Class E notes (approximately  $2,140,000 of principal and
interest,  including  approximately  $1,575,000  repaid to Gibralt US, Inc.,  an
affiliate  of  Samuel  Belzberg,  a  director  of the  Company)  and to  acquire
additional  intellectual  property  rights  related to our EVLT(R)  product line
($2,000,000).  We also paid fees  incurred  by legal  counsel  to the  investors
(approximately  $100,000) and  reimbursable  expenses  incurred by our placement
agent  (approximately  $14,000).  We intend to use the balance of these proceeds
for general working capital purposes.

         Issuance of Warrants to Placement  Agent.  As part of the  compensation
payable to our placement agent, Sunrise Securities Corp., in connection with our
Equity  Financing,  on September 3, 2003, we issued warrants to purchase up to a
total of 40,879,063  shares of common stock to our placement agent. The warrants
may be exercised for a five-year  period  beginning when our  stockholders  have
approved the issuance of shares of our common stock  underlying  these  warrants
and those shares have been listed for trading on the AMEX.  The following  table
sets forth the respective exercise prices of these warrants

             Number of Shares of               Exercise Price
           Common Stock Purchasable
                  17,541,563                       $0.001
                  6,187,500                         $0.08
                  17,150,000                        $0.10

         August 2003 Exchanges of Preferred Shares.  Pursuant to the stipulation
of settlement that we reached in the Augenbaum litigation  (described under Item
1, Legal  Proceedings,  above),  we entered into  exchange  agreements  with the
holders of the  outstanding  shares of our Class C Convertible  Preferred  Stock
(the  "Class C Stock")  and Class D  Convertible  Preferred  Stock (the "Class D
Stock").  Upon entering into the exchange  agreements,  on August 22, 2003,  the
holders  of the  Class C Stock  exchanged  their  Class C Stock for 20 shares of
Class E Stock,  on a  share-for-share  basis.  Similarly,  upon execution of the
exchange  agreements,  the holders of the 24 outstanding Class D Stock exchanged
their  Class D Stock for shares of Class F Stock,  on a  share-for-share  basis.
Following  these  exchanges,  we  eliminated  all  Class C Stock and all Class D
Stock.
         Shares of the Class E and Class F Stock are preferred in liquidation to
the extent that, before any distribution of assets can be made to the holders of
the common  stock,  there  will be  distributed  pro rata to the  holders of the
issued and  outstanding  shares of Class E Stock and Class F Stock the amount of
$108,469 as to each outstanding  share of Class E Stock and $10,072 per share as
to each outstanding share of Class F Stock. The holders of the common stock then
share in the remainder of net liquidation of proceeds. The aggregate liquidation
preference  of the Class E Stock is  $2,169,380  and the  aggregate  liquidation
preference of the Class F Stock is $241,728.

         The  holders of the Class E Stock are  entitled to cash  dividends  and
distributions  when and as declared by the board of  directors,  pari passu with
the holders of our common stock with the dividend  amount on each share of Class
E Stock being  1,355,862  times the dividend or  distribution to be paid on each
share of common  stock.  The  holders of the Class F Stock are  entitled to cash
dividends and distributions when and as declared by the board of directors, pari
passu  with the  holders of our common  stock with the  dividend  amount on each
share of Class F Stock being  125,898 times the dividend or  distribution  to be
paid on each share of common stock.

         The exchange  agreements  also gave both the Company and the holders of
the Class E Stock  and the Class F Stock  rights  to  exchange  those  preferred
shares for shares of our common stock, as long as our  stockholders  approve the
issuance of the shares of our common stock  underlying the preferred  shares and
the AMEX approves the listing of these shares of common stock. Specifically,  if
the stockholders  approve the common stock issuance and the AMEX lists these the
shares of common stock,  then the holders of the Class E Stock have the right to
sell to us, and we have the right to purchase from them, each outstanding  share
of Class E Stock in exchange for 1,355,862  shares of our common stock per share
of Class E Stock. Similarly,  the holders of the Class F Stock have the right to
sell to us, and we have the right to purchase from them, each outstanding  share
of Class F Stock in exchange for 125,898 shares of our common stock per share of
Class F Stock.  The exchange  agreements  also provided  that,  should any sale,
lease,  exchange or other  disposition of all or substantially all of our assets
occur  while  shares of Class E Stock and  Class F Stock are  outstanding,  each
holder of the  Class E Stock  has the right to sell to us all  shares of Class E
Stock held in exchange for 1,355,862 shares of common stock per share of Class E
Stock.  Similarly,  each holder of the Class F Stock has the right to sell to us
all shares of Class F Stock held in exchange for 125,898  shares of common stock
per share of Class F Stock.



                                       15
<PAGE>

         The  board  of  directors  determined  that the  terms of the  exchange
agreements were  appropriate in order to provide the former holders of the Class
C Stock and the Class D Stock with the economic  equivalence  of the  conversion
rights they held in conjunction  with the Class C Stock and Class D Stock.  Upon
exchange  of all Class E Stock,  the  former  holders  of the Class C Stock will
receive  27,117,240  shares of our common stock, or the same number of shares of
our common stock we were obligated to issue to them upon conversion of the Class
C Stock. Upon exchange of all shares of the Class F Stock, the former holders of
the Class D Stock will receive  3,021,552  shares of common  stock,  or the same
number of shares of our  common  stock that we were  obligated  to issue to them
upon conversion of the Class D Stock.

         Shares to Be Issued to Former Investment Advisor. Under a December 2001
agreement  between the Company and Verus Support  Services,  Inc., the holder of
greater than 5% of the Company's common stock, we engaged Verus as our financial
advisor for the period ended August 31, 2003.  Under that agreement,  we were to
pay Verus  $15,000 per month for these  services.  We ceased  making the $15,000
monthly  payments to Verus  beginning  August 2002.  On September  30, 2003,  we
entered into an agreement  with Verus pursuant to which we are to issue to Verus
a total of 500,000  shares of common stock in lieu of the monthly  payments that
we did not pay to Verus.  The  issuance  of these  shares is  contingent  on the
completion  of the Equity  Financing,  and we are to issue these shares to Verus
within three days after we complete the Equity Financing.

         Other.  During the third quarter of 2003, the Company issued options to
purchase  options  to  purchase  up to  1,000,000  shares of  common  stock at a
purchase price of $0.08 per share to Robert I. Min, M.D. in connection  with our
September 3, 2003 purchase of Dr. Min's rights to the EVLT(R) Patents  described
in Part I of this Quarterly Report,  and options to purchase up to 900 shares of
its  common  stock at a  purchase  price of $0.44 per  share to Dr.  Min and Dr.
Steven Zimmet for contributing services performed for us.

         The  Company  issued  securities  to the  above-referenced  persons  in
reliance upon the exemption  from  registration  set forth under Section 4(2) of
the Securities Act of 1933, as amended. Each such person agreed that neither the
options or notes,  as the case may be, nor the  underlying  securities  would be
resold without  registration  under the  Securities Act or exemption  therefrom.
Each such person 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.

Item 6.  Exhibits and Reports on Form 8-K

         (a)     Exhibits

         10.1  Securities  Purchase  Agreement and other  documents  relating to
         Equity Financing  Transaction  (filed with the Company's Current Report
         on SEC Form 8-K filed September 10, 2003)

         10.2 Purchase  Agreement and License Agreement  relating to acquisition
         of exclusive  rights to EVLT Patent (filed with the  Company's  Current
         Report on SEC Form 8-K filed September 10, 2003)

         10.3 Letter  Agreement  between the Company and Gibralt US, Inc., dated
         as of August 21, 2003, regarding certain understandings with respect to
         the Class E Stock and the Class F Stock



                                       16
<PAGE>

         10.4 Exchange  Agreement among the Company and the holders of the Class
         C Stock, dated as of August 22, 2003, providing for the exchange of the
         Class C Stock for shares of Class E Stock and the  further  exchange of
         the Class E Stock for common stock

         10.5 Exchange  Agreement among the Company and the holders of the Class
         C Stock, dated as of August 22, 2003, providing for the exchange of the
         Class C Stock for shares of Class E Stock and the  further  exchange of
         the Class E Stock for common stock

         10.6 Letter Agreement  between the Company and Verus Support  Services,
         Inc.,  dated as of September  30, 2003,  providing  for the issuance of
         500,000 shares of common stock in lieu of cash payment for fees payable
         by Company

         10.7 Amendment to Engagement  Letter with Placement Agent,  dated as of
         September  3, 2003,  providing  for the issuance of  40,879,063  common
         stock purchase warrants to the placement agent.

         31.1  Certification by the Chief Executive  Officer pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002

         31.2  Certification by the Chief Financial  Officer pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002

         32.1  Certification of Principal  Executive Officer pursuant to Section
         906 of the Sarbanes-Oxley Act of 2002

         32.2  Certification of Principal  Financial Officer pursuant to Section
         906 of the Sarbanes-Oxley Act of 2002

          (b)  Reports on Form 8-K.  State  whether any reports on Form 8-K were
filed  during the  quarter  for which this  report is filed,  listing  the items
reported, any financial statements filed and the dates of such reports:

         On September 10, 2003, the Company filed a Form 8-K in connection  with
its  September  2, 2003 equity  financing  transaction  in which 119  accredited
investors agreed to purchase 254,437,500 shares of common stock for an aggregate
purchase price of $23,200,000

             On September  10, 2003,  the Company filed a Form 8-K in connection
with its September 3, 2003  acquisition of the exclusive  rights to U.S.  Patent
No.  6,398,777 and related  foreign  patents for endovenous  laser  treatment of
varicose veins, which patents relate to the technology  underlying the Company's
EVLT(R) product.

         On August 6, 2003, the Company filed a Form 8-K disclosing  that it had
entered into a stipulation of settlement in connection  with the Augenbaum class
action litigation filed against the Company on July 28, 2003.

         On July 29, 2003, the Company filed a Form 8-K disclosing the Augenbaum
class action litigation filed against the Company on July 28, 2003.



                                       17
<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/ JAMES A. WYLIE, JR.
                ----------------------------------------
                Name:  James A. Wylie, Jr.
                Title: President and Chief Executive Officer,
                Director

                Date: November 7, 2003

                By: /s/  DAVID B. SWANK
                ----------------------------------------
                Name: David B. Swank
                Title: Chief Financial Officer

                Date:  November 7, 2003