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

                                   FORM 10-QSB

                                   (MARK ONE)

          [X] QUARTERLY REPORT PURSUANT -TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

                                       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                                84-1480636
   (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 AUGUST 11, 2006, THERE WERE 19,448,728 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 SIX MONTHS ENDED JUNE 30, 2006




TABLE OF CONTENTS


                                                                           Page
Item Number                                                               Number
-----------                                                               ------

             Part I - Financial Information

     1       Condensed Consolidated Balance Sheets -                        F-1
             June 30, 2006 (unaudited) and December 31, 2005

             Unaudited Consolidated Statements of Operations -              F-2
             Three Months and Six Months Ended June 30, 2006 and 2005

             Unaudited Consolidated Statements of Cash Flows -              F-3
             Six Months Ended June 30, 2006 and 2005


             Notes to Consolidated Financial Statements                     F-4


     2       Management's Discussion and Analysis of Operations              1

     3       Controls and Procedures                                         9


             Part II - Other Information                                    10

     1       Legal Proceedings                                              10

     4       Submission of Matters to a vote of Security Holders            12

     6       Reports on Form 8-K                                            13

             Signatures                                                     14

<PAGE>

Diomed Holdings, Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2006 (unaudited) and December 31, 2005

<TABLE>
<CAPTION>
Assets                                                       June 30, 2006   December 31, 2005
                                                             -------------   -----------------
<S>                                                            <C>           <C>
Current assets:
Cash and cash equivalents                                      $ 6,489,592   $       9,562,087
Short term investments                                             542,855           3,566,454
Accounts receivable, net                                         2,777,633           2,824,717
Inventories                                                      3,465,268           3,059,886
Prepaid expenses and other current assets                          643,483             444,453
                                                             ---------------------------------

Total current assets                                            13,918,831          19,457,597

Property, plant and equipment, net                               1,445,908           1,171,703
Intangible assets, net                                           4,100,532           4,302,915
Investment                                                         500,000             500,000
Other assets                                                       246,324             294,810
                                                             ---------------------------------

Total assets                                                   $20,211,595   $      25,727,025
                                                             =================================

Liabilities, preferred stock and stockholders' equity
Current liabilities:
Accounts payable                                               $ 3,881,469   $       3,561,786
Accrued expenses                                                 2,117,574           2,298,823
Current portion of deferred revenue                                274,425             257,889
Bank loan                                                             --                53,924
Current maturities of capital lease obligations                      1,608               2,047
EVLT technology payable (zero face value at June 30, 2006
and $250,000 face value, net of $4,902 debt discount at
December 31, 2005

                                                                      --               245,098
Warrant liability                                                  857,776           1,898,213
                                                             ---------------------------------

Total current liabilities                                        7,132,852           8,317,780

Deferred revenue, net of current portion                           123,179             144,428
Capital lease obligation, net of current maturities                  3,217               4,094
Convertible notes payable ($3,712,000 face value, net of
$889,574 debt discount at June 30, 2006 and $3,712,000 face
value, net of $1,081,727 debt discount at December 31, 2005)     2,822,426           2,630,273
                                                             ---------------------------------

Total liabilities                                               10,081,674          11,096,575
                                                             ---------------------------------

Commitments and contingencies

Preferred stock
(liquidation value $12,074,102 at June 30, 2006)                 8,081,514           7,819,658
                                                             ---------------------------------

Stockholders' equity                                             2,048,407           6,810,792
                                                             ---------------------------------

Total liabilities, preferred stock and stockholders' equity    $20,211,595   $      25,727,025
                                                             =================================
</TABLE>


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

                                       F-1

<PAGE>


Diomed Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                 Three Months Ended June 30,      Six Months Ended June 30,
                                                     2006           2005             2006           2005
                                                 ----------------------------    ----------------------------
<S>                                              <C>             <C>             <C>             <C>
Revenues                                         $  6,075,244    $  4,773,030    $ 10,651,396    $  8,905,280

Cost of revenues                                    3,221,633       2,520,630       5,744,264       4,813,591
                                                 ----------------------------    ----------------------------

Gross profit                                        2,853,611       2,252,400       4,907,132       4,091,689
                                                 ----------------------------    ----------------------------

Operating expenses:
Research and development                              363,027         356,476         717,574         747,214
Selling and marketing                               3,010,196       2,305,629       5,803,263       4,612,937
General and administrative                          1,900,331       2,092,769       3,958,553       3,663,614
                                                 ----------------------------    ----------------------------

Total operating expenses                            5,273,554       4,754,874      10,479,390       9,023,765
                                                 ----------------------------    ----------------------------

Loss from operations                               (2,419,943)     (2,502,474)     (5,572,258)     (4,932,076)
                                                 ----------------------------    ----------------------------

Other (income) expense:
Gain on fair value adjustment on warrant
liability                                          (1,810,858)           --        (1,040,437)           --
Interest expense, non-cash                             96,075          98,904         192,151       1,403,856
Interest expense, net, and other (income)             (94,353)         51,062         (77,438)        152,368
                                                 ----------------------------    ----------------------------
             Total other (income) expense, net     (1,809,136)        149,966        (925,724)      1,556,224
                                                 ----------------------------    ----------------------------


Net loss                                             (610,807)     (2,652,440)     (4,646,534)     (6,488,300)

Less preferred stock cash dividends                  (149,102)           --          (298,290)           --
Less preferred stock non-cash dividends              (161,116)           --          (316,107)           --
                                                 ----------------------------    ----------------------------

Net loss applicable to common stockholders       $   (921,025)   $ (2,652,440)   $ (5,260,931)   $ (6,488,300)
                                                 ============================    ============================
 Basic and diluted net loss per share
 applicable to common stockholders               $      (0.05)   $      (0.14)   $      (0.27)   $      (0.34)
                                                 ============================    ============================

 Basic and diluted weighted average common
 shares outstanding                                19,448,728      19,423,728      19,447,347      19,000,726
                                                 ============================    ============================
</TABLE>


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

                                       F-2
<PAGE>


DIOMED HOLDINGS, INC.
Unaudited Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                   Six Months Ended June 30,
                                                                                     2006            2005
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
Cash Flows from Operating Activities:
               Net loss                                                          $ (4,646,534)   $ (6,488,300)
               Adjustments to reconcile net loss
               to net cash used in operating activities:
                           Depreciation and amortization                              442,511         388,129
                           Amortization of EVLT(R) discount                             4,902          42,606
                           Non-cash interest expense                                  192,152       1,403,857
                           Accretion of discount on marketable securities             (71,213)           --
                           Amortization of deferred financing costs                    48,486            --
                           Fair value of stock options                                317,667          35,440
                           Gain on fair value adjustment on warrant liability      (1,040,437)           --
                           Changes in operating assets and liabilities:
                                     Accounts receivable                               47,084        (960,974)
                                     Inventories                                     (405,382)       (135,379)
                                     Prepaid expenses and other current assets       (199,030)       (228,992)
                                     Deposits                                            --           174,456
                                     Accounts payable                                 319,683         980,989
                                     Accrued expenses and deferred revenue           (185,962)        270,171
                                                                                 ------------    ------------

Net cash used in operating activities                                              (5,176,073)     (4,517,997)
                                                                                 ------------    ------------

Cash Flows from Investing Activities:
                           Purchase of property and equipment                        (364,511)       (265,311)
                           Purchase of available for sale securities                 (539,142)     (3,160,362)
                           Proceeds from maturities of available for
                              sale securities                                       3,600,000            --
                                                                                 ------------    ------------

Net cash provided by (used in) investing activities                                 2,696,347      (3,425,673)
                                                                                 ------------    ------------

Cash Flows from Financing Activities:
                           Net proceeds (payments) on bank borrowings                 (53,924)        313,061
                           Payments on EVLT(R) purchase obligation                   (250,000)       (500,000)
                           Proceeds from the exercise of warrants                        --           404,903
                           Dividend payments                                         (298,290)           --
                           Payments on capital lease obligations                       (1,316)        (37,902)
                                                                                 ------------    ------------

Net cash provided by (used in) financing activities                                  (603,530)        180,062
                                                                                 ------------    ------------

Effect of Exchange Rate Changes                                                        10,761         (64,838)
                                                                                 ------------    ------------

Net Decrease in Cash and Cash Equivalents                                          (3,072,495)     (7,828,446)

Cash and Cash Equivalents, beginning of period                                      9,562,087      14,436,053
                                                                                 ------------    ------------

Cash and Cash Equivalents, end of period                                         $  6,489,592    $  6,607,607
                                                                                 ============    ============

Supplemental Disclosure of Cash Flow Information:
               Cash paid for interest                                            $    170,778    $    156,530
                                                                                 ============    ============
</TABLE>



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

                                       F-3

<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(1) OPERATIONS

Diomed Holdings, Inc. ("Diomed" or "the Company") develops and commercializes
minimally invasive medical procedures that employ its laser technologies and
associated disposable products. Using its proprietary technology, including its
exclusive rights to U.S. Patent No. 6,398,777, the Company currently focuses on
endovenous laser treatment (EVLT(R)) of varicose veins. The Company also
develops and markets lasers and disposable products for photodynamic therapy
(PDT) cancer procedures and products for other clinical applications, including
dental and general surgical procedures.

In developing and marketing its clinical solutions, the Company uses proprietary
technology and aims to secure strong commercial advantages over competitors by
gaining governmental approvals in advance of others, by developing and offering
innovative practice enhancement programs including physician training and
promotional materials, and by obtaining exclusive commercial arrangements. To
optimize revenues, Diomed focuses on clinical procedures that generate revenues
from both capital equipment and disposable products, such as procedure kits and
optical fibers.

Diomed's high power semiconductor diode lasers combine clinical efficacy,
operational efficiency and cost effectiveness in a versatile, compact,
lightweight, easy-to-use and easy-to-maintain system. Along with lasers and
single-use procedure kits for EVLT(R), the Company provides its customers with
state of the art physician training and practice development support. The
EVLT(R) procedure and the Company's related products were cleared by the United
States FDA in January of 2002.

(2) BASIS OF PRESENTATION

In the opinion of management, these unaudited consolidated financial statements
contain all adjustments considered normal and recurring and necessary for their
fair presentation. Interim results are not necessarily indicative of results to
be expected for the year. These interim financial statements have been prepared
in accordance with the instructions for Form 10-QSB, and therefore, do not
include all information and footnotes necessary for a complete presentation of
operations, financial position, and cash flows of the Company in conformity with
accounting principles generally accepted in the United States. The Company filed
with the Securities and Exchange Commission its 2005 annual report on Form
10-KSB/A on April 13, 2006, which included audited consolidated financial
statements for the year ended December 31, 2005, and included information and
footnotes necessary for such presentation. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in our annual report on Form
10-KSB/A for the year ended December 31, 2005.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Annual Report on Form 10-KSB/A for the year ended December 31, 2005 includes
a comprehensive summary of the significant accounting policies and methods used
in the preparation of our consolidated financial statements. The application of
these policies has a significant impact on our reported results. In addition,
the application of some of these policies depends on management's judgment, with
financial reporting results relying on estimations and assumptions about the
effect of matters that are inherently uncertain. For all of these policies,
management cautions that future events rarely develop exactly as forecast and
the best estimates routinely require adjustment.

                                       F-4


<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(a) 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:



                                      June 30,    December 31,
                                        2006         2005
                                     ----------   ----------
                   Raw Materials     $1,216,580   $1,415,546
                   Work-in-Process    1,007,358      674,010
                   Finished Goods     1,241,330      970,330
                                     ----------   ----------
                                     $3,465,268   $3,059,886
                                     ==========   ==========


(b) DEFERRED REVENUE

Deferred revenue at June 30, 2006 was as follows:

                                      June 30,
                                       2006
                                     ----------
                   Beginning balance $  402,317
                   Additions            296,955
                   Revenue/release     (301,668)
                                     ----------
                   Ending balance    $  397,604
                                     ==========


(c) ACCOUNTING FOR STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based
Payment ("SFAS 123R"), which requires companies to measure and recognize
compensation expense for all share-based payment awards made to employees and
directors based on estimated fair values. SFAS 123R is being applied on the
modified prospective basis. Prior to the adoption of SFAS 123R, the Company
accounted for its stock-based compensation plans under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, as provided by SFAS 123, "Accounting
for Stock Based Compensation" ("SFAS 123") and accordingly, recognized no
compensation expense related to the stock-based plans as stock options granted
to employees and directors were equal to the fair market value of the underlying
stock at the date of grant. In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 ("SAB 107") relating to SFAS 123R. The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123R.

Under the modified prospective approach, SFAS 123R applies to new awards and to
awards that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized includes compensation cost for all share-based payments granted
prior to, but not yet vested on, January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123, and compensation
cost for all share-based payments granted subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of SFAS
123R. Prior periods were not restated to reflect the impact of adopting the new
standard. During the three and six month periods ended June 30, 2006, the
Company recorded $122,000 and $295,000, respectively, in non-cash charges for
the implementation of SFAS 123R. As of June 30, 2006, there was approximately
$1,003,000 of total unrecognized compensation costs related to unvested options.
That cost is expected to be recognized over a weighted average period of 2.95
years.
                                       F-5

<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

The following table illustrates the effect on net loss and net loss per share
had the Company accounted for stock-based compensation in accordance with SFAS
123R in fiscal 2005:



<TABLE>
<CAPTION>
                                                        Three Months    Six Months
                                                        Ended June 30, Ended June 30,
                                                        -------------  -------------
                                                             2005          2005
<S>                                                      <C>            <C>
Net loss as reported:                                    $(2,652,440)   $(6,488,300)
Deduct: total stock-based employee compensation;
        expense determined under the fair value-based
        method for all awards, net of tax                   (420,295)      (828,620)
                                                         -----------    -----------

   Proforma net loss                                     $(3,072,735)   $(7,316,920)
                                                         ===========    ===========

   Loss per share:
        Basic and diluted - as reported                  $     (0.14)   $     (0.34)
                                                         ===========    ===========

        Basic and diluted - proforma                     $     (0.16)   $     (0.39)
                                                         ===========    ===========
</TABLE>



The weighted average grant date fair value of options granted during the six
months ended June 30, 2006 were estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions: expected
volatility of 87.30%, expected term of 5.70 years, risk-free interest rate of
4.32%, and expected dividend yield of 0%. Expected volatility is based on a
weighted average of the historical volatility of the Company's stock and peer
company volatility. The average expected life was calculated using the
simplified method under SAB 107. The risk-free rate is based on the rate of U.S.
Treasury zero-coupon issues with a remaining term equal to the expected life of
option grants. The Company uses historical data to estimate pre-vesting
forfeiture rates.


(d) COMPREHENSIVE INCOME

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


                                      F-6

<PAGE>



                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                          Three Months Ended June 30,   Six Months Ended June 30,
                                          --------------------------    --------------------------
                                             2006           2005           2006           2005
                                          -----------    -----------    -----------    -----------
<S>                                       <C>            <C>            <C>            <C>
Net loss                                  $  (610,807)   $(2,652,440)   $(4,646,534)   $(6,488,300)
Unrealized holding loss
   on marketable securities                       (31)        (2,099)          (231)        (2,099)
Foreign currency translation adjustment        88,198        (45,675)       126,819       (183,470)
                                          -----------    -----------    -----------    -----------
Comprehensive loss                        $  (522,640)   $(2,700,214)   $(4,519,946)   $(6,673,869)
                                          ===========    ===========    ===========    ===========
</TABLE>


(e) SHORT TERM INVESTMENTS

Marketable securities with original maturities greater than three months are
classified as short-term investments. Investments designated as short-term
consist of U.S. Agency discount notes and corporate bonds, are classified as
available-for-sale, and are reported at fair value using the specific
identification method. Unrealized gains and losses, net of related tax effects,
are reflected in other comprehensive income (loss) until realized.

Marketable securities included in cash and cash equivalents and short term
investments at June 30, 2006, all of which mature within one year, consist of
the following:


                       Amortized                     Unrealized    Unrealized
                         Cost        Fair Value        Gains         Losses
                      -----------    -----------    ------------   -----------
Money Market Funds    $ 2,568,499    $ 2,568,499    $       --    $       --
Commercial Paper        2,859,092      2,859,157              65          --
                      -----------    -----------    ------------   -----------
                      $ 5,427,591    $ 5,427,656    $         65   $      --
                      ===========    ===========    ============   ===========

As Reported:           Amortized                     Unrealized    Unrealized
                         Cost        Fair Value        Gains         Losses
                      -----------    -----------    ------------   -----------
Cash and Cash
  Equivalents         $ 4,884,571    $ 4,884,801    $        231   $      --
Marketable Securities     543,020        542,855            --            (166)
                      -----------    -----------    ------------   -----------
                      $ 5,427,591    $ 5,427,656    $        231   $      (166)
                      ===========    ===========    ============   ===========

Marketable securities included in cash and cash equivalents and short term
investments at December 31, 2005, all of which mature within one year, consist
of the following:

                       Amortized                     Unrealized    Unrealized
                         Cost        Fair Value        Gains         Losses
                      -----------    -----------    ------------   -----------
Money Market Funds    $ 3,815,711    $ 3,815,712    $       --     $      --
Commercial Paper        5,852,606      5,852,408            --            (198)
U.S. Agency Notes       2,096,266      2,096,760             494          --
                      -----------    -----------    ------------   -----------
                      $11,764,583    $11,764,880    $        494   $      (198)
                      ===========    ===========    ============   ===========

As Reported:           Amortized                     Unrealized    Unrealized
                         Cost        Fair Value        Gains         Losses
                      -----------    -----------    ------------   -----------
Cash and Cash
  Equivalents         $ 8,197,697    $ 8,198,426    $        728   $      --
Marketable Securities   3,566,886      3,566,454            --            (432)
                      -----------    -----------    ------------   -----------
                      $11,764,583    $11,764,880    $        728   $      (432)
                      ===========    ===========    ============   ===========

Net unrealized gains (losses) for the six month period ended June 30, 2006
totaled $65. The unrealized losses were caused by increasing market interest
rates. Based on the scheduled maturities of these marketable securities and our
intent and ability to hold these securities until maturity, we have concluded
that these unrealized losses are not other-than-temporary.

                                       F-7



<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(4) 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 dilutive potential common shares outstanding using
the treasury stock method. The calculation of net loss applicable to common
stockholders for the three and six month periods ended June 30, 2006 includes
$161,116 and $316,107, respectively, in non-cash preferred stock dividends
accreted for future increasing rate dividends and $149,102 and $298,290,
respectively, of preferred stock cash dividends earned during the period related
to the September 30, 2005 private placement.

As a result of the losses incurred by the Company for the three and six month
periods ended June 30, 2006 and 2005, respectively, 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
of the periods, which were not included in the calculation of diluted net loss
per share since their inclusion would be antidilutive.


                       Three Months Ended June 30,   Six Months Ended June 30,
                       --------------------------    ------------------------

                          2006            2005         2006         2005
                          ----            ----         ----         ----

Common Stock Options   2,423,787        1,701,287    2,423,787      1,701,287
                       ==========================    ========================

Common Stock Warrants  5,196,776        2,798,452    5,196,776      2,798,452
                       ==========================    ========================

Convertible Debt       1,620,961        1,620,961    1,620,961      1,620,961
                       ==========================    ========================


(5) LINE OF CREDIT ARRANGEMENTS

Diomed, Ltd., the Company's United Kingdom-based subsidiary, utilizes an
overdraft facility as well as an accounts receivable line of credit with
Barclays Bank, limited to the lesser of (GBP)100,000 or 80% of eligible accounts
receivable. At June 30, 2006, approximately $184,910 was available under this
line. The credit line bears interest at a rate of 2.5% above Barclays' base rate
(4.5% at June 30, 2006) and borrowings are due upon collection of receivables
from customers. As security for the line of credit, Barclay's Bank has a lien on
all of the assets of Diomed, Ltd., excluding certain intellectual property. As
of June 30, 2006, there was zero outstanding and at December 31, 2005, there was
approximately $54,924 outstanding under this line of credit.


                                       F-8


<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(6) STOCK OPTIONS

(a) In November 2003, the Company's stockholders approved the 2003 Omnibus Plan,
under which the Company reserved 1,600,000 shares of common stock for future
issuance. In May 2005, the Company's stockholders approved an increase of
1,500,000 reserved shares providing for a total of 3,100,000 shares of common
stock reserved for future issuance. The 2003 Omnibus Plan provides for grants or
awards of stock options, restricted stock awards, restricted stock units,
performance grants, stock awards, and stock appreciation rights. Only present
and future employees and outside directors and consultants are eligible to
receive incentive awards under the 2003 Omnibus Plan.

The exercise price and vesting are determined by the Board of Directors at the
date of grant. Options generally vest over two to three 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 Company.
The Company plans on settling any exercised employee stock options by issuing
authorized but unissued shares.

As of June 30, 2006, 797,227 options and other incentive stock awards were
available for future grants under the 2003 Omnibus Plan. In addition, 1,048
options were available under the 2001 Plan and 377 options were available under
the 1998 Plan as of June 30, 2006.

A summary of stock option activity for the 2003 Omnibus Plan, the 2001 Plan and
the 1998 Plan is as follows:


<TABLE>
<CAPTION>
                                 Range of Exercise                       Weighted Average
                                       Price         Number of Shares     Exercise Price
                                 --------------------------------------------------------
<S>                               <C>                    <C>                   <C>
Outstanding, December 31, 2005    $2.00 - $205.75        1,733,398             $  6.01

        Granted                    1.98 -    2.70          700,006                2.24
        Forfeited                  2.85 -  133.75           (9,617)              35.14
                                 --------------------------------------------------------

Outstanding, June 30, 2006        $1.98 - $205.75        2,423,787             $  4.76
                                 ========================================================

Exercisable, June 30, 2006        $1.98 - $205.75        1,805,592             $  5.58
                                 ========================================================
</TABLE>



                                       F-9


<PAGE>



                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

The following table summarizes currently outstanding and exercisable options as
of June 30, 2006.

<TABLE>
<CAPTION>
                                                OUTSTANDING                                   EXERCISABLE
                                 -------------------------------------------      -------------------------------------
                                                            Weighted Average                          Weighted Average
  Exercise Price           Shares   Remaining Life*           Exercise Price            Shares          Exercise Price
----------------           ------   ---------------         ----------------            ------        ----------------
<S>                <C>              <C>                     <C>                       <C>                     <C>
  $ 1.98 - $4.75        1,689,643          8.78                   $    3.22           1,074,781               $   3.71
    4.76 - 11.50          706,691          7.51                        5.53             703,358                   5.53
   11.51 - 50.00           16,256          5.13                       35.82              16,256                  35.82
   50.01 - 88.00              814          4.93                       61.39                 814                  61.39
$88.01 - $205.75           10,383          1.80                      151.69              10,383                 151.69
                   --------------                           ---------------      -------------------------------------
                        2,423,787                                 $    4.76           1,805,592               $   5.58
                   ==============                           ===============      =====================================
</TABLE>

* Weighted average remaining contractual life (in years).


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



<TABLE>
<CAPTION>
                                                                                                   Weighted Average
                                    Range of Exercise                         Weighted Average   Remaining Contractual
                                         Price            Number of Shares     Exercise Price       Life (In Years)
                                  ----------------------------------------------------------------------------------
<S>                               <C>                     <C>                    <C>                       <C>
Outstanding, December 31, 2005    $0.025 -  $2.90         5,196,775              $ 2.35                    4.00

        Granted                                --                --                  --                      --
        Exercised                              --                --                  --                      --
        Forfeited                              --                --                  --                      --
                                  ---------------------------------------------------------------------------------

Outstanding, June 30, 2006        $0.025 - $2.90          5,196,775              $ 2.35                    3.39
                                  =================================================================================

Exercisable, June 30, 2006        $0.025 - $2.90          4,896,775              $ 2.35                    3.39
                                  =================================================================================
</TABLE>



                                      F-10


<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(7) SEGMENT REPORTING

The Company's reportable segments are determined by product type: laser systems;
and fibers, accessories and service. 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 Months Ended June 30,    Six Month Ended June 30,
                                   ---------------------------   -------------------------
                                       2006          2005           2006          2005
                                   -----------   -----------     -----------   -----------
<S>                                <C>           <C>             <C>           <C>
Laser systems                      $ 2,375,686   $ 2,451,477     $ 4,145,239   $ 4,568,878
Fibers, accessories, and service     3,699,558     2,321,553       6,506,157     4,336,402
                                   -----------   -----------     -----------   -----------
              Total                $ 6,075,244   $ 4,773,030     $10,651,396   $ 8,905,280
                                   ===========   ===========     ===========   ===========
</TABLE>


The following table represents percentage of revenues and long-lived assets by
geographic destination:



                         % of Revenue                   Long-lived Assets
                 ---------------------------       --------------------------
                  Six Months Ended June 30,
                 ---------------------------        June 30,      December 31,
                    2006             2005             2006            2005
                 ----------       ----------       ----------     -----------
United States           74%              75%       $5,862,198     $ 5,930,287
Asia/Pacific             9%              14%             --              --
Europe                  13%               9%          430,566         339,141
Other                    4%               2%             --              --
                 ----------       ----------       ----------     -----------
Total                  100%             100%       $6,292,764     $ 6,269,428
                 ==========       ==========       ==========     ===========



                                      F-11

<PAGE>


                              DIOMED HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

(8) COMMITMENTS AND CONTINGENCIES

On July 21, 2005, a lawsuit was filed against us in the United States District
Court for the Northern District of California by VNUS Medical Technologies,
Inc., alleging infringement of U.S. Patents Nos. 6,258,084, 6,638,273,
6,752,803, and 6,769,433. The complaint was served on us on July 27, 2005. On
September 15, 2005, the Company filed an answer denying the allegations of
infringement, and counterclaiming against VNUS for a declaration that none of
the patents are infringed and that they are all invalid.

On October 12, 2005, VNUS served an amended complaint adding two additional
parties, AngioDynamics, Inc. and Vascular Solutions, Inc., as defendants. On
October 31, 2005, the Company filed an answer to the First Amended Complaint,
again denying the allegations of infringement, and counterclaiming against VNUS
for a declaration that none of the patents are infringed, that they are all
invalid and that two of VNUS' patents are unenforceable for inequitable conduct.
The Company is now proceeding with the discovery phase of this litigation. A
claim construction hearing is scheduled for November of 2006. The Company
intends to continue to defend its position, however, management is unable to
predict the outcome of this lawsuit.

During 2004, the Company filed lawsuits in the United States Federal District
Court for the District of Massachusetts against four competitors seeking
injunctive relief and damages for infringement of the Company's U.S. Patent
Number 6,398,777 covering the endovascular laser treatment of varicose veins
which the Company uses in its EVLT(R) product line. The Company is presently
prosecuting these lawsuits, however, management is unable to predict the outcome
of these lawsuits. If the Company's EVLT(R) patent is judicially determined to
be invalid, the Company will not prevail in the infringement actions and will
not be able to exclude third parties from using the Company's EVLT(R)
technology. As a result, the EVLT(R) patent may be determined to be impaired and
the Company's EVLT(R) revenue stream may be adversely affected.

Insofar as legal proceedings other than patent litigation are concerned, from
time to time the Company is the defendant in legal and administrative
proceedings and claims of various types. Although any such litigation contains
an element of uncertainty, management, in consultation with the Company's
general counsel, presently believes that the outcome of such proceedings or
claims which are pending or known to be threatened, or all of them combined,
will not have a material adverse effect on the Company.

(9) SUBSEQUENT EVENTS

On July 27, 2006, the Company entered into definitive agreements for the sale
and issuance of shares of the Company's preferred stock, par value $0.001 per
share (the "2006 Preferred Stock") to certain accredited investors in a private
placement financing transaction. The investors consist of persons who own shares
of our currently outstanding preferred stock (the "2005 Preferred Stock") and
other persons. As detailed in the Company's Current Report of Form 8-K filed on
August 1, 2006, investors will pay $10 million as consideration for the issuance
of a portion of the 2006 Preferred Stock to be issued and those investors who
currently hold 2005 Preferred Stock shall surrender all of their shares of 2005
Preferred Stock in exchange for the remaining 2006 Preferred Stock to be issued.
Upon completion of the financing, there will no longer be any shares of the 2005
Preferred Stock outstanding, and there will be 1,735 share of 2006 Preferred
Stock outstanding. These shares of 2006 Preferred Stock will be exchangeable for
17,350,000 shares of Common Stock.

Completion of the financing is subject to several conditions precedent,
including approval by the Company's stockholders of the terms of the financing
and of an amendment to the Company's certificate of incorporation which will
create the rights, preferences and powers of the 2006 Preferred Stock. The
Company agreed to use all measures it reasonably determines to be necessary and
appropriate to obtain stockholder approval prior to October 31, 2006, and to
satisfy all other conditions precedent to closing and complete the financing
shortly after obtaining stockholder approval.

The Company will use the $10 million proceeds from the financing for working
capital purposes. Following completion of the financing, the Company agreed
that, so long as the initial investors in the financing continue to beneficially
own, in the aggregate, at least 25% of the shares of the 2006 Preferred Stock
purchased by them, the Company will not issue debt obligations without the prior
approval of the holders of at least 65% of the 2006 Preferred Stock, except for
advances under the Barclays line of credit, establishing a line of credit or
other facility of up to $1 million (including the amount of the Barclays line of
credit) secured by U.S. accounts receivable and for trade payables and
installment loans incurred in the ordinary course of business.

On August 4, 2006, Luminetx notified the Company that it had achieved the
contractual milestones necessary to effect the remaining $500,000 investment and
vesting of the remaining 300,000 warrants as required under the distribution
agreement entered into on August 5, 2005, on August 5, 2005. Under separate
agreement entered into on August 4, 2006, the Company agreed to fund the
$500,000 investment in two equal installments, one of which was paid upon
execution of the August 4, 2006 agreement, and the other will be paid on or
before October 31, 2006. Effective August 4, 2006, and with the initial payment,
Diomed was issued 250,000 shares of preferred stock and 50,000 warrants under
the same terms as the private placement financing announced by Luminetx on
November 4, 2005. These shares and warrants will be held as collateral by
Luminetx until Diomed funds the remaining $250,000 installment.

                                      F-12


<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

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

This section contains forward-looking statements, which involve known and
unknown risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "may," "will," "should," "potential," "expects,"
"anticipates," "intends," "plans," "believes" and similar expressions. These
statements are based on our current beliefs, expectations and assumptions and
are subject to a number of risks and uncertainties. Our actual results could
differ materially from those discussed in these statements. Our 2005 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 23 through 38 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 or acquire our products. As
of June 30, 2006, we had an accumulated deficit of approximately $85 million
including $17.4 million in non-cash interest expense, $1.0 million gain related
to the adjustment of the market value for the warrant liability, and $295,000 in
SFAS 123R compensation expense. We may continue to incur operating losses due to
spending on research and development programs, clinical trials, regulatory
activities, and sales, 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 in
the Annual Report.

(1) OVERVIEW


We develop and commercialize minimally invasive medical procedures that employ
our laser technologies and associated disposable products. Using our proprietary
technology, including our exclusive rights to U.S. Patent No. 6,398,777, we
currently focus on endovenous laser treatment (EVLT(R)) of varicose veins. We
also develop and market lasers and disposable products for photodynamic therapy
(PDT) cancer procedures and products for other clinical applications, including
dental and general surgical procedures.

In developing and marketing our clinical solutions, we use proprietary
technology and aim to secure strong commercial advantages over competitors by
obtaining exclusive commercial arrangements, gaining governmental approvals in
advance of others and developing and offering innovative practice enhancement
programs, including physician training and promotional materials. To optimize
revenues, we focus on clinical procedures that generate revenues from both
capital equipment and disposable products, such as procedure kits and optical
fibers.

Our high power semiconductor diode lasers combine clinical efficacy, operational
efficiency and cost effectiveness in a versatile, compact, lightweight,
easy-to-use and easy-to-maintain system. Along with lasers and single-use
procedure kits for EVLT(R), we provide our customers with state-of-the-art
physician training and practice development support.

In 2001, we pioneered the commercialization of 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, we
were 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. In January 2002, we were the first company to receive FDA clearance for
endovenous laser treatment of the greater saphenous vein. In December 2004, we
received FDA clearance to expand the application of EVLT(R) to other superficial
veins in the lower extremities.



                                       1
<PAGE>


EVLT(R) was a primary source of revenue in the first half of 2006, and will
continue to be our primary source of revenue in 2006. We believe that EVLT(R)
will achieve a high level of commercial acceptance due to its relative short
recovery period, immediate return to the patient's normal routine barring
vigorous physical activities, reduced pain and minimal scarring, and reduced
costs compared to other 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 customized marketing programs, to
assist office-based and hospital-based physicians in responding to the growing
demand for treatment of varicose veins in a minimally invasive manner. We have
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, provide EVLT(R) with a
competitive advantage over competing traditional and minimally invasive varicose
vein treatment products.

We expect that as the number of EVLT(R) procedures increases, so will our sales
of associated disposable items. We believe that the U.S. represents the single
largest market for EVLT(R). We target our sales and marketing efforts at private
physician practices, hospitals, and clinics and focus on specialists in vascular
surgery, interventional radiology, general surgery, interventional cardiology,
phlebology, gynecology and dermatology.

We primarily use a direct sales force to market our products in the United
States and in select markets internationally, we also utilize a network of more
than 30 distributors to market our products abroad. In August 2005, we entered
into a three year agreement with Luminetx, Inc. to acquire exclusive
distribution rights to the VeinViewer(TM) Imaging System for the sclerotherapy,
phlebectomy and varicose vein treatment markets in the United States and United
Kingdom. The VeinViewer(TM) became commercially available in April 2006.

We currently employ 20 EVLT(R) sales representatives, two regional sales
managers, three sales development personnel who focus on VeinViewer(TM) sales,
and a vice president of North American sales. Additionally, our current clinical
support organization employs four clinical specialists, including one training
manager, who support our field sales efforts. These clinical specialists assist
in physician training and post-sales support, freeing our sales representatives
to focus on new sales opportunities.

We have developed and maintain a website - www.EVLT.com - to assist 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. We also
maintain a corporate website - www.diomedinc.com - which includes information
about the Company and our physician support initiatives, among other things.

Our management team focuses on developing and marketing solutions that address
serious medical problems with significant market potential. Our determinations
are based upon the number of procedures that may be conducted in a market and
projections of the associated revenue. Currently, EVLT(R) applications fall
within this guideline, and we believe that photodynamic therapy may have the
potential to do so at some time in the future. However, EVLT(R), and not PDT, is
the emphasis of our current business plan. Although we have continued to focus
on the development and growth of EVLT(R) sales both domestically and
internationally, we will continue to support the development and approval of new
applications for PDT products and the development of enhancements to our
products in order to further improve their quality, effectiveness and
manufacturability.

(2) RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2005

REVENUE

Diomed delivered revenue for the three months ended June 30, 2006 of $6,075,000,
increasing approximately $1,302,000, or 27%, from $4,773,000 for the same period
in 2005. Revenue from the EVLT(R) product line increased 33% over the same
period last year, including growth of 54% in disposable procedure product
revenue, demonstrating the continued and growing acceptance of EVLT(R) by the
medical community and patients alike.

In the three months ended June 30, 2006, approximately $2,376,000, or 39%, of
our total revenue was derived from laser sales, as compared to approximately
$2,451,000, or 51%, in the same period in 2005. In the three months ended June
30, 2006, approximately $3,700,000, or 61%, of our total revenues were derived
from sales



                                       2
<PAGE>


of disposable fibers and kits, accessories, service and VeinViewer(TM), as
compared to approximately $2,322,000, or 49%, in the same period in 2005. We
expect the proportion of revenue derived from disposables to increase as we
establish a larger base of installed lasers and the number of EVLT(R) procedures
performed grows.


The increase in revenue is attributable primarily to:

      -     increased penetration in the EVLT(R) market,

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

      -     the impact of increased acceptance of the EVLT(R) procedure and
            expanded reimbursement coverage by health care insurers.

COST OF REVENUE AND GROSS PROFIT

Cost of revenue for the three months ended June 30, 2006 was $3,222,000,
increasing approximately $701,000, or 28%, from $2,521,000 for the three months
ended June 30, 2005. The increase in cost of revenue in 2006 was driven by the
corresponding increase in the number of disposable products sold, offset, on a
percentage of sales basis, by the leverage of fixed manufacturing costs across a
greater number of units, and improved materials costs.

Gross profit for the three months ended June 30, 2006 was $2,854,000, increasing
approximately $601,000, or 27% from $2,252,000 from the three months ended June
30, 2005. The increase in gross profit in 2006 was driven by incremental sales
volume, as well as improvements in material costs. On a percent-of-sales-basis,
the gross profit of 47% was comparable with the gross margin in the prior year.
The Company believes that gross profit as a percentage of sales may reach 60%
assuming increases in sales volume that may occur after completion of the patent
litigation.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES for the three months ended June 30, 2006 of
$363,000, increased by $7,000, or 2%, from the three months ended June 30, 2005.
We expect R&D expenditures to remain relatively stable, as we continue to drive
product functionality, cost improvements, and other enhancements.

SELLING AND MARKETING EXPENSES for the three months ended June 30, 2006 of
$3,010,000, increased $705,000, or 31%, over the three months ended June 30,
2005. The increase was driven by an expansion in the size of the sales force of
$258,000, higher sales commissions and physician training resulting from the
increased sales volume, and increased sales and marketing expenditures in
support of the sales efforts to drive the growing commercialization of EVLT(R).
We anticipate continued increased expenses resulting from the larger sales
organization and increased commissions due to expected increases in volume.

GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended June 30, 2006 of
$1,900,000, decreased $192,000, or 9%, from the three months ended June 30,
2005. The decrease was primarily attributable to reduced Sarbanes-Oxley costs of
$72,000, as initial internal control assessment costs incurred in the
three-months ended June 30, 2005 did not reoccur in the three months ended June
30, 2006, and a decrease of $174,000 in administrative costs. These decreased
costs were offset by $67,000 in SFAS 123R stock based compensation costs, as we
implemented SFAS 123R in the three months ended June 30, 2006. Total legal costs
during the quarter decreased by $22,000 to $710,000 and included a reduction in
the continuing cost of litigation against our primary laser competitors
partially offset by an increase in the cost of litigation in the VNUS Medical
Technologies, Inc. ("VNUS").

We anticipate general and administrative expenses to remain at this level as we
continue to incur legal fees in connection with our intellectual property '777
patent infringement actions lawsuits, some of which we expect to proceed to
trial in early 2007, as well as defense costs pertaining to the patent
infringement action initiated by VNUS and the declaratory judgment patent
litigation commenced by AngioDynamics in January 2006.



                                       3
<PAGE>

LOSS FROM OPERATIONS

As a result of the factors outlined above, the loss from operations for the
three months ended June 30, 2006 was $2,420,000, decreasing $83,000 from
$2,502,000 for the three months ended June 30, 2005, as the expansion of our
sales and marketing efforts during the quarter drove incremental revenue, which
was supplemented by a decrease in general and administrative costs.

OTHER (INCOME) EXPENSE, NET

Other income, net for the three months ended June 30, 2006 was $1,809,000,
compared to other expense of $150,000 for the three months ended June 30, 2005.
Other income, net for the three months ended June 30, 2006 includes $1,811,000
for the non-cash, non-operating gain, after giving effect to the change in
market value of the warrants issued in the private placement financing completed
on September 30, 2005. The Company valued the 1,800,000 warrants using the
Black-Scholes model at June 30, 2006. Other income also includes the
non-operating impact of the theft of trade secrets settlement with Vascular
Solutions, Inc.

The Company will continue to revalue the 1,800,000 warrants in each reporting
period based on the Company's stock price, and any subsequent changes in the
fair value will be included as non-cash and non-operating gains or losses from
the fair value adjustment on warrant liability for as long as the warrants are
outstanding. The Company will recognize charges when the market value of the
stock appreciates and income from the change in the fair value of the warrant
liability when the market value of the Company's stock declines. These warrants
were not outstanding in the three month period ended June 30, 2005 and therefore
there was no gain or loss related to the fair value liability in the same period
2005.


NET LOSS

Net loss for the three months ended June 30, 2006 was $611,000 compared to
$2,652,000 for three months ended June 30, 2005. The change in net loss resulted
primarily from the $1,811,000 non-cash, non-operating gain from the fair value
adjustment on warrant liability entered into on September 30, 2005 and the
non-operating impact of the theft of trade secrets settlement with Vascular
Solutions, Inc. The expansion of our sales and marketing efforts during three
months ended June 30, 2006 drove incremental revenue, resulting in increased
gross margin and decreased general and administrative costs, which were offset
by $122,000 in non-cash charges for the implementation of SFAS 123R for the fair
value of stock options issued to employees and directors. This expense has been
allocated between Selling, General and Administrative and Cost of Sales
departmental expenses.

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders for the three months ended June 30,
2006 was $921,000, or $0.05 per share, compared to $2,652,000, or $0.14 per
share, for the three months ended June 30, 2005. We agreed to pay cash dividends
to holders of the preferred stock on an ongoing basis at 6% for the first 18
months, 10% for months 19 to 24, and 15% thereafter for as long as the preferred
stock is outstanding, although these dividends will not accrue on any days where
the volume weighted average price of the common stock for the 30 prior trading
days equals or exceeds $6.25 (subject to adjustment for stock splits, stock
dividends and similar events). These cash dividends amounted to $149,000 during
the three months ended June 30, 2006. In addition, because the dividend
percentage is considered below market for accounting purposes, we will continue
to record an incremental non-cash dividend as an increase to the carrying value
of the preferred stock to reflect an effective interest rate of 16.5%. As a
result, in the three months ended June 30, 2006, we recorded $161,000 of
non-cash preferred stock dividend.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 2005

REVENUE

Diomed delivered revenue for the six months ended June 30, 2006 of $10,651,000,
increasing approximately $1,746,000, or 20%, from $8,905,000 for the six months
ended June 30, 2005. Revenue from the EVLT(R) product line increased 23% over
the six months ended June 30, 2005.



                                       4
<PAGE>

For the six months ended June 30, 2006, approximately $4,145,000, or 39%, of our
total revenue was derived from laser sales, as compared to approximately
$4,569,000 or 51%, in the six months ended June 30, 2005. In the six months
ended June 30, 2006, approximately $6,506,000, or 61%, of our total revenues
were derived from sales of disposable fibers and kits, accessories, service and
VeinViewer(TM), as compared to approximately $4,336,000, or 49%, in the six
months ended June 30, 2005. We expect the proportion of revenue derived from
disposables to increase as we establish a larger base of installed lasers and
the number of EVLT(R) procedures performed grows.

The increase in revenue is attributable primarily to:

      -     increased penetration in the EVLT(R) market,

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

      -     the impact of increased acceptance of the EVLT(R) procedure and
            expanded reimbursement coverage by health care insurers.


COST OF REVENUE AND GROSS PROFIT

Cost of revenue for the six months ended June 30, 2006 was $5,744,000,
increasing approximately $931,000, or 19%, from $4,814,000 for the same period
in 2005. The increase in cost of revenue in 2006 was driven by the corresponding
increase in the number of disposable products sold, offset, on a percentage of
sales basis, by the leverage of fixed manufacturing costs across a greater
number of units and improved materials costs. Cost of revenue, as a percentage
of sales of 54% was comparable to cost of revenue on a year-to-year basis.

Gross profit for the six months ended June 30, 2006 was $4,907,000, increasing
approximately $815,000 from $4,092,000 for the same period in 2005. On a
percent-of-sales-basis, the gross profit of 46% was comparable with the gross
margin in the prior year. The Company believes that in the future gross profit
as a percentage of sales may reach 60%, assuming increases in sales volume that
may occur after completion of the `777 patent litigation.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES for the six months ended June 30, 2006 were
$717,000, a decrease of $30,000, or 4%, from the same period in 2005. We expect
R&D expenditures to remain relatively stable, as we continue to drive product
functionality, cost improvements, and other enhancements.

SELLING AND MARKETING EXPENSES for the six months ended June 30, 2006 were
$5,803,000, an increase of $1,190,000, or 26%, over 2005. The increase was
driven by an expansion in the size of the sales force of $434,000, higher sales
commissions and physician training resulting from the increased sales volume,
and increased sales and marketing expenditures in support of the sales efforts
to drive the growing commercialization of EVLT(R).

GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June 30, 2006 were
$3,959,000, an increase of $295,000, or 8%, from the same period in 2005. The
increase was primarily attributable to incremental legal fees of $363,000 and
SFAS 123R expenses of $184,000, as we implemented SFAS 123R in the six months
ended June 30, 2006. These increased costs were offset by decreased
Sarbanes-Oxley costs of $72,000, as initial internal control assessment costs
incurred in the six-months ended June 30, 2005, did not reoccur in the six
months ended June 30, 2006. Legal expenses included the continuing cost of
patent litigation against four competitors commenced during 2004, as well as
defense costs pertaining to the patent infringement action initiated by VNUS.

LOSS FROM OPERATIONS

Loss from operations for the six months ended June 30, 2006 was $5,572,000, an
increase of approximately $640,000 from the same period in 2005, as incremental
gross profit from an increased revenue base was primarily offset by increased
legal costs related to our patent litigation.



                                       5
<PAGE>

OTHER (INCOME) EXPENSE, NET

Other income for the six months ended June 30, 2006 was $926,000, compared to
other expense of $1,556,000 for the same period in 2005. Other income in the six
months ended June 30, 2006 includes $1,040,000 for the non-cash, non-operating
gain, after giving effect to the change in market value of the warrants issued
in the private placement financing completed on September 30, 2005. Other income
also includes the non-operating impact of the theft of trade secrets settlement
with Vascular Solutions, Inc.

Interest expense in the six months ended June 30, 2005 included non-cash charges
totaling $1,404,000 related to the amortization and acceleration of the debt
discount related to the first quarter 2005 conversion of $3,288,000 in debt
issued in the September 28, 2004 equity and debt financing.

As a result of the relevant accounting for the preferred stock and warrants
issued in the private placement financing completed on September 30, 2005, on an
ongoing basis, the Company has valued the 1,800,000 warrants using the
Black-Scholes model and any subsequent changes in the fair value will be
included as non-operating gains or losses on the fair value on warrant liability
for as long as the warrants are outstanding.


NET LOSS

Net loss for the six months ended June 30, 2006 was $4,647,000 compared to
$6,488,000 for the same period 2005. The expansion of Diomed's sales and
marketing efforts during the year drove incremental revenue, which was offset by
the increased legal costs and supplemented by $1,040,000 for the non-cash,
non-operating gain on warrant liability, after giving effect to the change in
market value of the warrants issued in the private placement financing completed
on September 30, 2005.

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders was $5,261,000, or $0.27 per share,
compared to $6,488,000 million, or $0.34 per share, for the same period 2005. We
agreed to pay cash dividends to holders of the preferred stock on an ongoing
basis at 6% for the first 18 months, 10% for months 19 to 24, and 15% thereafter
for as long as the preferred stock is outstanding, although these dividends will
not accrue on any days where the volume weighted average price of the common
stock for the 30 prior trading days equals or exceeds $6.25 (subject to
adjustment for stock splits, stock dividends and similar events). These cash
dividends amounted to $298,000 during the six months ended June 30, 2006. In
addition, because the dividend percentage is considered below market for
accounting purposes, we will continue to record an incremental non-cash dividend
as an increase to the carrying value of the preferred stock to reflect an
effective interest rate of 16.5%. As a result, in the six months ended June 30,
2006, we recorded $316,000 of non-cash preferred stock dividend.


(3) LIQUIDITY, CAPITAL RESOURCES AND CAPITAL TRANSACTIONS

CASH POSITION AND CASH FLOW

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. The Company had cash and
short-term investment balances of approximately $7,032,000 and $13,129,000 at
June 30, 2006 and December 31, 2005, respectively.

CASH USED IN OPERATIONS

Cash used in operations for the six months ended June 30, 2006 was $5,176,000.
The cash used in operations reflects the net loss of $4,647,000, which  includes
$1,518,000 in legal fees incurred in asserting our EVLT(R) patent and $295,000
for stock based compensation. Net loss was offset by changes in working capital
balance sheet accounts.

CASH PROVIDED BY INVESTING

Cash provided by investing activities for the six months ended June 30, 2006 was
approximately $2,696,000, including purchases of available-for-sale securities
of $539,000, proceeds from maturities of available-for-sale securities of
$3,600,000, and computer and demonstration equipment of $364,000.


                                       6
<PAGE>


CASH USED IN FINANCING

Cash used in financing activities for the six months ended June 30, 2006 was
$604,000, consisting of $250,000 for the final EVLT(R) technology acquisition
obligation and $299,000 in dividends paid to the September 2005 PIPE investors.

BANK LINES OF CREDIT

Diomed, Ltd., the Company's United Kingdom-based subsidiary, utilizes an
overdraft facility as well as an accounts receivable line of credit with
Barclays Bank, limited to the lesser of (GBP)100,000 or 80% of eligible accounts
receivable. As of June 30, 2006, approximately $184,910 was available under this
line. The credit line bears interest at a rate of 2.5% above Barclays' base rate
(4.5% at June 30, 2006) and borrowings are due upon collection of receivables
from customers. As security for the line of credit, Barclay's Bank has a lien on
all of the assets of Diomed Ltd., excluding certain intellectual property. As of
June 30, 2006, there was zero outstanding and at December 31, 2005, there was
approximately $54,924 outstanding under this line of credit.

FUTURE AVAILABILITY OF CREDIT

As June 30, 2006, other than the security under the Barclays Bank line of
credit, our assets were not subject to any liens or encumbrances. Therefore,
these unencumbered assets may be available as security for credit facilities we
may seek in the future. However, under the terms of the convertible debentures
that we issued on October 25, 2004, we agreed that, so long as at least 10% of
the original principal amount of any debenture was outstanding, we would not
incur indebtedness or create a lien that is senior to or having an equal
priority with our obligations under the debentures, except for purchase money
security interests and otherwise to the extent that we do so in the ordinary
course of our business. As of June 30, 2006, the three investors who purchased
debentures continued to hold debentures of at least 10% of the original
principal amount. Also, under the terms of our agreement with the holders of our
currently outstanding preferred stock, we agreed not to issue debt obligations
without the prior approval of the holders of at least 51% of the preferred
stock, except for establishing a line of credit or other facility of up to $1
million secured by U.S. accounts receivable.

2006 PIPE FINANCING

On July 27, 2006, we entered into definitive agreements for the sale and
issuance of shares of the Company's preferred stock, par value $0.001 per share
(the "2006 Preferred Stock") to certain accredited investors in a private
placement financing transaction. The investors consist of persons who own shares
of our currently outstanding preferred stock (the "2005 Preferred Stock") and
other persons. As detailed in the Current Report of Form 8-K we filed on August
1, 2006, investors will pay $10 million as consideration for the issuance of a
portion of the 2006 Preferred Stock we will issue and those investors who
currently hold 2005 Preferred Stock shall surrender all of their shares of 2005
Preferred Stock in exchange for the remaining 2006 Preferred Stock we will
issue. Upon completion of the financing, there will no longer be any shares of
2005 Preferred Stock outstanding, and there will be 1,735 shares of 2006
Preferred Stock outstanding. These shares of 2006 Preferred Stock will be
exchangeable for 17,350,000 shares of Common Stock.

Completion of the Financing is subject to several conditions precedent,
including approval by the Company's stockholders of the terms of the financing
and of an amendment to the Company's certificate of incorporation which will
create the rights, preferences and powers of the 2006 Preferred Stock. We intend
to use all measures we reasonably determine to be necessary and appropriate to
obtain stockholder approval prior to October 31, 2006, and to satisfy all other
conditions precedent to closing and complete the financing shortly after
obtaining stockholder approval.

We will use the $10 million proceeds from the financing for working capital
purposes. Following completion of the financing, we agreed that, so long as the
initial investors in the financing continue to beneficially own, in the
aggregate, at least 25% of the shares of 2006 Preferred Stock purchased by them,
we will not issue debt obligations without the prior approval of the holders of
at least 65% of the 2006 Preferred Stock, except for advances under the Barclays
line of credit, establishing a line of credit or other facility of up to $1
million (including the amount of the Barclays line of credit) secured by U.S.
accounts receivable and for trade payables and installment loans incurred in the
ordinary course of business.



                                       7
<PAGE>

COMMITMENT FOR LUMINETX INVESTMENT

On August 5, 2005, we entered into a distribution agreement with Luminetx,
pursuant to which Luminetx appointed us a distributor and granted us the
exclusive right to distribute and sell the Luminetx patented biomedical imaging
system known as the VeinViewer(TM) Imaging System for physicians who perform
sclerotherapy, phlebectomies or varicose vein treatments, in the United States
and the United Kingdom.

Luminetx agreed to sell us a certain minimum number of VeinViewer(TM) systems
for distribution at specified prices during the term of our distribution
agreement. We also agreed to loan $1 million to Luminetx under the distribution
agreement, of which $500,000 was provided to Luminetx on August 5, 2005 as
specified in our distribution agreement. We later converted our $500,000 loan to
Luminetx into 250,000 shares of Luminetx preferred stock, convertible into
common stock on a share-for-share basis, and warrants to purchase 50,000 shares
of Luminetx common stock at $2.00 per share, exercisable for five years, as part
of an $11 million private placement financing that Luminetx announced on
November 4, 2005. On August 4, 2006, Luminetx notified us that it had achieved
the contractual milestones necessary to effect the remaining $500,000 investment
as required under the distribution agreement entered into on August 5, 2005.
Under separate agreement entered into on August 4, 2006, we agreed to fund the
$500,000 investment in two equal installments, one of which was paid upon
execution of the August 4, 2006 agreement, and the other will be paid on or
before October 31, 2006. Effective August 4, 2006, and with the initial payment,
we were issued 250,000 shares of preferred stock and 50,000 warrants under the
same terms as the private placement financing announced by Luminetx on November
4, 2005. These shares and warrants will be held as collateral by Luminetx until
we fund the remaining $250,000 installment.


(4) CRITICAL ACCOUNTING POLICIES

In the opinion of management, these unaudited consolidated financial statements
contain all adjustments considered normal and recurring and necessary for their
fair presentation. Interim results are not necessarily indicative of results to
be expected for the year. These interim financial statements have been prepared
in accordance with the instructions for Form 10-QSB, and therefore, do not
include all information and footnotes necessary for a complete presentation of
operations, financial position, and cash flows of the Company in conformity with
accounting principles generally accepted in the United States. The Company filed
its 2005 Annual Report on Form 10-KSB/A with the Securities and Exchange
Commission on April 13, 2006, which included audited consolidated financial
statements for the year ended December 31, 2005, and included information and
footnotes necessary for such presentation. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in our annual report on Form
10-KSB/A for the year ended December 31, 2005.

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. 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. We have chosen accounting policies we believe are appropriate to
report accurately and fairly our operating results and financial position, and
we apply those accounting policies in a consistent manner. As discussed in Item
6, "Management's Discussion and Analysis of Financial Condition or Plan of
Operation" of the Company's Annual Report on Form 10-KSB/A for the fiscal year
ended December 31, 2005, we consider certain policies to be the most critical in
the preparation of our consolidated financial statements because they involve
the most difficult, or subjective judgments about the effect of matters that are
inherently uncertain. 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. In connection with the adoption of SFAS 123R as of
the beginning of the Company's first quarter of fiscal year 2006, we have added
"Stock-Based Compensation" as a critical accounting policy.

Stock Based Compensation

We maintain stock-based incentive plans, under which we provide stock incentives
to employees and directors. We grant options to employees and directors to
purchase common stock at an option price equal to the market value of the stock
at the date of grant. Prior to the effective date of SFAS 123R, we applied APB
25, and related interpretations, for our stock option grants. APB 25 provides
that the compensation expense relative to our stock options is measured based on
the intrinsic value of the stock option at date of grant.



                                       8
<PAGE>

Effective the beginning of the first quarter of fiscal year 2006, we adopted the
provisions of SFAS 123R using the modified prospective transition method. Under
this method, prior periods are not restated. We use the Black-Scholes option
pricing model which requires extensive use of accounting judgment and financial
estimates, including estimates of the expected term participants will retain
their vested stock options before exercising them, the estimated volatility of
our common stock price over the expected term, and the number of options that
will be forfeited prior to the completion of their vesting requirements.
Application of alternative assumptions could produce significantly different
estimates of the fair value of stock-based compensation and consequently, the
related amounts recognized in the Consolidated Statements of Operations. The
provisions of SFAS 123R apply to new stock options and stock options
outstanding, but not yet vested, on the date we adopted SFAS 123R. Stock-based
compensation expense was included in applicable departmental expense categories
in the Consolidated Statements of Operations.

 (5) RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 151 ("SFAS 151"), Inventory Costs. SFAS 151
amends Accounting Research Bulletin No. 43 to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling and spoilage. The
statement also requires that the allocation of fixed production overheads to
inventory be based on normal production capacity. We adopted the standard as of
January 1, 2006. The adoption did not have an impact on our consolidated
financial statements.

In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes.
FIN 48 amends FASB Statement No. 109 to clarify the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements. The
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return as well as provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. This Interpretation is effective for fiscal
years beginning after December 15, 2006. Adoption of FIN 48 is not expected to
have a material impact on our consolidated financial statements.

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 -15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of June 30, 2006 and have concluded that, as
of such date, the Company's disclosure controls and procedures in place are
operating effectively 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.



                                       9
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

'777 Patent Litigation

On January 6, 2004, we filed a lawsuit in the United States District Court for
the District of Massachusetts against AngioDynamics, Inc. seeking injunctive
relief and damages for infringement of our '777 patent. AngioDynamics has
generally denied our allegations and has sought a declaratory judgment of
invalidity of the '777 patent. AngioDynamics has also added certain
counterclaims against us, including antitrust violations, patent misuse and
other allegations, all arising from our obtaining and seeking to enforce the
'777 patent. The court has bifurcated the case, so that those counterclaims will
not be litigated until we resolve our patent infringement claims against
AngioDynamics.

On March 4, 2004, we filed a second lawsuit against Vascular Solutions in the
United States District Court for the District of Massachusetts seeking
injunctive relief and damages for infringement of our U.S. Patent Number
6,398,777 (the "'777 patent") covering the endovascular laser treatment of
varicose veins which we use in our EVLT(R) product line, the exclusive rights to
which we acquired on September 3, 2003.

On April 28, 2004, Vascular Solutions answered the complaint and filed a
counterclaim for declaratory judgment that the '777 patent is invalid and not
infringed. Vascular Solutions amended its answer and counterclaims to further
allege patent unenforceability. In addition, Vascular Solutions moved to
bifurcate the damages and willful infringement aspects of this case. We opposed
this motion and on June 28, 2005 the court denied Vascular Solutions' motion. At
the parties' joint request, however, our patent cases involving AngioDynamics
and Vascular Solutions have been consolidated by the court for pretrial
purposes. We have completed the discovery phase of the litigation.

On April 12, 2005, the Court issued a claim construction ruling, which
interprets certain claim language in the '777 patent. We believe that the
evidence we have developed to date in the course of these lawsuits, if admitted
and fully credited will show that AngioDynamics and Vascular Solutions are
infringing our patent as it has now been interpreted by the Court.

On December 21, 2005, we moved for summary judgment that the `777 patent is
valid, enforcable, and infringed by both Vascular Solutions and AngioDynamics.
On the same date, AngioDynamics and Vascular Solutions moved for summary
judgment of noninfringement The Court initially scheduled a hearing for June 1,
2006 to hear the parties' respective motions, but that hearing date was
cancelled when the judge originally assigned to the case recused himself due to
his having consulted one of Diomed's expert witnesses for a personal medical
condition. The cases have been reassigned to another Judge in the same District
and we are awaiting a hearing date on the summary judgment motions.

On April 2, 2004, we filed a lawsuit in the United States District Court for the
District of Massachusetts against Total Vein Solutions, LLC, seeking injunctive
relief and damages for infringement of the '777 patent covering the endovascular
laser treatment of varicose veins which we use in our EVLT(R) product line. On
May 21, 2004, Total Vein Solutions answered the complaint, generally denying our
allegations and counterclaiming for declaratory judgment of non-infringement and
invalidity of the EVLT(R) patent. We are in the discovery phase of this
litigation.

On October 14, 2004, we filed a lawsuit in the United States Federal District
Court for the District of Massachusetts against New Star Lasers, Inc., d/b/a
Cooltouch, Inc., seeking injunctive relief and damages for infringement of the
'777 patent covering the endovascular laser treatment of varicose veins which we
use in our EVLT(R) product line. On December 3, 2004, CoolTouch answered the
complaint, generally denying our allegations and counterclaiming for declaratory
judgment of non-infringement and invalidity of the EVLT(R) patent. We are now
proceeding with the discovery phase of this litigation.

VNUS Technologies Litigation

On July 21, 2005, a lawsuit was filed against us in the United States District
Court for the Northern District of California by VNUS Medical Technologies,
Inc., alleging infringement of U.S. patents Nos. 6,258,084, 6,638,273,
6,752,803, and 6,769,433. The complaint was served on us on July 27, 2005. On
September 15, 2005, we filed an answer denying the allegations of infringement,
and counterclaiming against VNUS for a declaration that none of the patents are
infringed and that they are all invalid.



                                       10
<PAGE>

On October 12, 2005, VNUS served an amended complaint adding two additional
parties, AngioDynamics, Inc. and Vascular Solutions, Inc., as defendants. On
October 31, 2005, we filed an answer to the First Amended Complaint, again
denying the allegations of infringement, and counterclaiming against VNUS for a
declaration that none of the patents are infringed, that they are all invalid
and that two of VNUS' patents are unenforceable for inequitable conduct. We are
now proceeding with the discovery phase of this litigation. A claim construction
hearing is scheduled for November of 2006. We intend to continue to defend
against the allegations against us in this case.

Misappropriation Litigation vs. Vascular Solutions

On December 12, 2003, we filed a lawsuit in the United States District Court for
the District of Massachusetts seeking injunctive and other relief against
Vascular Solutions, Inc. and one of its executives. We alleged, among other
things, that Vascular Solutions and the executive misappropriated our trade
secrets and then improperly used that information to develop and market laser
accessory products. We also sought to redress what we alleged to be the willful
and deceptive manner in which Vascular Solutions had been marketing its laser
accessory products.

On June 16, 2004, Vascular Solutions and the other the defendant answered the
complaint, and filed a counterclaim for invalidity of the EVLT(R) trademark. On
July 13, 2005 the Court heard oral argument on Vascular Solutions' motion for
summary judgment on all claims. Vascular Solutions conceded that it would
stipulate to desist from any further use of the mark ELT, which Diomed alleged
it infringed Diomed's federally-registered EVLT(R) trademark. Vascular Solutions
further stipulated that it would desist from any further dissemination of the
defamatory statements alleged in our complaint.

On March 3, 2006, the Court referred the parties to nonbinding mediation. At the
mediation on May 24, 2006, the case was settled. The terms of the settlement are
confidential.

'971 and '976 Patent Declaratory Judgment Litigation

On January 3, 2006, AngioDynamics filed a lawsuit against us in the U.S.
District Court for the District of Delaware, seeking a declaratory judgment that
the claims of our U.S. Patent Number 6,981,971 (the "'971 Patent"), for an
introducer sheath/optical fiber arrangement that may be used in the endovascular
laser treatment of varicose veins, are invalid, unenforceable and not infringed
by AngioDynamics. The '971 Patent was issued by the U.S. Patent and Trademark
Office on January 3, 2006, the same day AngioDynamics filed the lawsuit. On
January 17, 2006, AngioDynamics filed an Amended Complaint seeking a declaratory
judgment with respect to our U.S. Patent Number 6,986,766 (the "'766 Patent").
The '766 Patent relates to methods of using an introducer sheath/optical fiber
arrangement in the endovascular laser treatment of varicose veins. We filed a
motion to dismiss AngioDynamics' declaratory judgment action in its entirety,
based primarily on lack of declaratory judgment jurisdiction. We also assert in
our motion to dismiss that the court should dismiss the action in its
discretion, and because AngioDynamics' complaint contains a number of
deficiencies which we believe warrant dismissal. That motion is pending.



                                       11
<PAGE>

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

a) On May 23, 2006, the Company held its 2006 Annual Meeting of Stockholders,
pursuant to a proxy statement that it had filed with the Securities and Exchange
Commission and had furnished to holders of record of the outstanding shares of
its common stock and preferred stock as of April 3, 2006. Of 23,423,728 shares,
including 3,975,000 of preferred stock, entitled to vote at the meeting,
16,661,898 shares voted, and a quorum was present. The meeting included the
election of all nine directors to serve until the next annual meeting or until
their successors are duly elected and qualified. Those directors are:

         Geoffrey Jenkins
         Sidney Braginsky
         Gary Brooks
         A. Kim Campbell
         Joseph Harris
         Peter Klein
         Edwin Snape, Ph.D.
         David B. Swank
         James A. Wylie, Jr.

b) The Company presented the following proposals to our stockholders at that
meeting:

1. To elect nine directors to serve until the next annual meeting of
stockholders, or until their successors are duly elected and qualified.

The results of which were as follows:

Director Nominee                      Votes For                Votes Withheld
----------------                      ---------                --------------
Geoffrey Jenkins                      16,555,286               106,962
Sidney Braginsky                      15,899,800               762,448
Gary Brooks                           15,900,316               761,932
A. Kim Campbell                       16,552,186               110,162
Joseph Harris                         16,597,126               65,122
Peter Klein                           15,901,860               760,388
Edwin Snape, Ph.D.                    15,859,490               802,758
David B. Swank                        16,598,086               64,162
James A. Wylie, Jr.                   16,549,786               112,462

Accordingly, each of the director nominees was elected to serve as a director.

2. To approve the issuance of shares of common stock in exchange for preferred
stock we issued on September 30, 2005 at an exchange rate of less than $2.17 per
share if the antidilution provisions of the preferred stock so require.

The results of which were as follows:

For                 Against           Abstained        Broker Non-Votes
------------        ----------        ---------        ----------------
4,635,504           3,000,042         10,832           9,015,869
------------        ----------        ---------        ----------------

Accordingly, the proposal was approved.

3. To approve the issuance of shares of common stock underlying the warrants
issued on September 30, 2005 at an exercise price of less than $2.12 per share
if the antidilution provisions of the warrants so require.

The results of which were as follows:

For                 Against           Abstained        Broker Non-Votes
------------        ----------        ---------        ----------------
4,621,476           3,006,526         18,376           9,015,869
------------        ----------        ---------        ----------------

Accordingly, the proposal was approved.

4. To ratify the selection of BDO Siedman, LLP as the Company's independent
registered public accounting firm for the 2006 fiscal year.


                                       12
<PAGE>

The results of which were as follows:

For                 Against           Abstained
------------        ----------        ---------
16,618,769          34,778            8,700
------------        ----------        ---------

Accordingly, the proposal was approved.

5. To vote on other business matters that may arise before the meeting.

The results of which were as follows:

For                 Against           Abstained
------------        ----------        ---------
13,609,982          3,023,955         28,309
------------        ----------        ---------

Accordingly, the proposal was approved.

ITEM 6. REPORTS ON FORM 8-K

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.

During the fiscal quarter ended June 30, 2006, we filed with the Securities and
Exchange Commission Current Reports on Form 8-K as follows:

On April 28, 2006, we filed a Current Report on Form 8-K regarding the press
release we filed related to the earnings results for the period ending March 31,
2006.

On May 23, 2006, we filed a Current Report on Form 8-K regarding the
postponement of the June 1, 2006 hearing relating to the infringement of U.S.
Patent No. 6,398,777 resulting from an order of the court dated May 22, 2006
where the judge who is hearing the case recently became a patient of the
Company's expert witness.

On June 5, 2006, we filed a Current Report on Form 8-K in relation to the
American Stock Exchange ("AMEX") advising the Company that it has not satisfied
Section 1003 (a) (ii) of the AMEX's Company Guide's standards for continued
listing on the AMEX. Application of this standard excludes $7.9 million of
mezzanine-level preferred stock reported on the Company's balance sheet at March
31, 2006. In the Notice, the AMEX invited the Company to submit to the AMEX by
July 3, 2006 a plan setting forth the action that the Company has taken, or will
take, that would bring the Company into compliance with this continued listing
standard within 18 months.

On June 26, 2006, we filed a Current Report on Form 8-K in relation to the
Current Report on Form 8-K filed on May 23, 2006, regarding Judge Stearn's Order
of Recusal based on the ongoing doctor/patient relationship between the court
and Dr. Fan.




                                       13
<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:  August 11, 2006



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

                            Date:  August 11, 2006



                                       14