<PAGE>

                       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, 2000

                                       OR

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

                         For the transition period from

                         Commission File Number 0-11635
                                                -------

                                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.)

       Five Radnor Corporate Center, Suite 470, Radnor, Pennsylvania 19087
       -------------------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                 (610) 971-9292
                                 --------------
              (Registrant's telephone number, including area code)

                              Laser Photonics, Inc.
                  2431 Impala Drive, Carlsbad, California 92008
                  ---------------------------------------------
                   (Former name and address since last report)

Indicated 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 [ ]

The number of shares outstanding of the issuer's Common Stock, as of August 10,
2000, was 16,405,393 shares.

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                                  PHOTOMEDEX, INC. AND SUBSIDIARIES
                                  ---------------------------------
                                   (FORMERLY LASER PHOTONICS, INC.)
                                   --------------------------------

                                     CONSOLIDATED BALANCE SHEETS
                                     ---------------------------
                                             (Unaudited)
                                             -----------

<CAPTION>
                                                                           June 30,      December 31,
                                                                             2000            1999
                                                                        -------------   -------------
<S>                                                                     <C>             <C>
                                 ASSETS
                                 ------

CURRENT ASSETS:
         Cash and cash equivalents                                      $ 13,501,234    $  4,535,557
         Inventories                                                         954,428       1,170,472
         Prepaid expenses and other current assets                           355,144          34,685
                                                                        -------------   -------------
                  Total current assets                                    14,810,806       5,740,714

PROPERTY AND EQUIPMENT, net                                                  835,037         152,965

PATENT COSTS, net of accumulated amortization of $44,847
         and $40,671                                                          39,951          44,127
LICENSE FEE, net of accumulated amortization of $1,291,667
         and $1,041,667                                                    2,708,333       2,958,333
OTHER ASSETS                                                                  63,133          45,346
NET ASSETS OF DISCONTINUED OPERATIONS                                             --         764,179
                                                                        -------------   -------------
                                                                        $ 18,457,260    $  9,705,664
                                                                        =============   =============

                  LIABILITIES AND STOCKHOLDERS' EQUITY
                  ------------------------------------
CURRENT LIABILITIES:
         Current portion of notes payable and long term debt            $    101,499    $    353,710
         Accounts payable                                                    619,299       2,034,371
         Accrued payroll and related expenses                                170,734         376,967
         Other accrued liabilities                                           661,118       1,372,668
         Deferred revenues                                                        --         250,000
                                                                        -------------   -------------
                  Total current liabilities                                1,552,650       4,387,716
                                                                        -------------   -------------

NOTES PAYABLE AND LONG TERM DEBT                                              29,562          43,620
                                                                        -------------   -------------

STOCKHOLDERS' EQUITY:

         Common Stock, $.01 par value, 25,000,000 shares authorized
              15,974,949 and 13,267,918 shares issued and outstanding        159,749         132,679
         Additional paid-in capital                                       48,435,140      30,759,186
         Accumulated deficit                                             (31,649,799)    (25,617,537)
         Deferred compensation                                               (70,042)             --
                                                                        -------------   -------------
                  Total stockholders' equity                              16,875,048       5,274,328
                                                                        -------------   -------------
                                                                        $ 18,457,260    $  9,705,664
                                                                        =============   =============
</TABLE>
The accompanying notes are an integral part of these statements.

                                                  2
<PAGE>

<TABLE>
                                         PHOTOMEDEX, INC. AND SUBSIDIARIES
                                         ---------------------------------
                                          (FORMERLY LASER PHOTONICS, INC.)
                                          --------------------------------

                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                       -------------------------------------
                                                    (Unaudited)
                                                    -----------

<CAPTION>
                                                            Three Months Ended              Six Months Ended
                                                                 June 30,                       June 30,
                                                      -----------------------------   -----------------------------
                                                           2000            1999            2000            1999
                                                      -------------   -------------   -------------   -------------
<S>                                                   <C>             <C>             <C>             <C>
REVENUES

COSTS AND EXPENSES:                                   $    570,000    $         --    $    570,000    $         --
      Cost of revenues                                     325,000              --         325,000              --
      Selling, general and administrative                2,203,162         628,424       4,515,333       1,030,470
      Research and development                             727,933         472,366       1,427,630         597,793
      Depreciation and amortization                        144,164         261,331         282,004         525,900
                                                      -------------------------------------------------------------
        Loss from continuing operations before
          interest and other (expense) income, net      (2,830,259)     (1,362,121)     (5,979,967)     (2,154,163)

INTEREST (EXPENSE) INCOME, net                             194,738        (138,083)        266,985      (1,679,629)

OTHER INCOME, net                                           10,917           4,257         327,262           3,814
                                                      -------------------------------------------------------------

        Loss from continuing operations                 (2,624,604)     (1,495,947)     (5,385,720)     (3,829,978)

        Loss from discontinued operations                  (20,565)       (427,449)       (369,141)       (604,614)

        Loss on sale of discontinued operations           (277,401)             --        (277,401)             --
                                                      -------------------------------------------------------------

NET LOSS                                              $ (2,922,570)   $ (1,923,396)   $ (6,032,262)   $ (4,434,592)
                                                      =============================================================
BASIC AND DILUTED LOSS PER SHARE:
      Continuing operations                           $      (0.17)   $      (0.15)   $      (0.37)   $      (0.39)
      Discontinued operations                         $      (0.02)   $      (0.04)   $      (0.05)   $      (0.06)
                                                      -------------------------------------------------------------
        Basic and diluted net loss per share          $      (0.19)   $      (0.19)   $      (0.42)   $      (0.45)
                                                      =============================================================

SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS
PER SHARE                                               15,422,148       9,895,684      14,496,149       9,895,684
                                                      =============================================================
</TABLE>
The accompanying notes are an integral part of these statements.

                                                         3
<PAGE>

<TABLE>
                                  PHOTOMEDEX, INC. AND SUBSIDIARIES
                                  ---------------------------------
                                  (FORMERLY LASER PHOTONICS, INC.)
                                  --------------------------------

                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                -------------------------------------
                                             (Unaudited)
                                             -----------

<CAPTION>
                                                                         Six Months Ended June 30,
                                                                       -----------------------------
                                                                            2000            1999
                                                                       -------------   -------------
<S>                                                                    <C>             <C>
OPERATING ACTIVITIES:
      Net loss                                                         $ (6,032,262)   $ (4,434,592)
      Adjustments to reconcile net loss to net cash used
         in operating activities -
              Depreciation and amortization                                 291,962         549,512
              Stock options issued to consultants for services              510,741           2,607
              Compensation recognized upon issuance of stock options              -         299,650
              Amortizaton of debt issuance costs                                  -          48,779
              Acceleration of options issued to employees                    47,500               -
              Acceleration of options issued to consultants                 808,766               -
              Interest related to beneficial conversion feature                   -       1,512,292
      Changes in assets and liabilities -
         Decrease in current assets                                         391,477          32,694
         Increase (decrease) in current liabilities                      (2,582,855)         88,840
                                                                       -------------   -------------

                  Net cash used in operating activities                  (6,564,671)     (1,900,218)
                                                                       -------------   -------------

INVESTING ACTIVITIES:
      Purchases of property and equipment                                  (189,619)        (44,553)
      Proceeds from sale of discontinued operations                         250,500               -
      Lasers in process                                                    (235,601)              -
      Lasers placed into service                                           (284,680)              -
                                                                       -------------   -------------

                  Net cash used in investing activities                    (459,400)        (44,553)
                                                                       -------------   -------------

FINANCING ACTIVITIES:
      Principal payments on debt                                           (316,269)       (398,053)
      Proceeds from issuance of note payable                                 50,000               -
      Payments on payable to related party                                        -         (11,160)
      Advances from related parties                                               -           7,560
      Proceeds from exercise of options                                   1,452,940               -
      Proceeds from exercise of warrants                                    543,586               -
      Proceeds from issuance of convertible notes payable                         -       2,380,000
      Payment for debt issuance costs                                             -        (166,600)
      Proceeds from notes payable                                                 -         101,561
      Proceeds from issuance of common stock, net                        14,259,491               -
                                                                       -------------   -------------

                  Net cash provided by financing activities              15,989,748       1,913,308
                                                                       -------------   -------------


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      8,965,677         (31,463)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            4,535,557         174,468
                                                                       -------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                               $ 13,501,234    $    143,005
                                                                       =============   =============
</TABLE>
The accompanying notes are an integral part of these statements.

                                                 4
<PAGE>

                        PHOTOMEDEX, INC. AND SUBSIDIARIES
                        ---------------------------------
                        (FORMERLY LASER PHOTONICS, INC.)
                        --------------------------------

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
              ----------------------------------------------------


1.   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     -----------------------------------------------------------

THE COMPANY:

Background
----------

         PhotoMedex, Inc. and subsidiaries ("the Company") changed its name from
Laser Photonics, Inc. on August 8, 2000. The Company is engaged in the
development, manufacturing and marketing of proprietary excimer laser and fiber
optic equipment and techniques directed toward the treatment of psoriasis and
cardiovascular and vascular disease. The Company anticipates developing such
equipment and technologies to treat other medical problems and for non-medical
applications.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Quarterly Financial Information and Results of Operations
---------------------------------------------------------

         The financial statements as of June 30, 2000 and for the three and six
months ended June 30, 2000 and 1999, 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,
2000, and the results of operations and cash flows for the three and six months
ended June 30, 2000 and 1999. The results for the three and six months ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the entire year. While 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, 1999.

Principles of Consolidation
---------------------------

         The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Management's Use of Estimates
-----------------------------

         The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

                                       5
<PAGE>

Cash and Cash Equivalents
-------------------------

         For the purposes of the consolidated statements of cash flows, the
Company considers investment instruments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are primarily comprised
of investments in various money market funds.

Inventories
-----------

         Inventories are stated at the lower of cost or market, determined by
the first-in, first-out method and consist of the following:

                                                      June 30,      December 31,
                                                        2000            1999
                                                   -------------   -------------
  Raw materials                                    $    904,428    $    613,032
  Work-in-process                                            --         557,440
  Finished goods                                         50,000              --
                                                   -------------   -------------
                                                   $    954,428    $  1,170,472
                                                   =============   =============

         As of June 30, 2000, due to the commercialization of the Company's
excimer laser equipment for the treatment of psoriasis, the Company has made
certain changes to its inventory classifications. The Company's psoriasis
treatment equipment will be placed in a physician's office and remain the
property of the Company. The Company will earn its revenues each time the laser
is used for patient treatment. Accordingly, once the manufacturing process
commences for a given psoriasis treatment laser, the related inventory costs are
transferred to Lasers in process within property and equipment. When
construction of a given psoriasis treatment laser is completed, the cost is
transferred from Lasers in process to Lasers in service within property and
equipment. The Company's coronary heart disease laser equipment is sold
directly. Accordingly, the costs associated with these lasers are maintained in
work-in-process and finished goods within inventory.

Property and Equipment
----------------------

         Property and equipment are stated at cost. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the assets, which
range from 3 to 7 years. Improvements and betterments are capitalized, and
maintenance and repair costs are charged to expense 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 statement of operations.
Property and equipment consists of the following:


                                                      June 30,      December 31,
                                                        2000            1999
                                                   -------------   -------------
  Machinery and equipment                          $     11,584    $     11,584
  Furniture and fixtures                                 90,273          45,102
  Computer hardware and software                        214,108          67,485
  Leasehold improvements                                 78,716          78,716
  Lasers in service                                     284,680              --
  Lasers in process                                     235,601              --
                                                   -------------   -------------
                                                        914,962         202,887
                                                   -------------   -------------
  Accumulated depreciation and amortization             (79,925)        (49,922)
                                                   -------------   -------------
                                                   $    835,037    $    152,965
                                                   =============   =============

                                       6
<PAGE>

         Lasers in service as of June 30, 2000, represent psoriasis treatment
equipment currently located in physician offices. However, as of June 30, 2000,
the Company is not generating any revenues from these lasers. Lasers in service
are depreciated over their estimated useful life, which is three years. No
depreciation is taken on Lasers in process.

Intangible Assets
-----------------

         Intangible assets consist of patents and license fees which are carried
at cost less accumulated amortization. Patents and license fees are amortized on
a straight-line basis over the estimated useful lives of the asset, which is 8
to 12 years for patents and eight years for license fees.

         The Company 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 its net
realizable value. As of June 30, 2000, no such write-down was required.

Revenue Recognition
-------------------

         Revenues are recognized upon shipment of products to customers.
Deferred revenue relates to customer payments received in advance of the
delivery of the related products.

Loss Per Share
--------------

         The Company computes loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 requires dual presentation of basic and diluted earnings (loss) per share
for complex capital structures on the face of the statements of operations.
According to SFAS No. 128, basic earnings (loss) per share is calculated by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution from the exercise or conversion
of securities into common stock, such as stock options.

         Diluted net loss per share is the same as basic net loss per share as
no additional shares for the potential dilution from the exercise of securities
into common stock are included in the denominator as the result is anti-dilutive
due to the Company's losses.

Reclassifications
-----------------

         The consolidated financial statements for prior periods have been
reclassified to conform with the current period's presentation.

New Accounting Pronouncements
-----------------------------

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contacts and for hedging activities and is
effective for all fiscal years beginning after June 15, 2000. Management
believes that the adoption of SFAS No. 133 will have no impact on its operating
results or financial position.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 summarizes certain of the Staff's views in applying
generally accepted accounting principles to recognition, presentation and
disclosure of revenue in financial statements. Implementation of SAB No. 101 is
required no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company has determined that its accounting policies for
revenue recognition are in compliance with the provisions of SAB No. 101.

                                       7
<PAGE>

2.   PRIVATE STOCK OFFERING:
     -----------------------

         In March 2000, the Company completed a private offering of 1,409,092
shares of common stock at $11.00 per share. The Company received net cash
proceeds of $14,259,491 from this private offering.

3.   DISCONTINUED OPERATIONS:
     ------------------------

         Due to the limited financial resources of the Company, the Company's
business strategy changed in 1997 to focus its efforts on excimer laser
technology in order to develop excimer laser and excimer laser delivery products
for medical applications. To facilitate the Company's focus on excimer laser
technology, as of May 4, 2000, the Company sold its non-excimer laser
businesses, which were located at its Orlando, Florida and Wilmington,
Massachusetts facilities.

         The Company closed a transaction with respect to the sale of certain
assets, including certain patents related to non-excimer lasers, related to the
Company's Florida business operations, to Lastec, for a purchase price of
$375,000. Lastec is unaffiliated with the Company. Lastec has paid the Company a
deposit of $37,500, and has executed a secured promissory note in the principal
amount of $337,500, payable in three (3) installments, as follows: (i) $37,500
due on or before May 20, 2000, (ii) $100,000 due on or before July 14, 2000, and
(iii) the balance plus accrued interest due on or before October 6, 2000. The
promissory note accrues interest at the rate of 8% per annum. The promissory
note is secured by the assets assigned by the Company to Lastec in connection
with the transaction, and is personally guaranteed by the principals of Lastec.
As of the date of this filing, the Company has not received the May 20, 2000 and
July 14, 2000 payments due under the promissory note. See "Legal Proceedings."
The Company is currently involved in litigation with Lastec, as well as its
principals. Accordingly, the balance of the promissory note ($337,500) has been
written off and included in the loss on disposal of this operation. Any gain
resulting from future payments received by the Company will be recognized as
received.

         The Company closed the transaction with respect to the sale of certain
assets and the grant of an exclusive license for certain patents related to
non-excimer lasers related to the Company's Massachusetts business operations to
Laser Components GmbH, for a purchase price of $213,000. Laser Components GmbH
is unaffiliated with the Company. In addition, Laser Components GmbH assumed the
Company's prospective obligations under the Company's Massachusetts office
lease.

         Accordingly, these two operations are being accounted for together as
discounted operations with a measurement date of May 4, 2000. The accompanying
consolidated financial statements reflect the operating results and balance
sheet items of the discontinued operations separately from continuing
operations. The Company has recognized a loss of $277,401 on the sale of these
discontinued operations in the quarter ended June 30, 2000. Prior periods have
been restated.

                                       8
<PAGE>

         Revenues and loss from discontinued operations on the accompanying
consolidated statement of operations were:

                        Three Months Ended              Six Months Ended
                             June 30,                       June 30,
                  -----------------------------   -----------------------------
                       2000            1999            2000            1999
                  -------------   -------------   -------------   -------------

       Revenues   $      8,560    $    333,761    $    188,838    $    586,865
                  =============================================================

       Loss       $    (20,565)   $   (427,449)   $   (369,141)   $   (604,614)
                  =============================================================


The assets and liabilities of these operations have been reclassified on the
accompanying consolidated balance sheets to separately identify them as net
assets of discontinued operations. A summary of these net assets is as follows:

                                                       December 31,
                                                           1999
                                                      -------------
  Accounts receivable, net                            $    176,179
  Inventories                                              428,415
  Prepaid expenses and other current assets                 19,800
  Property and equipment, net                              139,785
                                                      -------------
                                                      $    764,179
                                                      =============

                                       9
<PAGE>

4.   NOTES PAYABLE AND LONG-TERM DEBT:
     ---------------------------------

<TABLE>
Notes payable and long-term debt consists of the following:
<CAPTION>

                                                                                     June 30,      December 31,
                                                                                       2000            1999
                                                                                  -------------   -------------
         <S>                                                                      <C>             <C>
         Notes payable - unsecured creditors, interest at prime
         rate, quarterly interest only payments beginning October
         1, 1995, principal due October 1, 1999, unsecured. Settled
         in March 2000.                                                           $         --    $    165,298


         Note payable - creditor, interest at 10%, monthly interest only
         payments through May 5, 1997, thereafter monthly interest and principal
         payments of $6,384 through May
         1999, unsecured. Settled in March 2000.                                            --         127,860


         Note payable - U.S. Treasury, interest at 9%, payable in
         monthly principal and interest installments through July
         2000. Settled in March 2000.                                                       --          14,873


         Notes payable - various creditors, interest at 9%, payable in various
         monthly principal and interest installments
         through July 2000. Settled in March 2000.                                          --          10,101

         Note payable - creditor, interest at 9%, payable in monthly principal
         and interest installments of $1,258 through January 2001,
         collateralized by personal property
         of the Company.  Settled in March 2000.                                            --          16,670

         Note payable - lessor, interest at 10%, payable in monthly principal
         and interest installments of $1,775 through
         December 31, 2002, unsecured.                                                  46,954          55,021

         Note payable - creditor, interest at 13.5%, payable in monthly
         principal and interest installments of $1,552
         through May 2000. Settled in March 2000.                                           --           7,507

         Note payable - unsecured creditors, interest at 8.3%, payable in
         monthly principal and interest installments of
         $16,821 through November 2000.                                                 84,107              --
                                                                                  -------------   -------------
                                                                                       131,061         397,330
         Less - current maturities                                                    (101,499)       (353,710)
                                                                                  -------------   -------------
                                                                                  $     29,562    $     43,620
                                                                                  =============   =============
</TABLE>

                                                      10
<PAGE>

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

         THIS QUARTERLY REPORT ON FORM 10-Q (THE "REPORT"), INCLUDING THE
DISCLOSURES BELOW, CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE TERMS "ANTICIPATES,"
"EXPECTS," "ESTIMATES," "BELIEVES" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO
THE COMPANY OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS IN THIS REPORT OR HEREAFTER INCLUDED IN
OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"), REPORTS TO THE STOCKHOLDERS OF PHOTOMEDEX, INC.,
A DELAWARE CORPORATION, (THE "COMPANY") AND OTHER PUBLICLY AVAILABLE STATEMENTS
ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S 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. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH
HEREIN AND IN SUCH OTHER DOCUMENTS FILED WITH THE COMMISSION, EACH OF WHICH
COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.

         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

         The Company is engaged in the development, manufacturing and marketing
of proprietary excimer laser and fiber optic equipment and techniques directed
toward the treatment of psoriasis and cardiovascular and vascular disease. The
Company anticipates developing such equipment and technologies to treat other
medical problems. However, no assurance to this effect can be given.

         The Company's former business strategy consisted of the development of
a wide range of laser products using different solid-state lasers. Between 1986
and the date of this Report, the Company sold over 1,000 lasers, usually on a
private label basis, to other manufacturers. The Company also considered
pursuing a strategy of using its excimer laser technology for a photolithography
product, which was abandoned. The Company's former strategies proved to be
unsuccessful, in the opinion of then current management of the Company. Although
the Company generated revenues from the sale of its products, former management
believed that the Company would never be able to operate profitably in the
markets where the Company was then doing business. The Company currently
believes that its excimer laser technology provides the basis for reliable
cost-effective systems that will increasingly be used in connection with a
variety of applications. Accordingly, the Company has discontinued its business
operations related to the Company's former business strategy and is focused
solely on excimer laser products for various medical applications.

         On May 13, 1994, the Company filed a Petition for Reorganization (the
"Bankruptcy Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May
13, 1994, Case No. 94-02608-611-Federal Bankruptcy Court-Middle District,
Florida (the "Bankruptcy Court"). An order was issued on May 22, 1995,
confirming the Company's Third Amended Plan of Reorganization (the "Bankruptcy
Reorganization" or the "Plan"). The Company was subsequently authorized to
conduct its business operations as a debtor-in-possession subject to the
jurisdiction of the Bankruptcy Court. On May 22, 1995, the Company's Plan was
confirmed by the Bankruptcy Court. The implementation of the terms of the Plan

                                       11
<PAGE>

resulted in the Company's adoption of "fresh start" accounting. The Plan
provided, that in exchange for the forgiveness of certain unsecured debt, the
Company issued to unsecured creditors shares of the Company's Common Stock such
that, following the issuance of all Common Stock to be issued under the Plan,
the unsecured creditors owned 1,000,000 shares of the Company's Common Stock,
representing 20% of the issued and outstanding Common Stock of the Company. The
7,500,000 shares of Common Stock of the Company's prior existing stockholders
were canceled and reissued into 250,000 shares of Common Stock, which
represented 5% of the then total issued and outstanding shares of Common Stock.

         The Plan further provided that Helionetics, Inc. ("Helionetics"), a
former principal stockholder of the Company, transfer to the Company 76.1% of
the common stock of Acculase, Inc. ("Acculase"), the Company's principal
operating subsidiary. Further, during the pendency of the Bankruptcy Proceeding,
Helionetics contributed $1,000,000 in cash to the Company, which funds were
utilized for cash payments under the Plan, and Helionetics loaned the Company
$300,000 to fund the cost of research and development of the Company's excimer
lasers, which loan has been repaid. Under the Plan, Helionetics received
3,750,000 shares of Common Stock of the Company, which represented 75% of the
then total issued and outstanding shares of Common Stock.

         During April, 1997, Helionetics filed a voluntary petition of
reorganization ("Helionetics Reorganization") with the United States Bankruptcy
Court in the Central District of California for protection under Chapter 11 of
Title 11 of the United States Bankruptcy Code. In connection with a bankruptcy
reorganization of Helionetics, Helionetics disposed of all of its holdings of
the Company's Common Stock. No persons who were stockholders of the Company
immediately before the reorganization have at present any controlling interest
in the Company. On September 30, 1997, Pennsylvania Merchant Group ("PMG"), the
Company's then existing investment banker, purchased from the Helionetics
bankruptcy estate, a note payable from Acculase to Helionetics in the amount of
$2,159,708, including accrued interest. During October, 1997, PMG sold the note
to the Company for 800,000 shares of Common Stock.

         Acculase was formed in 1985 for the purpose of commercializing products
that utilize its proprietary excimer laser and fiber optic technologies.
Acculase has focused primarily on the development of medical products for the
treatment of coronary heart disease.

         The Acculase excimer laser power source was developed to perform a
variety of material processing applications. The Acculase overall system,
designated the pulsed excimer laser, was developed for microsurgical
applications. The first medical application of the overall system, designated
the excimer laser system, was approved by the United States Food and Drug
Administration (the "FDA") under Investigational Device Exemption ("IDE") No.
G920163, for use in the treatment of occlusive coronary artery disease, as an
adjunct to coronary artery bypass graft ("CABG") surgery. Acculase chose not to
pursue completion of such IDE due to the lack of funds to pay the costs of, and
to recruit patients into, the necessary studies.

         In connection with the Company's current business plan, the Company's
initial medical applications for its excimer laser technology are intended to be
used in the treatment of psoriasis and cardiovascular disease.

                                       12
<PAGE>

         Between March, 1998 and November, 1999, the Company entered into five
(5) clinical trial agreements (collectively, the "Clinical Trial Agreement")
with Massachusetts General Hospital ("MGH") to compare the effect of excimer
laser light using its excimer laser technology to the current Ultraviolet "B"
("UVB") treatment being used to treat psoriasis and other skin disorders. The
Company provided prototype laser equipment for pre-clinical dose response
studies. The Company has agreed to support the clinical trials with research
grants of approximately $660,000, of which approximately $448,000 has been paid,
as of June 30, 2000. The final data from the first of these clinical trial
agreements was collected in December, 1998, and formed the basis for a 510(k)
submission to the FDA on August 4, 1999. The four remaining studies are ongoing
and have not been completed as of the date of this Report. On January 27, 2000,
FDA issued a 510(k) to the Company, establishing that the Company's excimer
laser psoriasis system has been determined to be substantially equivalent to
currently marketed devices for the treatment of psoriasis. In August, 2000,
after significant progress toward completing beta testing of its psoriasis
products, the Company shipped its first four excimer laser systems to
dermatologists for commercial use. As of the date of this Report, the Company
has generated no revenues from the psoriasis treatment system. The Company
anticipates that it will not sell the psoriasis treatment lasers to
dermatologists but will place them in dermatologists' offices and receive a fee
for usage.

         In connection with the cardiovascular and vascular uses of the
Company's excimer laser technology, on August 19, 1997, Acculase and Baxter
Healthcare Corporation ("Baxter") entered into a strategic alliance (the "Baxter
Agreement") for the manufacture and marketing of excimer laser products for an
experimental procedure known as Transmyocardial Revasculization ("TMR").
Acculase granted to Baxter an exclusive worldwide right and license to
manufacture and sell the Company's excimer laser technology products relating to
the treatment of cardiovascular and vascular disease and the disposable products
associated therewith (the "TMR System"). The Company agreed to manufacture the
TMR System to the specifications of Baxter at a schedule of prices, based upon
the volume of TMR Systems purchased by Baxter from the Company. During the
second quarter of 2000, Baxter spun off the segment of its business with which
the Company has these agreements. The new entity is known as Edwards
Lifesciences Corp., to which the Company has continued to provide services under
the existing agreements.

DISCONTINUED OPERATIONS

         To facilitate the Company's focus on excimer laser technology, the
Company has sold certain of its non-excimer laser assets, which are related to
its business operations at its Orlando, Florida and Wilmington, Massachusetts
facilities. As of May 4, 2000, the Company closed the transactions with respect
to the sale of certain assets, including certain patents related to non-excimer
lasers related to the Company's Florida business operations, to Lastec, Inc.
("Lastec"), for a purchase price of $375,000. Lastec is unaffiliated with the
Company. The Company has discontinued its Florida operations. Lastec has paid
the Company a deposit of $37,500, and has executed a secured promissory note in
the principal amount of $337,500, payable in three (3) installments, as follows:
(i) $37,500 due on or before May 20, 2000, (ii) $100,000 due on or before July
14, 2000, and (iii) the balance plus accrued interest due on or before October
6, 2000. The promissory note accrues interest at the rate of 8% per annum. The
promissory note is secured by the assets assigned by the Company to Lastec in
connection with the transaction, and is guaranteed by John Yorke and Raymond
Thompson, who are principals of Lastec. As of the date of this Report, the
Company has not received any payments due under the secured promissory note. The
Company has filed an action against Lastec and its principals to collect on the
secured promissory note and for breach of the related asset purchase agreement.
See "Legal Proceedings." Further, the Company closed the transactions with

                                       13
<PAGE>

respect to the sale of certain assets and the grant of an exclusive license for
certain patents related to non-excimer lasers related to the Company's
Massachusetts business operations to Laser Components GmbH ("Laser Components"),
for a purchase price of $213,000. Laser Components is unaffiliated with the
Company. In addition, Laser Components assumed the Company's prospective
obligations under the Company's Massachusetts office lease. The Company has
discontinued its Massachusetts operations.

         Accordingly, the former operations at the Company's Florida and
Massachusetts facilities are being accounted in the Company's Consolidated
Financial Statements included elsewhere in this Report as "discontinued
operations," with a measurement date of May 4, 2000. The Consolidated Financial
Statements reflect the operating results and balance sheet items of the
discontinued operations separately from continuing operations. The Company
recognized a loss of $277,401 from the sale of these discontinued operations in
the quarter ended June 30, 2000.

         Management's decision to suspend these business operations is
consistent with the Company's new business strategy and has resulted in the
discontinuance of business operations, which generated approximately 76% of the
Company's revenues for 1998 and 1999. Revenues from discontinued operations
during the six (6) months ended June 30, 2000 and 1999 were approximately
$189,000 and $587,000, respectively. Loss from discontinued operations during
the six (6) months ended June 30, 2000 and 1999 were $369,141 and $604,614
respectively. At June 30, 2000 and December 31, 1999, net assets of the
discontinued operations were $0 and $764,179, respectively.

                                       14
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999

         The Company generated revenues of $570,000 during the three (3) months
ended June 30, 2000, which were related to the sale of laser equipment in
connection with the Baxter Agreement. The Company did not generate any revenues
from continuing operations during the three (3) months ended June 30, 1999. In
August, 2000, after significant progress toward completing beta testing of its
psoriasis products, the Company shipped its first four excimer laser systems to
dermatologists for commercial use. As of the date of this Report, the Company
has generated no revenues from the psoriasis treatment system.

         Costs of revenues during the three (3) months ended June 30, 2000
increased to $325,000 from $0 during the three (3) months ended June 30, 1999,
due primarily to the costs of the laser equipment sold in connection with the
Baxter Agreement.

         Selling, general and administrative expenses during the three (3)
months ended June 30, 2000 increased to $2,203,162 from $628,424 during the
three (3) months ended June 30, 1999. Included in selling, general and
administrative expenses for the three (3) months ended June 30, 2000 was
$279,101 related to charges associated with the granting of options to certain
of the Company's outside consultants, including certain members of the Company's
Scientific Advisory Board. Excluding these charges, the increase primarily
related to the Company's building of its infrastructure to enable the Company to
implement its business plan to commercialize its psoriasis laser treatment
system. Specifically, these increases from 1999 included increases in consulting
and professional fees related to marketing expenses with respect to the
Company's excimer laser systems, increased salaries and related costs associated
with the Company's newly retained executive officers, increased personnel and
overhead expenses with respect to the infrastructure, which the Company is
building to commercialize its excimer laser operations.

         Research and development during the three (3) months ended June 30,
2000 increased to $727,933 from $472,366 during the three (3) months ended June
30, 1999. This increase primarily related to the increased amount of funds
available for research expenses during 2000. Research and development expenses
in the three (3) months ended June 30, 2000 primarily related to the development
of the Company's excimer laser systems for its psoriasis and TMR products.
Research and development expenses in the three (3) months ended June 30, 1999
primarily related to the development of the Company's psoriasis laser systems
and also included expenses related to additional testing to meet CE Mark and
Underwriter's Laboratory ("UL") standards for the Company's excimer lasers.

         Depreciation and amortization during the three (3) months ended June
30, 2000 decreased to $144,164 from $261,331 during the three (3) months ended
June 30, 1999. These amounts primarily related to the amortization of the
license fee from Baxter and the depreciation of equipment acquired in 1998. The
1999 amount also includes amortization of goodwill from the acquisition of
Acculase.

                                       15
<PAGE>

         Net interest income during the three (3) months ended June 30, 2000 was
$194,738, as compared to interest expense during the three (3) months ended June
30, 1999 of $138,083. Net interest income during the three (3) months ended June
30, 2000 primarily related to interest earned on invested cash balances from the
proceeds of private placements of the Company's securities. Net interest expense
during the three (3) months ended June 30, 1999 primarily related to interest
charges associated with the Company's note payables and long-term debt, which
were repaid in the first quarter of 2000.

         Other income during the three (3) months ended June 30, 2000 increased
to $10,917 from $4,257 during the three (3) months ended June 30, 1999.

         As a result of the foregoing, the Company incurred a net loss of
$2,922,570 during the three (3) months ended June 30, 2000, as compared to a net
loss of $1,923,396 during the three (3) months ended June 30, 1999. The Company
incurred a loss from continuing operations of $2,624,604 during the three
(3) months ended June 30, 2000, as compared to a loss from continuing
operations of $1,495,947 during the three (3) months ended June 30, 1999.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

         The Company generated revenues of $570,000 during the six (6) months
ended June 30, 2000, which were related to the sale of laser equipment in
connection with the Baxter Agreement. The Company did not generate any revenues
from continuing operations during the six (6) months ended June 30, 1999. In
August, 2000, after significant progress toward completing beta testing of its
psoriasis products, the Company shipped its first four excimer laser systems to
dermatologists for commercial use. As of the date of this Report, the Company
has generated no revenues from the psoriasis treatment system.

         Costs of revenues during the six (6) months ended June 30, 2000
increased to $325,000 from $0 during the six (6) months ended June 30, 1999, due
primarily to the costs of the laser equipment sold in connection with the Baxter
Agreement.

         Selling, general and administrative expenses during the six (6) months
ended June 30, 2000 increased to $4,515,333 from $1,030,470 during the six (6)
months ended June 30, 1999. Included in selling, general and administrative
expenses for the six (6) months ended June 30, 2000 were $808,766 related to a
charge associated with the acceleration of vesting of certain options granted to
the Chairman of the Company's Scientific Advisory Board, as well was $279,101
related to charges associated with the granting of options to certain of the
Company's outside consultants, including certain other members of the Company's
Scientific Advisory Board. Excluding this charge, the increase primarily related
to the Company's building of its infrastructure to enable the Company to
implement its business plan to commercialize its psoriasis laser treatment
system. Specifically, these increases from 1999 included increases in consulting
and professional fees related to marketing expenses with respect to the
Company's excimer laser systems, increased salaries and related costs associated
with the Company's newly retained executive officers, increased personnel and
overhead expenses with respect to the infrastructure, which the Company is
building to commercialize its excimer laser operations.

                                       16
<PAGE>

         Research and development during the six (6) months ended June 30, 2000
increased to $1,427,630 from $597,793 during the six (6) months ended June 30,
1999. This increase primarily related to the increased amount of funds available
for research expenses during 2000. Research and development expenses in the six
(6) months ended June 30, 2000 primarily related to the development of the
Company's excimer laser systems for its psoriasis and TMR products. Research and
development expenses in the six (6) months ended June 30, 1999 primarily related
to the development of the Company's psoriasis laser systems and also included
expenses related to additional testing to meet CE Mark and Underwriter's
Laboratory ("UL") standards for the Company's excimer lasers.

         Depreciation and amortization during the six (6) months ended June 30,
2000 decreased to $282,004 from $525,900 during the six (6) months ended June
30, 1999. These amounts primarily related to the amortization of the license fee
from Baxter and the depreciation of equipment acquired in 1998. The 1999 amount
also includes amortization of goodwill from the acquisition of Acculase.

         Net interest income during the six (6) months ended June 30, 2000 was
$266,985, as compared to net interest expense during the six (6) months ended
June 30, 1999 of $1,679,629. Net interest income during the six (6) months ended
June 30, 2000 primarily related to interest earned on invested cash balances
from the proceeds of private placements of the Company's securities. Net
interest expense during the six (6) months ended June 30, 1999 primarily related
to interest charges associated with the recognition of a beneficial conversion
feature on certain of its then outstanding convertible notes payable, as well as
the Company's various notes payable and long-term debt, which were repaid in the
first quarter of 2000.

         Other income during the six (6) months ended June 30, 2000 increased to
$327,262 from $3,814 during the six (6) months ended June 30, 1999. Other income
for the six (6) months ended June 30, 2000 primarily related to the forgiveness
of certain payables by certain of the Company's creditors.

         As a result of the foregoing, the Company incurred a net loss of
$6,032,262 during the six (6) months ended June 30, 2000, as compared to a loss
of $4,434,592 during the six (6) months ended June 30, 1999. The Company
incurred a loss from continuing operations of $5,385,720 during the six (6)
months ended June 30, 2000, as compared to a loss from continuing operations of
$3,829,978 during the six (6) months ended June 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2000, the ratio of current assets to current liabilities
was 9.5 to 1.00 compared to 1.3 to 1.00 at December 31, 1999. The Company had
$13,258,156 of working capital, as of June 30, 2000.

         The Company has historically financed its operations through the use of
working capital provided from loans and equity and debt financing.

         Due to the limited financial resources of the Company, the Company's
strategy changed in 1997 to focus its efforts on the Company's excimer laser
technology and expertise in order to develop a broad base of excimer laser and
excimer laser delivery products for both medical and non-medical applications.

         From September, 1997 through March, 2000, the Company issued certain
securities, including shares of Common Stock and other derivative securities
convertible or exercisable into shares of Common Stock, in order to finance the
Company's business operations. All of the shares of Common Stock and the shares
of Common Stock underlying such derivative securities have been registered in a
registration statement dated May 12, 2000.

                                       17
<PAGE>

         As of March 16, 2000, the Company completed the March 16, 2000
Financing to ten (10) institutional investors of an aggregate of 1,409,092
shares of Common Stock at a purchase price of $11.00 per share, resulting in
aggregate gross proceeds to the Company of approximately $15,500,000. The market
price of the Common Stock on the date that the transaction was negotiated was
$13.50 and on the closing date of the transaction was approximately $15.88. The
Company paid ING Barings LLC a commission of 6% of the gross proceeds, or
approximately $930,000. The Company intends to use and has used the proceeds of
this financing to pay for the marketing of its products (including its psoriasis
treatment products) and research and development expenses, and to use as working
capital.

         Cash and cash equivalents were $13,501,234, as of June 30, 2000, as
compared to $4,535,557, as of December 31, 1999. This increase was primarily
attributable to the receipt of $14,259,491 in net cash proceeds from the March
16, 2000 Financing.

         As of June 30, 2000, the Company had long-term borrowings in the
aggregate amount of $131,061. As of December 31, 1999, the Company had long-term
borrowings in the aggregate amount of $397,330. The decrease in long-term
borrowings relates to the repayment of long-term obligations from the proceeds
of private placements of the Company's securities.

         In March, 2000, the Company paid $950,000 to the landlord for its
Florida facility, and $700,000 to CSC Healthcare Inc., to settle certain
disputes between the Company and such other parties. The Company paid these
amounts from the proceeds of a financing in March, 2000.

         Net cash used in operating activities was $6,564,671 and $1,900,218 for
the six (6) months ended June 30, 2000 and 1999, respectively. Net cash used in
operating activities during the six (6) months ended June 30, 2000 and 1999
primarily consisted of net losses, decreases in net current liabilities (2000
only) and decreases in net current assets, offset by depreciation and
amortization, increases in interest related to the conversion features of the
Convertible Notes and amortization of certain related issuance costs (1999
only), the payment in the Company's securities (including Common Stock,
increases in net current liabilities (1999 only), options and warrants) of fees
for services to consultants and the acceleration of stock options issued to
employees and consultants.

         Net cash used in investing activities was $459,400 and $44,553 for the
six (6) months ended June 30, 2000 and 1999, respectively. In the six (6) months
ended June 30, 2000, the Company utilized $189,619 to acquire equipment for the
Company's excimer laser business operations. The Company also used $520,281
associated with the construction of its psoriais treatment lasers. The Company
received proceeds of $250,500 from the sale of certain assets related to its
discontinued Florida and Massachusetts operations. In the six (6) months ended
June 30, 1999, the Company utilized $44,553 to purchase equipment and leasehold
improvements to support the Company's excimer laser operations.

         Net cash provided by financing activities was $15,989,748 and
$1,913,308 during the six (6) months ended June 30, 2000 and 1999, respectively.
In the six (6) months ended June 30, 2000, the Company received $14,259,491 from
the net proceeds of the sale of 1,409,092 shares of Common Stock in connection
with the March 16, 2000 Financing, $50,000 from the issuance of a note payable,
$1,452,940 from the exercise of stock options and $543,586 from the exercise of
warrants, which was offset by the utilization of $316,269 for the payment of
certain debts.

                                       18
<PAGE>

         In the six (6) months ended June 30, 1999, the Company received
$2,380,000 in proceeds from the offering of the Convertible Notes, $101,561 from
the proceeds of certain notes payable, and $7,560 as an advance from a related
party, which was offset by the utilization of $398,053 for the payment of
certain debts, $11,160 for the payment of certain related party notes payable
and $166,600 for certain costs related to the issuance of the Convertible Notes
and certain other securities.

         The Company's ability to expand business operations is currently
dependent on financing from external sources. There can be no assurance that
changes in the Company's manufacturing and marketing research and development
plans or other changes affecting the Company's operating expenses and business
strategy will not result in the expenditure of such resources before such time
or that the Company will be able to develop profitable operations prior to such
date, or at all, or that the Company will not require additional financing at or
prior to such time in order to continue operations. There can be no assurance
that additional capital will be available on terms favorable to the Company, 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 the Company's stockholders.
Moreover, the Company's cash requirements may vary materially from those now
planned because of results of marketing, product testing, changes in the focus
and direction of the Company's marketing programs, competitive and technological
advances, the level of working capital required to sustain the Company's planned
growth, litigation, operating results, including the extent and duration of
operating losses, and other factors. In the event that the Company experiences
the need for additional capital, and is not able to generate capital from
financing sources or from future operations, management may be required to
modify, suspend or discontinue the business plan of the Company.

IMPACT OF INFLATION

         The Company has not operated in a highly inflationary period, and its
management does not believe that inflation has had a material effect on sales or
expenses.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June, 1998, the Financial Accounting Standards Board ("FASB")
recently issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives, including
certain derivative instruments embedded in other contacts and for hedging
activities, and is effective for all fiscal years beginning after June 15, 2000.
Management believes that the adoption of SFAS No. 133 will have no impact on the
Company's operating results or financial position.

         In December 1999, the Commission issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101
summarizes certain of the Staff's views in applying generally accepted
accounting principles to recognition, presentation and disclosure of revenue in
financial statements. Implementation of SAB No. 101 is required no later than
the fourth quarter of fiscal years beginning after December 15, 1999. The
Company has determined that its accounting policies for revenue recognition are
in compliance with the provisions of SAB No. 101.

                                       19
<PAGE>

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

         On May 4, 2000, the Company terminated its relationship with Hein +
Associates LLP, as principal independent accountants for the Company. The
decision to terminate Hein + Associates LLP as principal independent accountants
for the Company was approved by the Company's Board of Directors on May 4, 2000.
In connection with the audits for the three (3) most recent fiscal years ended
December 31, 1999, 1998 and 1997 and the subsequent interim period through May
4, 2000, there were no disagreements between Hein + Associates LLP and the
Company, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the satisfactions of Hein + Associates LLP would have caused
Hein + Associates LLP to make reference in connection with its report for the
related periods with respect to the subject matter of the disagreement. The
audit reports of Hein + Associates LLP on the consolidated financial statements
of the Company, as of and for the fiscal years ended December 31, 1999, 1998 and
1997, did not contain any adverse opinion, or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.

         As of June 23, 2000, the Company engaged Arthur Andersen LLP, as the
Company's independent public accountant. Prior to engaging Arthur Andersen LLP,
neither the Company nor anyone on its behalf consulted Arthur Andersen LLP
regarding the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements. Since no disagreements were
reported between the Company and its former independent public accountant, as
reported in the Company's Reports on Form 8-K, filed on May 9, 2000, and on Form
8-K/A, filed on May 11, 2000, Arthur Andersen LLP has not been consulted on any
matter that was either the subject of a disagreement or a reportable event.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is not currently exposed to market risks due to changes in
interest rates and foreign currency rates and therefore the Company does not use
derivative financial instruments to address risk management issues in connection
with changes in interest rates and foreign currency rates.


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         LITIGATION WITH SURGILIGHT, INC. AND TIMOTHY J. SHEA. On or about June
20, 2000, the Company filed a Complaint for Misappropriation of Trade Secrets,
Breach of Confidentiality Agreement and Breach of Fiduciary Duty against
SurgiLight, Inc. ("SurgiLight") and Timothy J. Shea ("Shea") in the Circuit
Court of the Tenth Judicial Circuit in and for Orange County, Florida. The
Complaint alleges that SurgiLight and Shea have unlawfully misappropriated and
used trade secrets and other confidential information of the Company with
respect to the Excimer Laser Phototherapy System AL 7000 for the treatment of
psoriasis. The Complaint alleges that Shea obtained this information when he was
an employee and subject to confidentiality and employment agreements. The
Complaint further alleges that SurgiLight hired Shea to oversee its corporate
operations, clinical research and FDA regulatory submissions as part of a common
plan or scheme between SurgiLight and Shea to pirate and use the Company's trade
secrets and confidential information. Additionally, the Complaint alleges that
SurgiLight and Shea used the Company's trade secrets and confidential
information to develop, manufacture and/or market an excimer laser for the
treatment of psoriasis known as the EX-308UV Laser, and to prepare and submit a
section 510(k) application for the approval of the EX-308UV Laser to the FDA.
The Complaint seeks temporary and permanent injunctive relief and damages.
SurgiLight and Shea have filed a motion to dismiss, ruling on which is pending.
A letter from an attorney for SurgiLight and Shea, in response to a demand
letter sent by the Company's counsel, disputes the Company's claim and asserts
their intention to seek damages for tortious interference with a contractual
relationship or prospective business relationship and/or frivolous litigation.
Based on the information currently available, the Company is unable to evaluate
the likelihood of an unfavorable outcome, if any, to the Company.

                                       20
<PAGE>

         LITIGATION WITH LASTEC, INC., JOHN YORKE AND RAYMOND "TIM" THOMPSON. On
June 7, 2000, the Company filed a Complaint against Lastec, Inc. ("Lastec"),
John Yorke ("Yorke") and Raymond "Tim" Thompson ("Thompson") in the Circuit
Court of the Ninth Judicial Circuit in and for Orange County, Florida, to
collect the balance of $337,500 in principal, plus interest, due on a promissory
note and guaranty. The promissory note and guaranty were given as a portion of
the purchase price for assets purchased by Lastec from the Company with respect
to its prior business operations in Orlando, Florida. Lastec is the obligor on
the promissory note. Yorke and Thompson signed a guaranty of the note. The
Complaint alleges that Lastec failed to make an installment payment of $37,500
due on the note on May 20, 2000, and that the full amount is therefore due and
payable on the note and the guaranty. The Complaint seeks to enforce the
promissory note and guaranty, and also includes claims for breach of the
security agreement which secures the note, and repossessing the assets. The
defendants have filed an answer denying liability. The Company is advised that
if the matter is not settled, the defendants will file an amended answer and
cross-complaint claiming damages for the Company's alleged breach of the
agreement and that the defendants have repudiated the agreement based thereon.
Based on the information currently available, the Company is unable to evaluate
the likelihood of an unfavorable outcome, if any, to the Company.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

INCREASE IN CAPITAL

         On August 8, 2000, pursuant to a vote of the Company's stockholders at
the Annual Meeting on July 18, 2000, the Company amended its Certificate of
Incorporation to increase its authorized capital from 25,000,000 to 50,000,000
shares of Common Stock, par value $0.01 per share.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

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

         On July 18, 2000, at the Company's Annual Meeting of Stockholders, the
Company's stockholders adopted the following resolutions by the votes set forth
below:

         1. The Company's six directors were re-elected by the following votes:

         Director             Votes For       Votes Against      Votes Withheld
         --------             ---------       -------------      --------------
         Alex Charlton        10,687,596          0                   2,059
         Jeffrey O'Donnell    10,687,596          0                   2,059
         Alan Novak           10,687,588          0                   2,067
         John J. McAtee, Jr.  10,687,596          0                   2,059
         Samuel Navarro       10,687,596          0                   2,059
         Richard DePiano      10,687,596          0                   2,059

         2. The Company's Restated Certificate of Incorporation and revised
Bylaws were approved with 10,649,255 votes for, 29,684 against and 10,716
abstaining.

                                       21
<PAGE>

         3. The Company's Certificate of Incorporation was amended to increase
its authorized capital to 50,000,000 shares of Common Stock, with 10,532,125
votes for, 150,879 against and 6,033 abstaining.

         4. The Company's change of name to PhotoMedex, Inc. was approved by a
vote of 10,675,551 for, 8,071 against and 6,033 abstaining.

         5. The Company's adoption of its 2000 Stock Option Plan was approved by
a vote of 3,574,753 for, 270,732 against and 199,104 abstaining.

         6. The Company's adoption of its 2000 Non-Employee Director Stock
Option Plan was approved by a vote of 3,60,495 for, 355,614 against and 79,480
abstaining.

ITEM 5.  OTHER INFORMATION

         Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.       Exhibits
         --------

3.1      Restated Certificate of Incorporation.

3.2      Revised Bylaws.

10.1     2000 Stock Option Plan.

10.2     2000 Non-Employee Director Stock Option Plan.

16.1     Letter re Change in Certifying Accountant (1)

27       Financial Data Schedules

----------
(1)      Filed as part of the Company's Current Report on Form 8-K, dated May 9,
         2000, and as amended on May 11, 2000.

B.       Reports on Form 8-K
         -------------------

         The Company filed a Current Report on Form 8-K on May 9, 2000, and
         as amended on May 11, 2000, with respect to a change in its
         principal independent accountants. The Company filed a Current
         Report on Form 8-K on June 27, 2000, to report the appointment of
         Arthur Andersen LLP as its independent public accountant.

                                       22
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

         The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files 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, Suite 1300, 7 World Trade Center, New York, New York 10048; and
its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661,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.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.

Certain documents listed above in Part II, Item 6 of this Report (Exhibit 16.1),
as exhibits to this Report on Form 10-Q, are incorporated by reference from
other documents previously filed by the Company with the Commission.


                                   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, 2000                 By: /S/ Jeffrey F. O'Donnell
                                         --------------------------------------
                                         Jeffrey F. O'Donnell
                                         President and Chief Executive Officer


Date: August 14, 2000                 By: /S/ Dennis McGrath
                                         --------------------------------------
                                         Dennis McGrath
                                         Chief Financial Officer

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