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

                                   FORM 10 - Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM _________ TO ___________


                         Commission File Number 0-11365

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

             DELAWARE                                      59-2058100
             --------                                    --------------
 (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                       Identification No.)

             147 Keystone Drive, Montgomeryville, Pennsylvania 18936
             -------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                 (215) 619-3600
                                 --------------
              (Registrant's telephone number, including area code)




Indicate  by check  mark  whether  the  registrant:  (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.
                                  Yes X No ___

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.)
                                  Yes___ No X


The number of shares  outstanding of the issuer's  Common Stock as of August 14,
2003, was 37,655,440 shares.


<PAGE>







                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                                      INDEX

Part I. Financial Information:                                              PAGE
------------------------------                                              ----

     ITEM 1.  Financial Statements:

     a.  Consolidated Balance Sheets, June 30, 2003 (unaudited) and
         December 31, 2002 (audited)                                           3

     b. Consolidated Statements of Operations for the three months
         ended June 30, 2003 and 2002 (unaudited)                              4

     c. Consolidated Statements of Operations for the six months
         ended June 30, 2003 and 2002 (unaudited)                              5

     d. Consolidated Statements of Cash Flows for the six months
         ended June 30, 2003 and 2002 (unaudited)                              6

     e.  Notes to Consolidated Financial Statements (unaudited)                7

     ITEM 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                   18

     ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk       25

     ITEM 4.  Controls and Procedures                                         25

Part II. Other Information:
---------------------------

     ITEM 1.  Legal Proceedings                                               25
     ITEM 2.  Changes in Securities and Use of Proceeds                       25
     ITEM 3.  Defaults Upon Senior Securities                                 26
     ITEM 4.  Submission of Matters to a Vote of Security Holders             26
     ITEM 5.  Other Information                                               26
     ITEM 6.  Exhibits and Reports on Form 8-K                                26

     Signatures                                                               27



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                                                June 30,           December 31,
                                                                                                  2003                 2002
                                                                                              ------------         ------------
                                      ASSETS                                                   (Unaudited)           (Audited)

<S>                                                                                          <C>                  <C>
Current assets:
        Cash and cash equivalents ........................................................    $  9,594,224         $  4,008,051
        Restricted cash, cash equivalents and short-term investments .....................            --              2,000,000
       Accounts  receivable,  net of  allowance  for  doubtful  accounts of
        $745,435 and $1,169,486, respectively ............................................       2,863,558            2,536,334
        Inventories ......................................................................       4,684,398            5,055,783
        Prepaid expenses and other current assets ........................................         687,283              283,001
                                                                                              ------------         ------------
           Total current assets ..........................................................      17,829,463           13,883,169

  Property and equipment, net ............................................................       4,025,022            3,672,438

  Goodwill, net ..........................................................................       2,944,423            2,944,423

  Patents and licensed technologies, net .................................................         849,092              933,802

  Other assets ...........................................................................          69,169               79,372
                                                                                              ------------         ------------

        Total assets .....................................................................    $ 25,717,169         $ 21,513,204
                                                                                              ============         ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities:
        Current portion of notes payable .................................................    $    399,106         $     75,263
        Current portion of long-term debt ................................................       1,171,837            2,143,425
        Accounts payable .................................................................       2,024,373            2,833,361
        Accrued compensation and related expenses ........................................         889,178              822,999
        Other accrued liabilities ........................................................         845,729            1,246,433
        Deferred revenues ................................................................         585,208              183,475
                                                                                              ------------         ------------
           Total current liabilities .....................................................       5,915,431            7,304,956
                                                                                              ------------         ------------

  Long-term debt .........................................................................         310,461              899,626
                                                                                              ------------         ------------

  Commitments and Contingencies

  Stockholders' equity:
      Common stock, $.01 par value, 50,000,000 shares authorized;.
       37,422,868and 31,439,058 shares issued and outstanding,
       respectively ......................................................................         374,229              314,391
      Additional paid-in capital .........................................................      86,308,485           76,828,582
      Accumulated deficit ................................................................     (67,179,826)         (63,819,517)
      Deferred compensation ..............................................................         (11,611)             (14,834)
                                                                                              ------------         ------------
           Total stockholders' equity ....................................................      19,491,277           13,308,622
                                                                                              ------------         ------------
        Total liabilities and stockholders' equity .......................................    $ 25,717,169         $ 21,513,204
                                                                                              ============         ============
</TABLE>

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

                                       3
<PAGE>

                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                              For the Three Months Ended
                                                                                                       June 30,
                                                                                             2003                    2002
                                                                                         ------------            ------------

<S>                                                                                       <C>                   <C>
Revenues:
     Product sales .................................................................     $  2,089,132            $    597,500
     Services ......................................................................        1,753,567                 245,199
                                                                                         ------------            ------------
                                                                                            3,842,699                 842,699

Cost of revenues:
     Product cost of revenues ......................................................        1,355,993                 245,427
     Services cost of revenues .....................................................        1,405,197                 734,902
                                                                                         ------------            ------------
                                                                                            2,761,190                 980,329
                                                                                         ------------            ------------

Gross profit (loss) ................................................................        1,081,509                (137,630)
                                                                                         ------------            ------------

Operating expenses:
      Selling, general and administrative ..........................................        2,292,062               1,591,467
      Engineering and product development ..........................................          465,134                 579,196
                                                                                         ------------            ------------
                                                                                            2,757,196               2,170,663
                                                                                         ------------            ------------

Loss from operations before interest and other expense (income) ....................       (1,675,687)             (2,308,293)

Interest expense (income), net .....................................................           10,415                  (4,436)

Other (income), net ................................................................             --                      (590)
                                                                                         ------------            ------------

Net loss ...........................................................................     $ (1,686,102)           $ (2,303,267)
                                                                                         ============            ============


Basic and diluted net loss per share ...............................................     $      (0.05)           $      (0.09)
                                                                                         ============            ============

Shares used in computing basic and diluted net loss per share ......................       33,644,326              25,010,953
                                                                                         ============            ============
</TABLE>


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




                                       4
<PAGE>



                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                                For the Six Months Ended
                                                                                                         June 30,
                                                                                                2003                  2002
                                                                                            ------------          ------------
<S>                                                                                        <C>                  <C>

     Revenues:
          Product sales ................................................................    $  3,958,424          $  1,309,500
          Services .....................................................................       3,357,752               485,572
                                                                                            ------------          ------------
                                                                                               7,316,176             1,795,072

     Cost of revenues:
          Product cost of revenues .....................................................       2,505,465               568,066
          Services cost of revenues ....................................................       2,805,983             1,464,373
                                                                                            ------------          ------------
                                                                                               5,311,448             2,032,439
                                                                                            ------------          ------------

     Gross profit (loss) ...............................................................       2,004,728              (237,367)
                                                                                            ------------          ------------

     Operating expenses:
           Selling, general and administrative .........................................       4,446,654             3,391,949
           Engineering and product development .........................................         877,066               801,422
                                                                                            ------------          ------------
                                                                                               5,323,720             4,193,371
                                                                                            ------------          ------------

     Loss from operations before interest and other expense (income) ...................      (3,318,992)           (4,430,738)

     Interest expense (income), net ....................................................          41,438                (3,368)

     Other expense, net ................................................................            --                   4,371
                                                                                            ------------          ------------

     Net loss ..........................................................................    $ (3,360,430)         $ (4,431,741)
                                                                                            ============          ============


     Basic and diluted net loss per share ..............................................    $      (0.10)         $      (0.18)
                                                                                            ============          ============

     Shares used in computing basic and diluted net loss per share .....................      32,547,784            24,597,749
                                                                                            ============          ============
</TABLE>


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



                                       5
<PAGE>



                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                  For the Six Months Ended
                                                                                                          June 30,
                                                                                                  2003                 2002
                                                                                              -----------          -----------
<S>                                                                                          <C>                   <C>
     Operating activities:
           Net loss ......................................................................    $(3,360,430)         $(4,431,741)
           Adjustments to reconcile net loss to net cash used
              in operating activities:
                   Depreciation and amortization .........................................      1,026,733              850,904
                   Stock options issued to consultants for services ......................         38,164               34,295
                   Amortization of deferred compensation .................................          3,223                4,512
                   Provision for bad debts ...............................................        246,029                   --
                   Loss on disposal of assets ............................................          7,574                   --
           Changes in operating assets and liabilities:
              Accounts receivable ........................................................       (573,253)              73,843
              Inventories ................................................................        445,043              283,662
              Prepaid expenses and other assets ..........................................         72,916              (58,743)
              Accounts payable ...........................................................       (637,988)            (474,784)
              Accrued compensation and related expenses ..................................         66,179               93,600
              Other accrued liabilities ..................................................       (400,583)             321,150
              Deferred revenues ..........................................................        401,733              (17,100)
                                                                                              -----------          -----------
                       Net cash used in operating activities .............................     (2,664,660)          (3,320,402)
                                                                                              -----------          -----------

     Investing activities:
           Purchases of property and equipment ...........................................        (17,999)             (45,761)
           Lasers (placed into) or retired from service ..................................     (1,035,419)              40,582
                                                                                              -----------          -----------
                       Net cash used in investing activities .............................     (1,053,418)              (5,179)
                                                                                              -----------          -----------

     Financing activities:
           Proceeds from issuance of common stock, net ...................................      9,500,046            5,706,047
           Proceeds from exercise of options .............................................          1,531               18,000
           Proceeds from exercise of warrants ............................................             --               29,000
           Proceeds from issuance of notes payable .......................................             --                4,000
           Payments on long-term debt ....................................................        (90,584)                  --
           Payments on notes payable .....................................................       (314,151)             (55,972)
           Net repayments on line of credit ..............................................     (1,792,591)                  --
           Decrease in restricted  cash,  cash  equivalents and short-term
            investments ..................................................................      2,000,000                   --
                                                                                              -----------          -----------
                       Net cash provided by financing activities .........................      9,304,251            5,701,075
                                                                                              -----------          -----------

     Net increase  in cash and cash equivalents ..........................................      5,586,173            2,375,494

     Cash and cash equivalents, beginning of period ......................................      4,008,051            4,066,820
                                                                                              -----------          -----------

     Cash and cash equivalents, end of period ............................................    $ 9,594,224          $ 6,442,314
                                                                                              ===========          ===========
</TABLE>




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



                                       6
<PAGE>



                        PHOTOMEDEX, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY:

BACKGROUND
PhotoMedex,  Inc. and  subsidiaries  (the "Company") is a medical device company
focused on facilitating  the  cost-effective  use of  technologies  for doctors,
hospitals and surgery centers.  The Company  develops,  manufactures and markets
excimer-laser-based   instrumentation  designed  to  treat  phototherapeutically
psoriasis,  vitiligo,  atopic  dermatitis and  leukoderma.  In January 2000, the
Company  received the first Food and Drug  Administration  ("FDA")  clearance to
market an excimer  laser  system,  the  XTRAC(R)  system,  for the  treatment of
psoriasis.  In March 2001, the Company received FDA clearance to treat vitiligo;
in August 2001, the Company  received FDA clearance to treat atopic  dermatitis;
and in May 2002, the FDA granted 510(k) clearance to market the XTRAC system for
the  treatment  of  leukoderma.  The  Company  launched  the XTRAC  phototherapy
treatment system commercially in the United States in August 2000.

Through the acquisition of Surgical Laser Technologies, Inc. ("SLT") on December
27,  2002 (see Note 2), the  Company  also  develops,  manufactures  and markets
proprietary lasers and delivery systems for both contact and non-contact surgery
and  provides  surgical  services  utilizing  these  and  other   manufacturers'
products.

LIQUIDITY AND GOING CONCERN
The Company has incurred significant losses and has had negative cash flows from
operations  since emerging from bankruptcy in May 1995. To date, the Company has
dedicated most of its financial resources to engineering and product development
and general and administrative  expenses.  During the first quarter of 2003, the
Company  re-launched  the  marketing  of its XTRAC  system in the United  States
following  the  issuance  of  common  procedural  terminology  (CPT)  codes  and
associated  reimbursement  rates by Center for Medicare  and  Medicaid  Services
(CMS). The Company has historically  financed its activities from borrowings and
the private  placement of debt and equity  securities.  As of June 30, 2003, the
Company had an accumulated deficit of $67,179,826.

The Company  expects to incur  operating  losses  throughout 2003 as it plans to
invest substantial amounts on the marketing of its psoriasis,  vitiligo,  atopic
dermatitis  and  leukoderma  treatment  products  and  on the  expansion  of its
manufacturing operations.  Management cannot assure that the Company will market
any products successfully, operate profitably in the future, or that it will not
require  significant  additional  financing in order to accomplish  its business
plan.

The Company's  future  revenues and success depend upon its  excimer-laser-based
systems  for the  treatment  of a  variety  of  skin  disorders.  The  Company's
excimer-laser-based  system for the  treatment of  psoriasis,  vitiligo,  atopic
dermatitis  and leukoderma is currently  generating  revenues in both the United
States and abroad. The Company's ability to introduce  successful,  new products
based on its new business  focus and the expected  benefits to be obtained  from
these  products  may be  adversely  affected  by a number  of  factors,  such as
unforeseen  costs  and  expenses,   technological  change,  economic  downturns,
competitive factors or other events beyond the Company's control.  Consequently,
the Company's  historical  operating results cannot be relied upon as indicators
of future  performance,  and management  cannot predict whether the Company will
obtain or sustain  positive  operating  cash flow or generate  net income in the
future.

Cash and cash  equivalents  were  $9,594,224  as of June  30,  2003.  Management
believes  that the existing cash balance  together  with its existing  financial
resources,  including  the credit line  facility  (see Note 8),  access to lease
financing for capital expenditures,  and any revenues from sales,  distribution,
licensing  and  manufacturing  relationships,  will be  sufficient  to meet  the
Company's operating and capital requirements through the second quarter of 2004.
The 2003 operating plan reflects  anticipated revenue growth from the use of the
XTRAC system based on the recent approval of reimbursement codes and anticipated
growth in private  insurance  coverage in the United  States.  In addition,  the
operating  plan  reflects  costs  savings from the  integration  of the combined
companies.  However,  depending  upon the  Company's  rate of  growth  and other
operating  factors,  the Company may require additional equity or debt financing
to meet its working capital requirements or capital expenditure needs. There can
be no assurance that  additional  financing,  if needed,  will be available when
required  or, if  available,  could be  obtained  on terms  satisfactory  to the
Company.

                                       7
<PAGE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

QUARTERLY FINANCIAL INFORMATION AND RESULTS OF OPERATIONS
The  financial  statements  as of June 30, 2003 and for the three and six months
ended June 30, 2003 and 2002,  are unaudited  and, in the opinion of management,
include  all  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary to present fairly the financial  position as of June 30, 2003, and the
results of operations and cash flows for the three and six months ended June 30,
2003 and 2002.  The results for the three and six months ended June 30, 2003 are
not  necessarily  indicative  of the results to be expected for the entire year.
While  management  of the Company  believes that the  disclosures  presented are
adequate to make the information not misleading,  these  consolidated  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and the notes  included in the Company's  Annual Report on Form 10-K
for the fiscal year ended December 31, 2002.

The Company  acquired SLT on December 27, 2002 and the operating  results of SLT
are not included in the  consolidated  statement of operations for the three and
six months ended June 30, 2002.

PRINCIPLES OF CONSOLIDATION
The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries.   All  significant  intercompany  balances  and
transactions have been eliminated.

USE OF ESTIMATES
The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that affect amounts  reported in the financial  statements and
accompanying  notes.  Actual  results  could differ from those  estimates and be
based on events different from those assumptions.

CASH AND CASH EQUIVALENTS
The Company  invests its excess cash in highly liquid,  short-term  investments.
The Company considers short-term investments that are purchased with an original
maturity  of  three  months  or less  to be  cash  equivalents.  Cash  and  cash
equivalents  consisted  of cash and money  market  accounts at June 30, 2003 and
December 31, 2002.

RESTRICTED CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
A line of credit  agreement,  amended  February 27, 2003 and March 26, 2003, was
extended  to SLT by a  bank  and  requires  that  SLT  maintain  cash  and  cash
equivalents (including short-term  investments),  for any amount borrowed on the
line in excess of $1 million, as collateral for the line of credit (see Note 8).
Previous to the  amendment,  SLT was required to maintain $2 million of cash and
cash equivalents  (including short-term  investments) as collateral for the line
of  credit.  The  restricted  assets  at  December  31,  2002  consisted  of the
following:

Cash and cash equivalents .........................................   $1,200,121
Short-term investments ............................................      799,879
                                                                      ----------
Total restricted cash, cash equivalents and short-term
  investments .....................................................   $2,000,000
                                                                      ==========

SLT applied cash  collateral in the second  quarter of 2003 and thereby  reduced
the amount due on the line of credit to $1 million.  SLT then entered a new note
payable with the bank, in the face amount of $1 million, on May 13, 2003.

Pursuant to  Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 115,
"Accounting for Certain  Investments in Debt and Equity Securities," the Company
has classified its entire  portfolio of short-term  investments as available for
sale as they are available to take advantage of other investment  opportunities.
Securities available for sale are stated at fair value with unrealized gains and
losses,  if  any,   included  in  stockholders'   equity  as  accumulated  other
comprehensive  income.  Dividend and interest  income are recognized when earned
and are recorded in interest  income.  The amortized cost of debt  securities is
adjusted for accretion of discounts to maturity. Such accretion is also included
in  interest  income.   The  Company  currently  invests  only  in  high-quality
securities in accordance  with its investment  policy.  Unrealized gain and loss
from such securities was immaterial at June 30, 2003 and December 31, 2002.

                                       8
<PAGE>

INVENTORIES
Inventories  are  stated at the  lower of cost  (first-in,  first-out  basis) or
market.  Cost  is  determined  at the  latest  cost  for  raw  materials  and at
production  cost  (materials,   labor  and  indirect   manufacturing  cost)  for
work-in-process and finished goods.  Throughout the laser manufacturing process,
the related production costs are recorded within inventory.

The  Company's  skin  disorder  treatment  equipment  will either (i) be sold to
distributors  or physicians  directly or (ii) be placed in a physician's  office
and  remain  the  property  of the  Company.  For  lasers  that are  placed in a
physician's  office,  the cost is  transferred  from  inventory  to  "lasers  in
service" within property and equipment.  The Company earns revenue each time the
laser  is  used  for a  patient  treatment.  Lasers  that  are not  placed  in a
physician's office are maintained in inventory until the unit is sold.

PROPERTY, EQUIPMENT AND DEPRECIATION
Property and  equipment  are recorded at cost.  Depreciation  is calculated on a
straight-line  basis over the  estimated  useful lives of the assets,  primarily
three to seven  years for lasers in service,  computer  hardware  and  software,
furniture and fixtures,  automobiles,  and  machinery and  equipment.  Leasehold
improvements  are amortized  over the lesser of the useful lives or lease terms.
Expenditures  for major  renewals and  betterments to property and equipment are
capitalized,  while  expenditures  for  maintenance  and  repairs are charged to
operations as incurred. Upon retirement or disposition,  the applicable property
amounts are  relieved  from the accounts and any gain or loss is recorded in the
consolidated statements of operations.

Laser  units and laser  accessories  located  at  medical  facilities  for sales
evaluation  and  demonstration  purposes  or  those  units/accessories  used for
development  and medical  training are included in property and equipment  under
the caption  "machinery and  equipment."  These units and  accessories are being
depreciated  over a period of up to five  years.  Laser  units  utilized  in the
provision of surgical  services are included in property and equipment under the
caption "lasers in service."

Management  evaluates  the  realizability  of property  and  equipment  based on
estimates of  undiscounted  future cash flows over the remaining  useful life of
the asset.  If the amount of such  estimated  undiscounted  future cash flows is
less than the net book  value of the asset,  the asset is  written  down to fair
value.  As of June 30, 2003, no such  write-down was required (see Impairment of
Long-Lived Assets below).

PATENT COST AND LICENSED TECHNOLOGIES
Costs  incurred to obtain or defend patents are  capitalized  and amortized over
the  shorter  of the  estimated  useful  lives or eight to 12  years.  Developed
technology was recorded in connection with the purchase of the minority interest
of Acculase,  a former  subsidiary of the Company,  and is being  amortized on a
straight-line basis over seven years.

Management  evaluates the  realizability of intangible assets based on estimates
of undiscounted  future cash flows over the remaining  useful life of the asset.
If the amount of such estimated  undiscounted future cash flows is less than the
net book value of the asset, the asset is written down to fair value. As of June
30, 2003, no such write-down was required (see  Impairment of Long-Lived  Assets
below).

ACCRUED WARRANTY COSTS
The Company  offers a warranty on product sales  generally for a one to two-year
period.  The Company  provides for the estimated  future  warranty claims on the
date the product is sold.  The activity in the warranty  accrual  during the six
months ended June 30, 2003 is summarized as follows:

   Accrual at January 1, 2003                                         $415,463
   Additions charged to warranty expense                               143,313
   Claims paid and charged against the accrual                        (270,544)
                                                                      --------
   Accrual at June 30, 2003                                           $288,232
                                                                      ========

                                       9
<PAGE>

REVENUE RECOGNITION
The  Company  has  two  distribution  channels  for its  phototherapy  treatment
equipment.  The Company will either (i) sell the laser through a distributor  or
directly to a physician or (ii) place the laser in a  physician's  office (at no
charge to the  physician)  and charge  the  physician  a fee for an agreed  upon
number of  treatments  or treatment  cards.  When the Company sells a laser to a
distributor or directly to a physician,  revenue is recognized  upon shipment of
the product. Under the terms of the distributor agreements,  the distributors do
not have the right to return any unit. However,  the Company does allow products
to be  returned  by its  distributors  in redress  of  product  defects or other
claims.

When the Company places the laser in a physician's office, it recognizes service
revenue  based on an estimate  of patient  treatments.  Treatment  cards sold to
physicians but not yet used are deferred and recognized as a liability until the
treatment occurs.

In the first  quarter of 2003,  the  Company  implemented  a limited  program to
support certain  physicians in addressing  treatments with the XTRAC system that
may  be  denied  reimbursement  by  private  insurance  carriers.   The  Company
recognizes  service  revenue from the sale of  treatment  cards,  or  equivalent
treatment codes, to physicians  participating in this program only if and to the
extent the  physician  has been  reimbursed  for the  treatments.  This program,
originally  scheduled  to  terminate  on June 30,  2003,  has been  extended  to
September 30, 2003. During the six months of 2003, the Company deferred revenues
of $461,454,  under this program,  net of $22,118 in revenues  recognized during
the second quarter due to physician reimbursements for the treatments.

Through its surgical  businesses,  the Company generates revenues primarily from
three channels.  The first is through sales of recurring laser delivery  systems
and accessories;  the second is through the per-procedure surgical services; and
the third is through the sale of laser systems and related  maintenance  service
agreements.  The Company recognizes revenues from product sales, including sales
to  distributors,  upon shipment of the  products.  For  per-procedure  surgical
services,  the Company  recognizes revenue upon the completion of the procedure.
Revenue from  maintenance  service  agreements  is deferred and  recognized on a
straight-line  basis  over the term of the  agreements.  Revenue  from  billable
services, including repair activity, is recognized when the service is provided.

PRODUCT DEVELOPMENT COSTS
Costs of research,  new product  development and product redesign are charged to
expense as incurred.

INCOME TAXES
The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability  method is used
for income taxes.  Under this method,  deferred tax assets and  liabilities  are
determined based on differences between the financial reporting and tax basis of
assets and  liabilities  and are measured  using enacted tax rates and laws that
are  expected  to be in effect  when the  differences  reverse or are  otherwise
realized in the Company's tax returns.

NET LOSS PER SHARE
The  Company  computes  net loss per  share in  accordance  with  SFAS No.  128,
"Earnings per Share." In accordance  with SFAS No. 128, basic net loss per share
is  calculated  by dividing  net loss  available to common  stockholders  by the
weighted average number of common shares outstanding for the period. Diluted net
loss per share  reflects the potential  dilution from the conversion or exercise
of securities into common stock, such as stock options and warrants.

In these consolidated  financial  statements,  diluted net loss per share is the
same as  basic  net loss per  share.  No  additional  shares  for the  potential
dilution from the  conversion  or exercise of  securities  into common stock are
included, since the result would be anti-dilutive.

RECLASSIFICATIONS
The 2002  consolidated  statement  of  operations  has been  revised  to present
product sales and services revenues and their related costs separately.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The  estimated  fair  values  for  financial  instruments  under  SFAS No.  107,
"Disclosures  about Fair Value of Financial  Instruments,  " are  determined  at
discrete  points in time based on relevant market  information.  These estimates
involve uncertainties and cannot be determined with precision. The fair value of

                                       10
<PAGE>

cash is based on its demand  value,  which is equal to its carrying  value.  The
fair values of notes payable are based on borrowing  rates that are available to
the Company for loans with similar terms, collateral and maturity. The estimated
fair values of notes payable approximate the carrying values. Additionally,  the
carrying value of all other monetary assets and liabilities is equal to its fair
value due to the short-term nature of these instruments.

IMPAIRMENT OF LONG-LIVED ASSETS
In accordance  with SFAS No. 144,  "Accounting for the Impairment or Disposal of
Long-Lived  Assets,  " long-lived  assets,  such as property and equipment,  and
purchased  intangibles  subject to  amortization,  are reviewed  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured  by a  comparison  of the  carrying  amount  of an asset  to  estimated
undiscounted  future cash flows  expected to be generated  by the asset.  If the
carrying  amount  of an asset  exceeds  its  estimated  future  cash  flows,  an
impairment  charge is recognized  by the amount by which the carrying  amount of
the asset exceeds the fair value of the asset. Assets to be disposed of would be
separately  presented  in the  balance  sheet and  reported  at the lower of the
carrying  amount  or fair  value  less  costs to sell,  and  would no  longer be
depreciated.  The assets and liabilities of a disposed group  classified as held
for sale would be presented  separately in the  appropriate  asset and liability
sections of the balance sheet.

STOCK OPTIONS
The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting  Principles Board (APB) Opinion No. 25,  "Accounting for Stock Issued
to Employees," and related interpretations,  to account for its fixed-plan stock
options.  Under this  method,  compensation  expense is  recorded on the date of
grant only if the  current  market  price of the  underlying  stock  exceeds the
exercise  price.  SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"
established  accounting and  disclosure  requirements  using a  fair-value-based
method of accounting for stock-based employee  compensation plans. As allowed by
SFAS No. 123, as amended in SFAS No. 148, the Company has elected to continue to
apply the  intrinsic-value-based  method of accounting  described above, and has
adopted only the disclosure requirements of SFAS No. 123 and SFAS No. 148.

Had  stock  compensation  cost  for the  Company's  common  stock  options  been
determined  based  upon the fair value of the  options at the date of grant,  as
prescribed  under SFAS No.  123,  as amended by SFAS No.  148,  "Accounting  for
Stock-Based  Compensation,"  the Company's net loss and net loss per share would
have been increased to the following pro-forma amounts:
<TABLE>
<CAPTION>

                                                              Three Months Ended June 30,              Six Months Ended June 30,
                                                            -------------------------------         -------------------------------
                                                                2003                2002                2003                2002
                                                            -----------         -----------         -----------         -----------
<S>                                                         <C>                 <C>                 <C>                 <C>

Net loss:
 As reported .......................................        ($1,686,102)        ($2,303,267)        ($3,360,430)        ($4,431,741)
 Less: stock-based employee
   compensation expense included
   in reported net loss ............................              1,621               2,244               3,233               4,512
 Impact of total stock-based
   compensation expense determined
   under fair-value-based method
   for all grants and awards
                                                               (437,317)           (465,160)           (847,500)         (1,009,036)
                                                            -----------         -----------         -----------         -----------
 Pro-forma .........................................        ($2,121,798)        ($2,766,183)        ($4,204,697)        ($5,436,265)
                                                            ===========         ===========         ===========         ===========
Net loss per share:
  As reported ......................................             ($0.05)             ($0.09)             ($0.10)             ($0.18)
                                                            ===========         ===========         ===========         ===========
  Pro-forma ........................................             ($0.06)             ($0.11)             ($0.13)             ($0.22)
                                                            ===========         ===========         ===========         ===========
</TABLE>

The above pro-forma  amounts may not be indicative of future  pro-forma  amounts
because future options are expected to be granted.



                                       11
<PAGE>



The fair value of the  options  granted  is  estimated  using the  Black-Scholes
option-pricing model with the following weighted average assumptions  applicable
to options granted in the three-month and six-month periods:
<TABLE>
<CAPTION>
                                               Three Months Ended June 30,            Six Months Ended June 30,
                                               --------------------------            --------------------------
                                                 2003               2002               2003               2002
                                               -------            -------            -------            -------
<S>                                             <C>                <C>               <C>                <C>
  Risk-free interest rate ..................    2.943%             4.533%             2.977%             4.512%
  Volatility ...............................      100%               100%               100%               100%
  Expected dividend yield ..................        0%                 0%                 0%                 0%
  Expected option life .....................   5 years            5 years            5 years            5 years

</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION
During the six months  ended June 30,  2003,  the Company  financed  vehicle and
equipment  purchases  of  $329,351  under  capital  leases,  financed  insurance
policies  through  notes payable for $466,995 and financed  certain  acquisition
costs which were  included in accounts  payable at December 31, 2002,  through a
note payable for $171,000.

RECENT ACCOUNTING PRONOUNCEMENTS
In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of FASB Statement No.
123."  This  Statement   amends  SFAS  No.  123,   "Accounting  for  Stock-Based
Compensation,"  to provide  alternative  methods of  transition  for a voluntary
change  to  the  fair-value  method  of  accounting  for  stock-based   employee
compensation.  In addition, this Statement amends the disclosure requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial statements.  Certain of the disclosure  modifications are required for
fiscal  years  ending  after  December 15, 2002 and are included in the notes to
these consolidated financial statements.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable   Interest   Entities,   an   Interpretation   of  ARB  No.  51."  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the  Interpretation,  and disclosures related to
such consolidation. The Interpretation applies immediately to variable interests
in variable  interest  entities  created after January 31, 2003, and to variable
interests in variable  interest  entities  obtained  after January 31, 2003. For
public  enterprises  with a  variable  interest  in a variable  interest  entity
created before February 1, 2003, the Interpretation is applied to the enterprise
no later than the beginning of the first annual reporting period beginning after
June 15, 2003. The  Interpretation  requires certain  disclosures in an entity's
financial  statements issued after January 31, 2003 if it is reasonably possible
that the entity will consolidate or disclose information about variable interest
entities when the  Interpretation  becomes  effective.  The  application of this
Interpretation  is not  expected  to have a  material  effect  on the  Company's
financial statements.

In December  2002,  the FASB  finalized  EITF Issue No. 00-21,  "Accounting  for
Revenue  Arrangements with Multiple  Deliverables."  This issue addresses how to
account  for  arrangements  that may  involve the  delivery  or  performance  of
multiple products, services, and/or rights to use assets. The final consensus of
this issue is applicable to agreements  entered into in fiscal periods beginning
after June 15,  2003.  Additionally,  companies  will be  permitted to apply the
guidance in this issue to all existing  arrangements as the cumulative effect of
a change  in  accounting  principle  in  accordance  with APB  Opinion  No.  20,
"Accounting  Changes."  The Company does not believe that adoption of this issue
will have a material impact on its consolidated financial position, consolidated
results of operations, or liquidity.

Note 2
ACQUISITION:

On December 27, 2002, the Company acquired all of the outstanding  common shares
of SLT. The results of SLT's  operations  since that date have been  included in
the consolidated financial statements. The Company acquired SLT in order to gain
market share in surgical  products and services markets through a business model
that is compatible  with the Company's own approach to the  dermatology  market.
The Company  also  acquired SLT with an  expectation  that it could reduce costs
through economies of scale.

SLT  has  focused  on  lasers  used in  surgery  in such  venues  as  hospitals,
surgi-centers and doctors' offices. SLT has employed a similar business model to
the  Company's  domestic  services by  charging a  per-procedure  fee.  With the
addition  of SLT,  the Company now offers  laser  services  over a wide range of
specialties,  including urology,  gynecology,  orthopedics,  and general and ENT
surgery.  Surgical services are offered using such lasers as the holmium, diode,
Nd:YAG and CO2 lasers.  In  addition,  SLT  develops,  manufactures  and markets
healthcare lasers and their disposables.

                                       12
<PAGE>
The aggregate purchase price was $6,760,445 and was paid through the issuance of
2,716,354  shares of common stock valued at $1.32 per share,  the  assumption of
$2,937,858 of debt and the incurrence of $237,000 of  capitalizable  transaction
costs.  Non-capitalizable  costs of $115,000  were incurred in  registering  the
common stock issued in connection with the acquisition.

Based on the initial purchase price  allocation,  the following table summarizes
the recorded fair value of the assets  acquired and  liabilities  assumed at the
date of acquisition.

<TABLE>
<CAPTION>
<S>                                                                  <C>
     Cash and cash equivalents                                       $   120,500
     Restricted  cash,  cash  equivalents and short-term
       investments                                                     2,000,000
     Accounts receivable                                               1,508,460
     Inventories                                                       2,731,811
     Prepaid expenses and other current assets                           148,506
     Property and equipment                                            1,910,674
     Patents and licensed technologies                                   317,346
     Other assets                                                         43,020
                                                                     -----------
            Total assets acquired                                      8,780,317

     Current portion of notes payable                                   (53,470)
     Current portion of long-term debt                               (2,143,425)
     Accounts payable                                                (1,084,055)
     Accrued compensation and related expenses                         (250,356)
     Other accrued liabilities                                         (575,410)
     Deferred revenues                                                  (56,350)
     Long-term debt                                                    (794,433)
                                                                     -----------
           Total liabilities assumed                                 (4,957,499)
                                                                     -----------

           Net assets acquired                                       $ 3,822,818
                                                                     ===========
</TABLE>


The fair value of the net assets acquired,  excluding the debt assumed, exceeded
the purchase price by $1,825,819,  resulting in negative goodwill. In accordance
with SFAS No. 142, "Goodwill and Other Intangible Assets," the negative goodwill
was  recorded as a reduction  of  intangibles  and  property  and  equipment  of
$773,604 and $1,052,215, respectively.

The accompanying  consolidated  financial statements do not include any revenues
or expenses  related to the acquisition  prior to December 27, 2002, the closing
date.  Following are the Company's unaudited pro-forma results for the three and
six months ended June 30, 2002, assuming the acquisition had occurred on January
1, 2002.

<TABLE>
<CAPTION>
                                                                                     Three Months Ended       Six Months Ended
                                                                                         June 30, 2002          June 30, 2002
                                                                                     ------------------       ----------------
<S>                                                                                     <C>                      <C>
   Net revenues ..................................................................      $  3,668,944             $  7,380,217
   Net loss ......................................................................        (1,997,413)              (4,178,982)
   Basic and diluted loss per share ..............................................            ($0.07)                  ($0.15)
   Shares used in  calculating  basic and  diluted  loss
     per share ...................................................................        27,618,273               27,205,069

</TABLE>

These unaudited  pro-forma  results have been prepared for comparative  purposes
only and do not  purport to be  indicative  of the results of  operations  which
would have actually resulted had the acquisition occurred on January 1, 2002, or
of future results of operations.




                                       13
<PAGE>



Note 3
INVENTORIES:

Set forth below is a detailed listing of inventories.

                                           June 30,              December 31,
                                             2003                   2002
                                          ----------            ------------
      Raw materials                       $2,846,012              $3,297,942
      Work-in-process                        250,712                 328,081
      Finished goods                       1,587,674               1,429,760
                                          ----------            ------------
      Total inventories                   $4,684,398              $5,055,783
                                          ==========            ============

Note 4
PROPERTY AND EQUIPMENT:

Set forth below is a detailed listing of property and equipment.
<TABLE>
<CAPTION>

                                                   June 30, 2003              December 31, 2002
                                                   -------------              -----------------
<S>                                              <C>                       <C>
Lasers in service ..........................         $ 6,396,663                    $ 5,147,134
Computer hardware and software .............             251,495                        251,495
Furniture and fixtures .....................             189,162                        173,507
Machinery and equipment ....................             125,780                        271,497
Autos and trucks ...........................             196,870                        137,039
Leasehold improvements .....................             103,863                        100,106
                                                   -------------              -----------------
                                                       7,263,833                      6,080,778
Accumulated depreciation and
    amortization ...........................          (3,238,811)                    (2,408,340)
                                                   -------------              -----------------
Property and equipment, net ................         $ 4,025,022                    $ 3,672,438
                                                   =============              =================
</TABLE>

Depreciation expense was $942,023 and $782,722 for the six months ended June 30,
2003 and  2002,  respectively.  At June 30,  2003 and  December  31,  2002,  net
property and equipment included $582,056 and $336,910,  respectively,  of assets
recorded under  capitalized lease  arrangements,  of which $504,621 and $272,783
was  included  in  long-term  debt at June  30,  2003  and  December  31,  2002,
respectively (see Note 8).

Note 5
PATENTS AND LICENSED TECHNOLOGIES:

Set forth below is a detailed listing of patents and licensed technologies.
<TABLE>
<CAPTION>

                                                                      June 30, 2003        December 31, 2002
                                                                 ------------------       ------------------
<S>                                                                        <C>                      <C>
Patents,   net  of  accumulated   amortization   of  $86,434  and
  $65,730                                                                  $315,710                 $336,414
Licensed  technologies,   net  of  accumulated   amortization  of
   $303,618 and $239,612                                                    533,382                  597,388
                                                                   ----------------      -------------------
Total patents and licensed technologies, net                               $849,092                 $933,802
                                                                   ================      ===================
</TABLE>

Amortization  expense was $84,710 and $68,182 for the six months  ended June 30,
2003 and 2002, respectively.

                                       14
<PAGE>

Note 6
OTHER ACCRUED LIABILITIES:

Set forth below is a detailed listing of other accrued liabilities.
<TABLE>
<CAPTION>

                                                                           June 30, 2003       December 31, 2002
                                                                   -----------------------    ---------------------
<S>                                                                             <C>                   <C>
Accrued professional and consulting fees                                         $85,273                $190,182
Accrued warranty                                                                 288,232                 415,463
Accrued liability from matured notes                                             248,479                 249,130
Royalty liability                                                                 86,792                 169,368
Other accrued expenses                                                           136,953                 222,290
                                                                   -----------------------    ---------------------
Total other accrued liabilities                                                 $845,729              $1,246,433
                                                                   =======================    =====================
</TABLE>

In May 2002,  SLT acquired a CO2 laser  product line from Reliant  Technologies,
Inc.,  which  included a  commitment  to prepay  royalties  of $268,023  over 18
months.  The  remaining  portion of $86,792 and  $169,368 is included in accrued
liabilities at June 30, 2003 and December 31, 2002, respectively.

During 2002,  SLT resumed  direct  control of $223,000 of funds  previously  set
aside for the payment of SLT's  subordinated  notes, which matured and ceased to
bear  interest on July 30,  1999,  and $31,000 of funds set aside to pay related
accrued  interest.  As of June 30,  2003 and  December  31,  2002,  the  matured
principal and related interest was $248,479 and $249,130, respectively.

Note 7
NOTES PAYABLE:

Set forth below is a detailed listing of notes payable.
<TABLE>
<CAPTION>

                                                                                      June 30, 2003        December 31, 2002
                                                                                    -------------------  ---------------------
<S>                                                                                       <C>                    <C>
  Note  payable -  unsecured  creditor,  interest  at 6.6%,  payable  in monthly
  principal and interest installments of $5,524 through April
  2003.                                                                                      $    -              $  21,793

  Note payable - secured creditor, interest at 10%, payable in monthly principal
  and interest installments of $9,173 through June 2003.
                                                                                                  -                 53,470

  Note  payable -  unsecured  creditor,  interest  at 6.29%,  payable in monthly
  principal and interest installments of $20,130 through
  September 2003.                                                                            59,762                      -

  Note  payable -  unsecured  creditor,  interest  at 7.47%,  payable in monthly
  principal and interest installments of $7,827 through June
  2004.                                                                                      81,814                      -

  Note  payable - unsecured  creditor,  interest  at 7.37%,  payable in
  monthly  principal  and  interest  installments  of  $37,640  through
  January 2004.                                                                             257,530                      -
                                                                                    -------------------  ---------------------
                                                                                            399,106                 75,263

  Less: current maturities                                                                 (399,106)               (75,263)
                                                                                    -------------------  ---------------------
  Notes payable, net of current maturities                                                   $    -                 $    -
                                                                                    ===================  =====================
</TABLE>




                                       15
<PAGE>



Note 8
LONG-TERM DEBT:

Set forth below is a detailed listing of the Company's long-term debt.
<TABLE>
<CAPTION>

                                               June 30, 2003          December 31, 2002
                                             -------------------    ---------------------
<S>                                                <C>                     <C>
Borrowings on credit facility                      $977,677                $2,770,268
Capital lease obligations (see Note 4)              504,621                   272,783
Less: current portion                            (1,171,837)               (2,143,425)
                                             -------------------    ---------------------
Total long-term debt                               $310,461                  $899,626
                                             ===================    =====================
</TABLE>

Concurrent with the SLT  acquisition,  the Company  assumed a $3,000,000  credit
facility  from a bank,  subsequently  amended on February 27, 2003 and March 26,
2003 to $1,400,000 and on May 13, 2003 to $1,000,000.  The credit facility has a
commitment  term of four years,  expiring  May 31,  2004,  permits  deferment of
principal payments until the end of the commitment term, and is secured by SLT's
business assets, including  collateralization (until May 13, 2003) of $2,000,000
of SLT's cash and cash equivalents and short-term  investments.  On February 27,
2003 and March 26, 2003,  the bank agreed to allow the Company to apply the cash
collateral to a paydown of the facility in 2003 and, as such,  the $2,000,000 is
included in the  current  portion of  long-term  debt in the  accompanying  2002
consolidated  balance sheet.  During 2003, the Company paid the credit  facility
down to $1,000,000. The credit facility has an interest rate of the 30 day LIBOR
plus 2.25%. The rate at June 30, 2003 was 3.57%.

The credit  facility is subject to certain  restrictive  covenants and borrowing
base  limitations.  At December 31, 2002,  SLT did not meet the covenants set by
the bank.  The bank waived the  non-compliance  with the covenants at that date.
The restrictive  covenants and borrowing base  limitations will continue in 2003
to apply to SLT. In addition, the Company has agreed to meet certain restrictive
covenants at the  consolidated  group level. In the first two quarters of fiscal
2003,  the group  must  maintain  unrestricted  cash,  cash  equivalents  and/or
short-term investments in an amount equal to or greater than the amount by which
the line under the credit facility has been drawn down. In the last two quarters
of fiscal 2003 and beyond, the group must meet two cash flow covenants.  For all
of 2003 and beyond,  the group must maintain a minimum ratio of debt to the bank
as  compared  to  tangible  net  worth.  The  Company  fulfilled  all  covenants
applicable to the first and second quarter 2003;  management  expects to be able
to meet all  covenants,  both those  applying  to SLT and those  applying to the
consolidated  group,  in the remaining two quarters of fiscal 2003.  The Company
has agreed to be guarantor to SLT's  obligations  under the credit facility.  At
June 30,  2003,  the Company had  $977,677 in  outstanding  obligations  and had
$22,323 of availability under the credit facility.  The outstanding  obligations
under the credit  facility are  classified as current as they will be due in the
next twelve months.

The assets of SLT,  including the subsidiaries of SLT, may not be transferred to
PhotoMedex without meeting certain  restrictions  imposed on SLT by the terms of
the credit facility with its bank. Under a restriction on dividends provision in
the agreement, the assets of SLT may not be dividended, distributed or otherwise
transferred by way of purchase,  redemption or retirement of SLT's capital stock
if such a dividend, distribution or transfer would cause SLT to be in default of
the  financial  covenants it has made to the bank.  Given this  restriction,  no
dividend,  distribution  or other  transfer  could have been made as of June 30,
2003 or December  31, 2002.  On the other hand,  under a  restriction  under the
credit facility on other,  non-dividend transfers, SLT is permitted to engage in
other transactions with affiliated entities, including PhotoMedex, provided such
transactions  are in the  ordinary  course of, and  pursuant  to the  reasonable
requirements  of, SLT's business and are based upon fair and reasonable terms no
less  favorable  to SLT than  would  be  obtained  in  comparable  arm's  length
transactions  with  non-affiliated  entities.  SLT  did  not  transfer  cash  to
PhotoMedex in the six months ended June 30, 2003.

The  obligations  under  capital  leases  are at fixed  interest  rates  and are
collateralized by the related property and equipment (see Note 4).

Note 9
BUSINESS SEGMENT AND GEOGRAPHIC DATA:

The Company is engaged in one  business  segment:  the design,  development  and
manufacture  of laser products and the marketing of those laser products as well
as other instruments for medical applications.  The Company markets its offering
through traditional products sales as well as through the provision of fee-based
medical  procedures  services.  The Company's  customers are primarily  doctors,

                                       16
<PAGE>

hospitals and surgery centers.  For the three and six months ended June 30, 2003
and 2002,  the Company did not have  material net revenues  from any  individual
customer.

The Company reported net revenues in the following categories:
<TABLE>
<CAPTION>

                                               For the Three Months Ended            For the Six Months Ended
                                                          June 30,                           June 30,
                                                 2003              2002               2003             2002
                                            ---------------    --------------     -------------    --------------
<S>                                           <C>                  <C>             <C>              <C>
       Laser system sales                     $ 1,069,030          $ 597,500       $ 1,835,970      $ 1,309,500
       Disposables and accessories                800,262                  -         1,902,614                -
                                            ---------------    --------------     -------------    --------------
            Total product sales               $ 1,869,292          $ 597,500       $ 3,958,424      $ 1,309,500
                                            ===============    ==============     =============    ==============

       Excimer treatment procedures             $ 202,749          $ 245,199         $ 355,913        $ 485,572
       Surgical procedures                      1,550,818                  -         3,001,839                -
                                            ---------------    --------------     -------------    --------------
            Total services                    $ 1,753,567          $ 245,199       $ 3,357,752        $ 485,572
                                            ===============    ==============     =============    ==============
</TABLE>

For the  three and six  months  ended  June 30,  2003 and  2002,  there  were no
material net revenues attributed to an individual foreign country.  Net revenues
by geographic area were as follows:
<TABLE>
<CAPTION>

                                                For the Three Months Ended           For the Six Months Ended
                                                          June 30,                           June 30,
                                                 2003              2002               2003             2002
                                            ---------------    --------------     -------------    --------------
<S>                                           <C>                   <C>            <C>                <C>
       Domestic                               $ 2,695,689           $245,199       $ 5,630,769        $ 485,572
       Foreign                                  1,147,010            597,500         1,685,407        1,309,500
                                            ---------------    --------------     -------------    --------------
                                              $ 3,842,699          $ 842,699       $ 7,316,176      $ 1,795,072
                                            ===============    ==============     =============    ==============
</TABLE>


Note 10
PRIVATE PLACEMENT:

On May 28, 2003, the Company closed on a private  placement for 5,982,353 shares
of common  stock at a price of $1.70 per share  resulting  in gross  proceeds of
$10,170,000. The closing price of the Company's common stock on May 28, 2003 was
$2.07 per share.  In connection  with this private  placement,  the Company paid
commissions  and other  expenses  of  $669,954,  resulting  in net  proceeds  of
$9,500,046.  In addition,  the investors received warrants to purchase 1,495,588
shares of common  stock at an exercise  price of $2.00 per share.  The  warrants
have a five-year  term and are not  exercisable  until  November 29,  2003.  The
Company intends to use the proceeds of this financing to pay for working capital
and other general corporate purposes.  The shares sold in the private placement,
including the shares  underlying  the warrants,  have been  registered  with the
Securities and Exchange Commission.

Note 11
SIGNIFICANT ALLIANCES/AGREEMENTS:

As of April 1, 2003,  the Company  entered into a sales and marketing  agreement
with GlobalMed Technologies Co., or GlobalMed. Under this agreement, the Company
designated GlobalMed as the exclusive master distributor of the XTRAC system for
dermatological  applications in certain  countries in Europe and the Pacific Rim
of Asia. The agreement has a two-year term,  subject to early termination by the
Company in the event that GlobalMed does not meet certain performance  standards
set forth in the agreement with respect to the purchase of specified  quantities
of XTRAC systems.  GlobalMed will be responsible for promoting and marketing the
XTRAC  system in the  designated  countries by itself and through its network of
sub-distributors and other subcontractors in the designated countries.



                                       17
<PAGE>


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

CERTAIN  STATEMENTS IN THIS  QUARTERLY  REPORT ON FORM 10-Q, OR THE REPORT,  ARE
"FORWARD-LOOKING  STATEMENTS." THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE
NOT  LIMITED  TO,  STATEMENTS  ABOUT THE  PLANS,  OBJECTIVES,  EXPECTATIONS  AND
INTENTIONS  OF  PHOTOMEDEX,  INC., A DELAWARE  CORPORATION  (REFERRED TO IN THIS
REPORT AS "WE," "US," "OUR" OR "REGISTRANT")  AND OTHER STATEMENTS  CONTAINED IN
THIS REPORT THAT ARE NOT HISTORICAL  FACTS.  FORWARD-LOOKING  STATEMENTS IN THIS
REPORT OR HEREAFTER  INCLUDED IN OTHER PUBLICLY  AVAILABLE  DOCUMENTS FILED WITH
THE  SECURITIES  AND  EXCHANGE  COMMISSION,  OR THE  COMMISSION,  REPORTS TO OUR
STOCKHOLDERS AND OTHER PUBLICLY  AVAILABLE  STATEMENTS  ISSUED OR RELEASED BY US
INVOLVE  KNOWN AND UNKNOWN  RISKS,  UNCERTAINTIES  AND OTHER FACTORS WHICH COULD
CAUSE OUR ACTUAL RESULTS,  PERFORMANCE  (FINANCIAL OR OPERATING) OR ACHIEVEMENTS
TO DIFFER FROM THE FUTURE  RESULTS,  PERFORMANCE  (FINANCIAL  OR  OPERATING)  OR
ACHIEVEMENTS  EXPRESSED  OR IMPLIED  BY SUCH  FORWARD-LOOKING  STATEMENTS.  SUCH
FUTURE RESULTS ARE BASED UPON  MANAGEMENT'S  BEST  ESTIMATES  BASED UPON CURRENT
CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS.  WHEN USED IN THIS REPORT,
THE  WORDS  "EXPECT,"   "ANTICIPATE,"   "INTEND,"  "PLAN,"   "BELIEVE,"  "SEEK,"
"ESTIMATE"  AND  SIMILAR   EXPRESSIONS   ARE  GENERALLY   INTENDED  TO  IDENTIFY
FORWARD-LOOKING  STATEMENTS,  BECAUSE THESE  FORWARD-LOOKING  STATEMENTS INVOLVE
RISKS AND  UNCERTAINTIES.  THERE ARE  IMPORTANT  FACTORS THAT COULD CAUSE ACTUAL
RESULTS  TO  DIFFER   MATERIALLY  FROM  THOSE  EXPRESSED  OR  IMPLIED  BY  THESE
FORWARD-LOOKING  STATEMENTS,  INCLUDING OUR PLANS, OBJECTIVES,  EXPECTATIONS AND
INTENTIONS  AND  OTHER  FACTORS  DISCUSSED  UNDER  THE  SECTION  ENTITLED  "RISK
FACTORS,"  IN OUR  ANNUAL  REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER  31,
2002.

THE FOLLOWING  DISCUSSION AND ANALYSIS  SHOULD BE READ IN  CONJUNCTION  WITH THE
CONSOLIDATED  FINANCIAL  STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS
REPORT.


OVERVIEW OF BUSINESS OPERATIONS
         We are engaged in the development,  manufacturing  and marketing of our
proprietary  XTRAC(R),  or XTRAC,  excimer  laser and fiber optic  equipment and
techniques  directed  toward  the  treatment  of  psoriasis,   vitiligo,  atopic
dermatitis  and  leukoderma.  We acquired  Surgical  Laser  Technologies,  Inc.,
("SLT"),  on  December  27,  2002,  and the  business  and  revenues in surgical
products and services  from SLT have been  included in our results of operations
in the first and second  quarters of 2003,  but not the  comparable  periods for
2002.

         We  believe  that our  technologies  for the  excimer  laser  and other
surgical lasers provide the basis for reliable, cost-effective systems that will
increasingly be used in connection with a variety of applications.

         In  connection  with our current  business  plan,  the initial  medical
applications  for our excimer laser technology are intended for the treatment of
psoriasis,  vitiligo,  atopic  dermatitis  and  leukoderma.  In January 2000, we
received   approval   of  our   510(k)   submission   from  the  Food  and  Drug
Administration,  or  FDA,  relating  to the  use of our  XTRAC  system  for  the
treatment of psoriasis.  The 510(k)  establishes  that our XTRAC system has been
determined  to be  substantially  equivalent to currently  marketed  devices for
purposes of treating psoriasis.

         In February 2002, the Current Procedural Terminology Editorial Board of
the AMA  approved the request by the American  Academy of  Dermatology  to issue
reimbursement  codes for the laser  therapies in the  treatment of psoriasis and
other inflammatory  diseases,  which would include laser therapy using the XTRAC
system to treat  such  conditions.  The AMA  published  three  CPT code  numbers
covering the  treatment of psoriasis and other  inflammatory  skin diseases with
the XTRAC system. These new codes became effective in the first quarter of 2003.
We believe that the  publication  of these codes will  facilitate our ability to
obtain broader  approvals for reimbursement for treatment of psoriasis and other
inflammatory skin diseases using the XTRAC system.

         As part of our commercialization  strategy in the United States, we are
providing the XTRAC system to targeted dermatologists at no initial capital cost
to them.  We  believe  that  this  strategy  will  create  incentives  for these
dermatologists  to adopt the XTRAC system and will further  market  penetration.
But  this  strategy   will  require  us  to  identify  and  target   appropriate
dermatologists  and to balance the planned  roll-out of our XTRAC lasers in 2003
against uncertainties in acceptance by physicians, patients and health plans and
constraints on the number of XTRAC systems we are able to provide. Our marketing
force has limited experience in dealing with such challenges.  We expect that as
we seek to increase  the number of  accepting  health  plans in the last half of
2003, we will encounter  greater  difficulties  and  uncertainties in overcoming
such  challenges.  Outside of the United States,  our strategy  includes selling
XTRAC systems directly to dermatologists  through distributors and, potentially,
placing  XTRAC  systems  with  dermatologists  to provide us with a  usage-based
revenue stream.

                                       18
<PAGE>

         In  similar  fashion,  we have  growing,  but still  limited  marketing
experience in expanding our surgical  services  business.  The  preponderance of
this business is in the southeastern  part of the United States.  New procedures
and new  geographies  with new  customers  and  different  business  habits  and
networks will likely pose different challenges than the ones we have encountered
in the past.  There can be no necessary  assurance that our  experience  will be
sufficient to overcome such challenges.

RESULTS OF OPERATIONS

REVENUES
         We generated  revenues of $3,842,699 during the three months ended June
30, 2003, of which  $2,869,230 were from the operations of SLT. Of the remaining
amounts,  $770,720  related to the sale of our excimer lasers and spare parts to
distributors  outside of the United  States and $202,749  related to  treatments
performed with our excimer laser in the United States. We generated  revenues of
$842,699 during the three months ended June 30, 2002. Of these amounts, $597,500
related to the sale of our excimer lasers to distributors  outside of the United
States and $245,199  related to treatments  performed  with our excimer laser in
the United States.

         We generated  revenues of  $7,316,176  during the six months ended June
30, 2003, of which  $6,026,243 were from the operations of SLT. Of the remaining
amounts,  $934,020  related to the sale of our excimer lasers and spare parts to
distributors  outside of the United  States and $355,913  related to  treatments
performed with our excimer laser in the United States. We generated  revenues of
$1,795,072  during  the six  months  ended  June 30,  2002.  Of  these  amounts,
$1,309,500 related to the sale of our excimer lasers to distributors  outside of
the United States and $485,572 related to treatments  performed with our excimer
laser in the United States.

         In the first  quarter  of 2003,  we  implemented  a limited  program to
support certain  physicians in addressing  treatments with the XTRAC system that
may be denied reimbursement by private insurance carriers.  We recognize service
revenue from the sale of treatment  cards,  or equivalent  treatment  codes,  to
physicians participating in this program only if and to the extent the physician
has been reimbursed for the treatments.  This program,  originally  scheduled to
terminate on June 30, 2003, has been extended to September 30, 2003.  During the
first six months of 2003, we deferred revenues of $461,454,  under this program,
net of $22,118 in revenues recognized during the second quarter due to physician
reimbursements for the treatments.

COST OF REVENUES

         Product  cost of revenues for the three months ended June 30, 2003 were
$1,355,993,  compared  to $245,427  for the three  months  ended June 30,  2002.
Included in these costs were $712,938 related to SLT product  revenues,  for the
three months ended June 30, 2003. The remaining  product cost of revenues during
these  periods  related  primarily  to the  production  costs of the XTRAC laser
equipment sold outside of the United States.

         Product  cost of revenues  for the six months  ended June 30, 2003 were
$2,505,465,  compared  to  $568,066  for the six  months  ended  June 30,  2002.
Included in these costs were $1,539,801 related to SLT product revenues, for the
six months ended June 30, 2003.  The remaining  product cost of revenues  during
these  periods  related  primarily  to the  production  costs of the XTRAC laser
equipment sold outside of the United States.

         Services  cost of revenues  was  $1,405,197  and  $734,905 in the three
months ended June 30, 2003 and 2002, respectively.  Included in these costs were
$925,569  related to SLT service  revenues,  for the three months ended June 30,
2003. The remaining services cost of revenues, during the periods ended June 30,
2003 and 2002,  represented  depreciation  and field  service  on the  lasers in
service.

          Services  cost of revenues was  $2,805,983  and  $1,464,373 in the six
months ended June 30, 2003 and 2002, respectively.  Included in these costs were
$1,801,870  related to SLT service  revenues,  for the six months ended June 30,
2003. The remaining services cost of revenues, during the periods ended June 30,
2003 and 2002,  represented  depreciation  and field  service  on the  lasers in
service.

         The  decreases  in the  services  cost of sales,  excluding  SLT costs,
related to the  improvements  made to the  lasers,  with the  result  that field
service costs were less in the three and six months ended June 30, 2003 compared
to the same periods ended June 30, 2002.

                                       19
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses for the three months ended
June 30, 2003 were $2,292,062, compared to $1,591,467 for the three months ended
June 30, 2002, an increase of 44%. Selling,  general and administrative expenses
for the six months ended June 30, 2003 were  $4,446,654,  compared to $3,391,949
for the six months ended June 30, 2002, an increase of 31%. These increases were
principally due to the addition of sales, marketing and administrative personnel
in connection with the acquisition of SLT.

ENGINEERING AND PRODUCT DEVELOPMENT

         Engineering and product development expenses for the three months ended
June 30, 2003  decreased  to $465,134  from  $579,196 for the three months ended
June 30, 2002.  This decrease  related  primarily to clinical  trial expenses of
$173,000  and  product  development   expenses  of  $170,000,   related  to  the
improvements  to the excimer  laser,  for the three  months ended June 30, 2002.
These decreases were offset, in part, by the recording of a severance of $87,500
and SLT's  engineering  expenses of $124,000 for the three months ended June 30,
2003.

         Engineering and product  development  expenses for the six months ended
June 30, 2003  increased to $877,066 from $801,422 for the six months ended June
30, 2002.  This  increase  related  primarily to the recording of a severance of
$87,500 and SLT's engineering expenses of $247,000 for the six months ended June
30, 2003.  These  expenses were offset,  in part, by clinical  trial expenses of
$173,000  and  product  development   expenses  of  $170,000,   related  to  the
improvements to the excimer laser, for the six months ended June 30, 2002.

INTEREST EXPENSE, NET

         Net  interest  expense  for the three  months  ended June 30,  2003 was
$10,415, as compared to net interest income of $4,436 for the three months ended
June 30, 2002.  Net interest  expense for the six months ended June 30, 2003 was
$41,438,  as compared to net interest  income of $3,368 for the six months ended
June 30, 2002. The increases in net interest  expense in the comparable  periods
related to the  interest  on the line of credit and on long  term-debt  that was
assumed with the acquisition of SLT.

NET LOSS

         The  aforementioned  factors  resulted in a net loss of $1,686,102  and
$3,360,430 during the three and six months ended June 30, 2003, as compared to a
net loss of $2,303,267 and $4,431,741 during the three and six months ended June
30, 2002, a decrease of 27% and 24%, respectively. These decreases in net losses
were  primarily the result of the  acquisition  of SLT along with a reduction of
operating and production costs.

LIQUIDITY AND CAPITAL RESOURCES

         We have historically financed our operations through the use of working
capital provided from loans and equity and debt financing.

         From  September  1997 through May 2003, we issued  certain  securities,
including  shares  of our  common  stock  and other  securities  convertible  or
exercisable  into  shares of common  stock,  in order to  finance  our  business
operations.

         On May 28, 2003, we closed on a private  placement for 5,982,353 shares
of common  stock at a price of $1.70 per share  resulting  in gross  proceeds of
$10,170,000. The closing price of our common stock on May 28, 2003 was $2.07 per
share. In connection with this private placement,  we paid commissions and other
expenses of $669,954,  resulting in net proceeds of $9,500,046. In addition, the
investors  received warrants to purchase  1,495,588 shares of common stock at an
exercise  price of $2.00 per share.  The warrants have a five-year  term and are
not  exercisable  until November 29, 2003. We intend to use the proceeds of this
financing to pay for working capital and other general corporate  purposes.  The
shares  sold in the  private  placement,  including  the shares  underlying  the
warrants, have been registered with the Securities and Exchange Commission.

         On June 13, 2002, we completed a private  placement of 4,115,000 shares
of common  stock at a price of $1.50 per share  resulting  in gross  proceeds of
$6,172,500. The closing price of our common stock on June 13, 2002 was $1.68 per
share. In connection with this private placement,  we paid commissions and other
                                       20
<PAGE>


expenses of $466,453,  resulting in net proceeds of $5,706,047. In addition, the
investors  received warrants to purchase  1,028,750 shares of common stock at an
exercise  price of $1.90 per share.  The warrants have a five-year term and were
not  exercisable  until  December  14,  2002.  We have used the proceeds of this
financing to pay for working capital and other general corporate purposes.

On December 27, 2002, we acquired SLT. While the impact of the  acquisition  was
marginal  on our results of  operations  for 2002,  we expect that the  surgical
products and services provided by SLT will increase revenues for 2003.  Revenues
from surgical  products and services  amounted to $2,869,230  and $6,026,243 for
the three and six months ended June 30, 2003.  We also expect to save costs from
the  consolidation of the  administrative  and marketing  infrastructure  of the
combined company. With the consolidated  infrastructure in place, we expect that
growth of our revenues, both in phototherapy and surgical products and services,
may occur,  without  commensurate  growth in our fixed  costs.  We believe  that
results of operations for the six months ended June 30, 2003 have reflected each
of these expectations.  We believe that the results of operations during the six
months ended June 30, 2003 have  reflected  that the  established  revenues from
surgical  products  and  services  will  serve to help  absorb  the costs of the
infrastructure of the combined company and thereby improve cash flows.

         At June 30, 2003,  the ratio of current  assets to current  liabilities
was 3.01 to 1.00 compared to 1.90 to 1.00 at December 31, 2002. The  improvement
in this ratio was due to the private placement in May 2003,  detailed above, and
was  also  due in part  that as of the end of  fiscal  2002,  we had  classified
$2,000,000 of the  obligation to SLT's bank as currently due, but as of June 30,
2003, we had applied the cash  collateral  to pay down the credit  facility with
that bank to  $977,677.  As of June 30,  2003,  we had  $11,914,032  of  working
capital.

         Cash and cash  equivalents  were  $9,594,224  as of June 30,  2003,  as
compared to $4,008,051 as of December 31, 2002.

         We believe  that our  existing  cash  balance  together  with our other
existing financial  resources,  including the line of credit facility and access
to lease  financing  for  capital  expenditures,  and any  revenues  from sales,
distribution,  licensing and manufacturing relationships,  will be sufficient to
meet our operating and capital  requirements through the second quarter of 2004.
The 2003 operating plan reflects  anticipated revenue growth from an increase in
expected treatment fees for use of the XTRAC system based on the recent approval
of applicable  reimbursement  codes and wider  insurance  coverage in the United
States and  significant  costs  savings  from the  integration  of the  combined
companies. However, negative deviations from the business plan may require us to
obtain  additional  equity  or  debt  financing  to  meet  our  working  capital
requirements or capital  expenditure needs.  Similarly,  if our growth outstrips
the business plan, we may require additional equity or debt financing. There can
be no assurance that  additional  financing,  if needed,  will be available when
required  or,  if  available,  will be on terms  satisfactory  to us. In such an
event, we would further  rationalize our plans and operations to seek to balance
cash inflows and outflows.

         Concurrent  with the SLT  acquisition,  we assumed a $3,000,000  credit
facility  from a bank  subsequently  amended on February  27, 2003 and March 26,
2003 to $1,400,000 and on May 13, 2003 to $1,000,000.  The credit facility has a
commitment term expiring May 31, 2004,  permits deferment of principal  payments
until the end of the commitment  term, and is secured by SLT's business  assets,
including  collateralization  (until  May 13,  2003)  of  SLT's  cash  and  cash
equivalents  and short-term  investments.  In the first quarter of 2003, we paid
the credit  facility  down to  $1,362,817.  As various  certificates  of deposit
matured in the second quarter of 2003, the proceeds were applied to pay down the
balance  outstanding  under the  facility,  bringing  the  credit  limit down to
$1,000,000.  The credit  facility has an interest  rate of the 30 day LIBOR plus
2.25%. The rate at June 30, 2003 was 3.57%.

         The credit  facility is subject to certain  restrictive  covenants  and
borrowing base  limitations.  At June 30, 2003,  SLT was in compliance  with all
covenants  set by  the  bank.  The  restrictive  covenants  and  borrowing  base
limitations set under the credit facility will continue in 2003 to apply to SLT.

         In addition,  we have agreed to meet certain  restrictive  covenants at
the consolidated group level. In the first two quarters of fiscal 2003, we, as a
group,  must maintain  unrestricted  cash, cash  equivalents  and/or  short-term
investments  in an amount  equal to or greater than the amount by which the line
under the credit  facility has been drawn down. At December 31, 2003,  the group
must meet two cash flow covenants.  For all of 2003 and beyond,  we, as a group,
must  maintain a minimum  ratio of debt to the bank as compared to tangible  net
worth. We have also agreed to be guarantor to SLT's obligations under the credit
facility.

                                       21
<PAGE>

         Management  expects  to be able  to  meet  all  covenants,  both  those
applying to SLT and those applying to the consolidated group, in fiscal 2003.

         At June 30, 2003, we had $977,677 in  outstanding  obligations  and had
$22,323 of availability under the credit facility.  The outstanding  obligations
under the credit facility are classified as current,  as they will be due within
the next twelve months.

         The  assets  of SLT,  including  the  subsidiaries  of SLT,  may not be
transferred to PhotoMedex without meeting certain restrictions imposed on SLT by
the  terms of the  credit  facility  with its  bank.  Under a  provision  in the
agreement  restricting  dividends,  the  assets  of SLT may  not be  dividended,
distributed  or  otherwise  transferred  by  way  of  purchase,   redemption  or
retirement of SLT's capital stock, if such a dividend,  distribution or transfer
would cause SLT to be in default of the  financial  covenants it has made to the
bank. Given this restriction, no dividend,  distribution or other transfer could
have been made as of December 31, 2002.  On the other hand,  under a restriction
under the credit facility on other,  non-dividend transfers, SLT is permitted to
engage in other  transactions with affiliated  entities,  including  PhotoMedex,
provided such  transactions  are in the ordinary  course of, and pursuant to the
reasonable  requirements  of,  SLT's  business  and  are  based  upon  fair  and
reasonable  terms no less  favorable to SLT than would be obtained in comparable
arm's length  transactions with  non-affiliated  entities.  SLT did not transfer
cash to PhotoMedex in the six months ended June 30, 2003.

         For the six months  ended  June 30,  2003,  net cash used in  operating
activities was  $2,664,660.  The net loss of $3,360,430 for the six months ended
June 30, 2003 included  $1,026,733  of non-cash  depreciation  and  amortization
expense,  $38,164 of payment in our securities  (including  common stock options
and  warrants)  of fees for  services to  consultants  and  $246,029 of non-cash
provisions  for  doubtful  accounts.  The usage also  included a net increase in
account  receivables  of $573,253 and a net decrease in current  liabilities  of
$570,659,  the  effects  of  which  were  offset,  in  part,  by a  decrease  in
inventories of $445,043.

         For the six months  ended  June 30,  2002,  net cash used in  operating
activities was  $3,320,402.  The net loss of $4,431,741 for the six months ended
June 30,  2002  included  $850,904  of non-cash  depreciation  and  amortization
expense  and  $34,295 of  payment  in our  securities  (including  common  stock
options)  of fees for  services  to  consultants.  The usage was offset by a net
decrease  in  accounts   receivable  and  inventory  of  $73,843  and  $283,662,
respectively, and a net increase in current liabilities of $77,134.

         Net cash used in investing activities was $1,053,419 and $5,179 for the
six months  ended June 30,  2003 and 2002,  respectively.  During the six months
ended June 30, 2003,  we utilized  $1,035,419,  for  production of our lasers in
service. During the six months ended June 30, 2003 and 2002, we used $17,999 and
$45,761,  respectively, for purchases of computer and manufacturing equipment as
well as leasehold improvements to support our excimer laser business operations.

         Net cash provided by financing  activities  was  $9,304,251 for the six
months ended June 30, 2003 compared to net cash  provided of $5,701,047  for the
six  months  ended June 30,  2002.  In the six months  ended June 30,  2003,  we
received net proceeds of $9,500,046  from the private  placement in May 2003. We
also received  $2,000,000 from the release of restricted  cash, cash equivalents
and short-term  investments,  which was offset by a net payment of $1,792,591 on
the line of credit,  and $404,735 for the payment of certain  debts.  In the six
months ended June 30, 2002,  we received  net  proceeds of  $5,706,047  from the
private  placement  in June 2002 and $18,000 and  $29,000  from the  exercise of
options and warrants,  respectively.  These  receipts  were offset,  in part, by
$55,972 for the payment of certain debts.

         Our ability to expand our business operations is currently dependent in
significant part on financing from external  sources.  There can be no assurance
that  changes  in our  manufacturing  and  marketing,  engineering  and  product
development plans or other changes affecting our operating expenses and business
strategy will not require financing from external sources before we will be able
to develop  profitable  operations.  There can be no assurance  that  additional
capital  will be  available  on terms  favorable to us, if at all. To the extent
that  additional  capital is raised  through  the sale of  additional  equity or
convertible  debt  securities,  the issuance of such securities  could result in
additional  dilution to our  stockholders.  Moreover,  our cash requirements may
vary materially from those now planned because of results of marketing,  product
testing,  changes  in  the  focus  and  direction  of  our  marketing  programs,
competitive and technological advances, the level of working capital required to
sustain our planned growth, litigation,  operating results, including the extent
and  duration  of  operating  losses,  and other  factors.  In the event that we


                                       22
<PAGE>


experience the need for additional capital, and are not able to generate capital
from financing sources or from future operations,  management may be required to
modify, suspend or discontinue our business plan.

         We expect to incur  operating  losses in 2003  because we plan to spend
substantial amounts on the marketing of products for the treatment of psoriasis,
vitiligo,  atopic  dermatitis  and  leukoderma  as well as for the  expansion of
operations.  We expect,  based on our  current  business  plan,  and our present
outlook,  that we will have the  resources  to market our current  products  and
services through the second quarter of 2004. Nevertheless,  we cannot assure you
that we will market any products successfully, operate profitably in the future,
or that  we may  not  require  significant  additional  financing  in  order  to
accomplish our business plan.

         During the three and six  months  ended  June 30,  2003,  there were no
items that significantly impacted our commitments and contingencies as discussed
in the notes to the 2002 annual  financial  statements as filed on Form 10-K. In
addition, we have no significant off-balance sheet arrangements.

IMPACT OF INFLATION

         We have not  operated in a highly  inflationary  period,  and we do not
believe that inflation has had a material effect on sales or expenses.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In  December  2002,  the FASB  issued  SFAS No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure,  an amendment of FASB
Statement  No.  123."  This  Statement  amends  SFAS No.  123,  "Accounting  for
Stock-Based  Compensation," to provide  alternative  methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation.  In addition, this Statement amends the disclosure requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial statements.  Certain of the disclosure  modifications are required for
fiscal years ending after December 15, 2002 and are accordingly  included in the
notes to the consolidated financial statements found elsewhere in this Report.

         In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
of  Variable  Interest  Entities,   an  Interpretation  of  ARB  No.  51."  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the Interpretation.  The Interpretation  applies
immediately to variable  interests in variable  interest  entities created after
January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained  after  January 31, 2003.  For public  enterprises,  such as us, with a
variable interest in a variable interest entity created before February 1, 2003,
the  Interpretation  is applied to the enterprise no later than the beginning of
the first annual reporting period beginning after June 15, 2003. The application
of  this  Interpretation  is not  expected  to  have a  material  effect  on our
consolidated   financial   statements.   The  Interpretation   requires  certain
disclosures  in  financial  statements  issued  after  January 31, 2003 if it is
reasonably  possible  that we will  consolidate  or disclose  information  about
variable interest entities when the Interpretation becomes effective.

         In December 2002, the FASB finalized EITF Issue No. 00-21,  "Accounting
for Revenue  Arrangemetns with Multiple  Deliverables." This issue addresses how
to account for  arrangements  that may involve the  delivery or  performance  of
multiple products, services, and/or rights to use assets. The final consensus of
this issue is applicable to agreements  entered into in fiscal periods beginning
after June 15,  2003.  Additionally,  companies  will be  permitted to apply the
guidance in this issue to all existing  arrangements as the cumulative effect of
a change  in  accounting  principle  in  accordance  with APB  Opinion  No.  20,
"Accounting  Changes." We do not believe that adoption of this issue will have a
material impact on its consolidated financial position,  consolidated results of
operations, or liquidity.

CRITICAL ACCOUNTING POLICIES

         The discussion  and analysis of our financial  condition and results of
operations in this Report are based upon our consolidated  financial statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States. The preparation of financial  statements requires
management to make estimates and judgments  that affect the reported  amounts of
assets and liabilities,  revenues and expense and disclosures at the date of the
financial  statements.   On  an  on-going  basis,  we  evaluate  our  estimates,
including,  but not limited to, those related to revenue  recognition,  accounts
receivable, inventories, impairment of property and equipment and of intangibles
and  accruals  for  warranty  claims.  We  use   authoritative   pronouncements,

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<PAGE>

historical  experience and other  assumptions as the basis for making estimates.
Actual  results  could  differ  from  those  estimates  and be based  on  events
different  from  those  assumptions.  Management  believes  that  the  following
critical accounting policies affect our more significant judgments and estimates
in the  preparation of its  consolidated  financial  statements.  These critical
accounting  policies and the significant  estimates made in accordance with them
have been discussed with our Audit Committee.

         REVENUE  RECOGNITION.   We  have  two  distribution  channels  for  our
phototherapy  treatment  equipment.  We will either (i) sell the laser through a
distributor  or directly to a physician or (ii) place the laser in a physician's
office (at no charge to the  physician)  and charge the  physician  a fee for an
agreed upon number of treatments or treatment  cards.  When we sell a laser to a
distributor or directly to a physician,  revenue is recognized  upon shipment of
the product. Under the terms of the distributor agreements,  the distributors do
not have the  right to return  any unit.  However,  we do allow  products  to be
returned by our distributors in redress of product defects or other claims. When
we place a laser in a physician's office,  service revenues are recognized based
on an estimate of patient treatments.  To use the laser, the physician purchases
a treatment card or an access code that allows performance of a specified number
of treatments.  This amount is included in deferred revenues on the accompanying
consolidated balance sheets until the treatment occurs.

         In the first  quarter  of 2003,  we  implemented  a limited  program to
induce some  physicians to perform  treatments  with the XTRAC system and at the
same time to support these  physicians in coping with claims for such treatments
that may be denied  reimbursement  by  private  insurance  carriers.  Under this
limited  program,  currently  set to expire on  September  30,  2003,  we record
deferred   revenue  when  we  sell  treatment  cards  or  access  codes  to  the
participating  physicians and relieve the deferred  service revenue account only
when the physician has received reimbursement for the treatment.

         Through our surgical  businesses,  we generate revenues  primarily from
three channels.  The first is through sales of recurring laser delivery  systems
and accessories;  the second is through the per-procedure surgical services; and
the third is through the sale of laser systems and related  maintenance  service
agreements.  We  recognize  revenues  from  product  sales,  including  sales to
distributors,   upon  shipment  of  the  products.  For  per-procedure  surgical
services,  we recognize  revenue upon the completion of the  procedure.  Revenue
from   maintenance   service   agreements  is  deferred  and   recognized  on  a
straight-line  basis  over the term of the  agreements.  Revenue  from  billable
services, including repair activity, is recognized when the service is provided.

         INVENTORY.  We account for  inventory  at the lower of cost  (first-in,
first-out) or market. Cost is determined at latest cost for raw materials and at
production  cost  (materials,   labor  and  indirect   manufacturing  cost)  for
work-in-process  and  finished  goods.  Reserves  for slow  moving and  obsolete
inventories  are provided  based on historical  experience  and product  demand.
Management  evaluates  the  adequacy  of these  reserves  periodically  based on
forecasted sales and market trend.

         ALLOWANCE FOR DOUBTFUL ACCOUNTS.  Accounts receivable are reduced by an
allowance for amounts that may become  uncollectible in the future. The majority
of receivables  related to phototherapy sales are due from various  distributors
located  outside of the United States.  The majority of  receivables  related to
surgical product sales are due from various  customers and distributors  located
inside the United States. From time to time, our clients dispute the amounts due
to us, and, in other cases, our clients  experience  financial  difficulties and
cannot pay on a timely basis.  In certain  instances,  these factors  ultimately
result in uncollectible  accounts.  The determination of the appropriate reserve
needed for uncollectible accounts involves significant judgment. A change in the
factors used to evaluate  collectibility could result in a significant change in
the reserve needed.  Such factors include changes in the financial  condition of
our customers as a result of industry, economic or customer specific factors.

         PROPERTY AND  EQUIPMENT.  As of June 30, 2003 and December 31, 2002, we
had net property and equipment of $4,025,022 and $3,672,438,  respectively.  The
most  significant  component of these amounts related to the lasers placed by us
in  physicians'  offices.  We own the  equipment  and charge the  physician on a
per-treatment  basis  for use of the  equipment.  The  realizability  of the net
carrying  value of the lasers is  predicated  on  increasing  revenues  from the
physicians'  use of the lasers.  We believe that such usage will increase in the
future   based  on  the  recently   approved  CPT  codes  and  wider   insurance
reimbursement.

         INTANGIBLES.  Our balance sheet includes  goodwill and other intangible
assets  which  affect  the  amount of future  period  amortization  expense  and
possible impairment expense that we will incur. Management's judgments regarding
the existence of impairment  indicators are based on various factors,  including

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market  conditions and operational  performance of its business.  As of June 30,
2003 and December 31, 2002, we had $3,793,515 and $3,878,225,  respectively,  of
goodwill and other  intangibles,  accounting for 15% and 18% of our total assets
at the  respective  dates.  The  determination  of the value of such  intangible
assets  requires  management to make estimates and  assumptions  that affect our
consolidated financial statements.

         WARRANTY ACCRUALS.  We establish a liability for warranty repairs based
on estimated future claims for XTRAC systems and based on historical analysis of
the cost of the repairs for surgical laser systems.  However,  future returns on
defective   laser   systems  and  related   warranty   liability   could  differ
significantly  from estimates and  historical  patterns,  which would  adversely
affect our operating results.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We are not currently exposed to market risks due to changes in interest
rates and  foreign  currency  rates  and,  therefore,  we do not use  derivative
financial  instruments to address treasury risk management  issues in connection
with changes in interest rates and foreign currency rates.

ITEM 4.  CONTROLS AND PROCEDURES

         The Company's management, with the participation of the company's Chief
Executive Officer and Chief Financial  Officer,  has evaluated the effectiveness
of the company's  disclosure  controls and procedures as of June 30, 2003. Based
on this  evaluation,  the company's Chief Executive  Officer and Chief Financial
Officer  concluded  that the company's  disclosure  controls and  procedures are
effective for gathering, analyzing and disclosing the information the company is
required to disclose in the reports it files under the  Securities  Exchange Act
of 1934,  within the time periods  specified in the SEC's rules and forms.  Such
evaluation  did not identify any change in the quarter  ended June 30, 2003 that
has  materially  affected,  or is reasonable  likely to materially  affect,  the
company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         Reference is made to Item 3, Legal Proceedings, in our Annual Report on
Form 10-K for the year ended  December  31, 2002 for  descriptions  of our legal
proceedings.

         Regarding the suit brought by City  National  Bank in Orlando,  Florida
for unpaid rent with respect to our former facility,  Lastec, Yorke and Thompson
(the buyer,  and buyer principals of our  Orlando-based  business) had agreed as
part of their  settlement  with us, to be  responsible  for the  defenses of the
suit, but they have reneged on this. Accordingly,  we have asked the appropriate
court to abrogate our settlement agreement with Lastec, Yorke and Thompson.  The
court has granted this request.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Recent Issuances of Unregistered Securities

         During the three  months  ended June 30,  2003,  we granted  options to
purchase up to an aggregate of 539,000  shares of common stock to various of our
employees under our 2000 Stock Option Plan at a weighted  average exercise price
of $1.65 per share.  We also granted  options to purchase an aggregate of 33,000
shares of common stock to members of our  Scientific  Advisory board and similar
consultants.  Those grants were at an exercise price of $1.53, but were not made
under the 2000 Stock Option Plan.

         On May 28, 2003, we closed on a private  placement for 5,982,353 shares
of common  stock at a price of $1.70 per share  resulting  in gross  proceeds of
$10,170,000. The closing price of our common stock on May 28, 2003 was $2.07 per
share. In connection with this private placement,  we paid commissions and other
expenses of $669,954,  resulting in net proceeds of $9,500,046. In addition, the
investors  received warrants to purchase  1,495,588 shares of common stock at an
exercise  price of $2.00 per share.  The warrants have a five-year  term and are
not  exercisable  until November 29, 2003. We intend to use the proceeds of this
financing to pay for working capital and other general corporate  purposes.  The
shares  sold in the  private  placement,  including  the shares  underlying  the
warrants, have been registered with the Securities and Exchange Commission.

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ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

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

         None.

ITEM 5.  OTHER INFORMATION

         Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

          A.      Reports on Form 8-K
                  -------------------

         On July 29,  2003,  we filed a Report on Form 8-K with  respect  to our
press  release,  dated July 24, 2003,  with  respect to our second  quarter 2003
earnings.

         B.       Other Exhibits
                  --------------

           3.2   Amended and Restated Bylaws (corrected in Sec. 3.07)
         10.43   Note for Business and Commercial Loans, dated May 13, 2003,
                 made by Surgical Laser Technologies, Inc.
                 in favor of AmSouth Bank
         10.44   Addendum to Note for Business and Commercial Loans, LIBOR rate,
                 dated May 13, 2003, made by Surgical
                 Laser Technologies, Inc. in favor of AmSouth Bank
          31.1   Rule 13a-14(a) Certificate of Chief Executive Officer
          31.2   Rule 13a-14(a) Certification of Chief Financial Officer
          32.1   Certificate of Chief Executive Officer pursuant to 18 U.S.C.
                 Section 1350, as adopted pursuant to
                 Section 906 of the Sarbanes-Oxley Act of 2002
          32.2   Certificate of Chief Financial Officer pursuant to 18 U.S.C.
                 Section 1350, as adopted pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002


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                       DOCUMENTS INCORPORATED BY REFERENCE

         We  are  currently  subject  to  the  reporting   requirements  of  the
Securities  Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"),  and in
accordance  therewith file reports,  proxy statements and other information with
the  Commission.  Such reports,  proxy  statements and other  information may be
inspected and copied at the public  reference  facilities  of the  Commission at
Judiciary Plaza, 450 Fifth Street, N.W.,  Washington D.C. 20549; at its New York
Regional  Office,  233  Broadway,  New York,  New York  10297;  and its  Chicago
Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604,
and copies of such materials can be obtained from the Public  Reference  Section
of the  Commission at its principal  office in  Washington,  D.C., at prescribed
rates.  In  addition,  such  materials  may be  accessed  electronically  at the
Commission's  site on the World  Wide Web,  located  at  http://www.sec.gov.  We
intend to furnish  our  stockholders  with  annual  reports  containing  audited
financial  statements  and such other  periodic  reports as we  determine  to be
appropriate or as may be required by law.



                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1934,  the
registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



                              PHOTOMEDEX, INC.



Date:  August 14, 2003        By:  /s/  Jeffrey F. O'Donnell
                                   --------------------------------------------
                                     Jeffrey F. O'Donnell
                                     President and Chief Executive Officer


Date:  August 14, 2003        By:  /s/  Dennis M. McGrath
                                   --------------------------------------------
                                     Dennis M. McGrath
                                     Chief Financial Officer




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