<PAGE>

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

                                   FORM 10 - Q
(MARK ONE)
  [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       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.)

       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)




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 8,
2001, was 19,131,239 shares.

<PAGE>
<TABLE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                       PHOTOMEDEX, INC. AND SUBSIDIARIES
                                       ---------------------------------
                                          CONSOLIDATED BALANCE SHEETS
                                          ---------------------------
                                                 (Unaudited)
                                                 -----------


                                       ASSETS                                     June 30,         December 31,
                                       ------                                       2001               2000
                                                                               -------------      -------------
<S>                                                                            <C>                <C>
CURRENT ASSETS:
           Cash and cash equivalents                                           $  5,180,774       $  7,561,040
           Short-term investments                                                        --          2,000,000
           Accounts receivable                                                    3,163,022            287,750
           Inventories                                                            1,892,238          1,250,702
           Prepaid expenses and other current assets                                160,526            256,053
                                                                               -------------      -------------
                     Total current assets                                        10,396,560         11,355,545

PROPERTY AND EQUIPMENT, net                                                       3,969,012          1,787,065

GOODWILL, net of accumulated amortization of $352,870 and $141,148                3,881,545          4,093,267

LICENSE FEE, net of accumulated amortization of $1,791,667 and $1,541,667         2,208,333          2,458,333

PATENT COSTS, net of accumulated amortization of $53,200 and $49,024                 31,598             35,774

OTHER ASSETS                                                                         68,133            140,773
                                                                               -------------      -------------
                                                                               $ 20,555,181       $ 19,870,757
                                                                               =============      =============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
                        ------------------------------------
CURRENT LIABILITIES:
           Current portion of notes payable                                    $    107,526       $     66,098
           Accounts payable                                                       2,776,619            963,521
           Accrued compensation and related expenses                                525,936            449,594
           Other accrued liabilities                                                701,971            489,149
           Deferred revenues                                                        208,588            114,000
                                                                               -------------      -------------
                     Total current liabilities                                    4,320,640          2,082,362
                                                                               -------------      -------------

NOTES PAYABLE                                                                        10,348             20,194
                                                                               -------------      -------------

STOCKHOLDERS' EQUITY:
           Common Stock, $.01 par value, 50,000,000 shares authorized;
                19,131,239 and 17,847,676 shares issued and outstanding             191,312            178,477
           Additional paid-in capital                                            62,277,255         56,652,344
           Accumulated deficit                                                  (46,208,499)       (39,009,601)
           Deferred compensation                                                    (35,875)           (53,019)
                                                                               -------------      -------------
                     Total stockholders' equity                                  16,224,193         17,768,201
                                                                               -------------      -------------
                                                                               $ 20,555,181       $ 19,870,757
                                                                               =============      =============

                             The accompanying notes are an integral part of these
                                      consolidated financial statements.
</TABLE>

                                                      2
<PAGE>
<TABLE>

                                            PHOTOMEDEX, INC. AND SUBSIDIARIES
                                            ---------------------------------
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                          -------------------------------------
                                                       (Unaudited)
                                                       -----------
<CAPTION>


                                                             Three Months Ended                    Six Months Ended
                                                                   June 30,                             June 30,
                                                       --------------------------------      --------------------------------
                                                           2001                2000              2001                2000
                                                       -------------      -------------      -------------      -------------
<S>                                                    <C>                <C>                <C>                <C>
REVENUES                                               $  2,090,752       $    570,000       $  3,311,354       $    570,000

COSTS AND EXPENSES:
       Cost of revenues, excluding depreciation             557,600            325,000            892,160            325,000
       Selling, general and administrative                3,705,794          2,203,162          7,549,408          4,515,333
       Research and development                             800,209            727,933          1,363,884          1,427,630
       Depreciation and amortization                        502,313            144,164            932,441            282,004
                                                       -------------      -------------      -------------      -------------
           Loss from continuing operations before
              interest and other income, net             (3,475,164)        (2,830,259)        (7,426,539)        (5,979,967)

INTEREST INCOME, net                                         85,187            194,738            197,336            266,985

OTHER INCOME, net                                            32,052             10,917             30,305            327,262
                                                       -------------      -------------      -------------      -------------

       Loss from continuing operations                   (3,357,925)        (2,624,604)        (7,198,898)        (5,385,720)

LOSS FROM DISCONTINUED OPERATIONS                                --            (20,565)                --           (369,141)

LOSS ON SALE OF DISCONTINUED OPERATIONS                          --           (277,401)                --           (277,401)
                                                       -------------      -------------      -------------      -------------

NET LOSS                                               $ (3,357,925)      $ (2,922,570)      $ (7,198,898)      $ (6,032,262)
                                                       =============      =============      =============      =============

BASIC AND DILUTED NET LOSS PER SHARE:
       Continuing operations                           $      (0.18)      $      (0.17)      $      (0.39)      $      (0.37)
       Discontinued operations                                   --              (0.02)                --              (0.05)
                                                       -------------      -------------      -------------      -------------
         Basic and diluted net loss
                per share                              $      (0.18)      $      (0.19)      $      (0.39)      $      (0.42)
                                                       =============      =============      =============      =============

SHARES USED IN COMPUTING BASIC AND
   DILUTED NET LOSS PER SHARE                            19,130,062         15,422,148         18,519,594         14,496,149
                                                       =============      =============      =============      =============

                                  The accompanying notes are an integral part of these
                                           consolidated financial statements.
</TABLE>
                                                           3
<PAGE>
<TABLE>

                                       PHOTOMEDEX, INC. AND SUBSIDIARIES
                                       ---------------------------------
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     -------------------------------------
                                                  (Unaudited)
                                                  -----------
<CAPTION>

                                                                       Six Months Ended June 30,
                                                                    --------------------------------
                                                                         2001               2000
                                                                    -------------      -------------
<S>                                                                 <C>                <C>
OPERATING ACTIVITIES:
       Net loss                                                     $ (7,198,898)      $ (6,032,262)
       Adjustments to reconcile net loss to net cash used
           in operating activities -
                Depreciation and amortization                            932,441            291,962
                Common Stock and Common Stock options
                    issued to consultants for services                   143,804            510,741
                Amortization of deferred compensation                      4,644                  -
                Acceleration of options issued to employees                    -             47,500
                Acceleration of options issued to consultants                  -            808,766
       Changes in assets and liabilities -
                Accounts receivable                                   (2,875,272)                 -
                Inventories                                             (641,536)           216,044
                Prepaid expenses and other assets                        168,167            175,433
                Accounts payable                                       1,813,098         (1,415,072)
                Accrued compensation and related expenses                 76,342           (206,233)
                Other accrued liabilities                                212,822           (711,550)
                Deferred revenues                                         94,588           (250,000)
                                                                    -------------      -------------

                     Net cash used in operating activities            (7,269,800)        (6,564,671)
                                                                    -------------      -------------

INVESTING ACTIVITIES:
       Sale of short-term investments                                  2,000,000                  -
       Purchases of property and equipment                              (117,410)          (189,619)
       Proceeds from sale of discontinued operations                           -            250,500
       Lasers in process                                                       -           (235,601)
       Lasers placed into service                                     (2,531,080)          (284,680)
                                                                    -------------      -------------

                     Net cash used in investing activities              (648,490)          (459,400)
                                                                    -------------      -------------

FINANCING ACTIVITIES:
       Proceeds from issuance of common stock, net                     5,506,442         14,259,491
       Proceeds from issuance of notes payable                           156,978             50,000
       Payment on notes payable                                         (125,396)          (316,269)
       Proceeds from exercise of options                                       -          1,452,940
       Proceeds from exercise of warrants                                      -            543,586
                                                                    -------------      -------------

                     Net cash provided by financing activities         5,538,024         15,989,748
                                                                    -------------      -------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                  (2,380,266)         8,965,677

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         7,561,040          4,535,557
                                                                    -------------      -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                            $  5,180,774       $ 13,501,234
                                                                    =============      =============

                             The accompanying notes are an integral part of these
                                      consolidated financial statements.
</TABLE>
                                                      4
<PAGE>

                        PHOTOMEDEX, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY

Background

           PhotoMedex, Inc. and subsidiaries ("the Company") develops,
manufactures and markets therapeutic excimer laser-based instrumentation
designed to treat psoriasis and vitiligo. The Company is also developing
technologies for the treatment of other skin disorders, and other medical and
non-medical applications. In January 2000, the Company received the first Food
and Drug Administration ("FDA") approval to market an excimer laser system, the
XTRAC system, for the treatment of psoriasis. The Company commercially launched
the XTRAC system in the United States in August 2000. In January 2001, the
Company received approval of our 510(k) submission from the FDA relating to the
use of its XTRAC system for the treatment of vitiligo.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Quarterly Financial Information and Results of Operations

           The financial statements as of June 30, 2001 and for the three and
six months ended June 30, 2001 and 2000, are unaudited and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 2001, and the
results of operations and cash flows for the three and six months ended June 30,
2001 and 2000. The results for the three and six months ended June 30, 2001 are
not necessarily indicative of the results to be expected for the entire year.
While the 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, 2000.

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 consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
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.

Cash and Cash Equivalents

           For the purposes of the consolidated statements of cash flows, the
Company considers investment instruments purchased with an original maturity of
three months or less to be cash equivalents. As of June 30, 2001, cash
equivalents are primarily comprised of investments in various money market
funds.

                                       5
<PAGE>

Short-Term Investments

           As of December 31, 2000, short-term investments of $2,000,000
consisted of time deposits with original maturities greater than three months.
The Company classified all investments as short-term since it had the intent and
ability to redeem them within twelve months.

Inventories

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

                                         June 30,        December 31,
                                           2001              2000
                                      --------------     -------------

           Raw materials              $   1,593,063      $    938,276
           Work-in-process                  299,175           312,426
                                      --------------     -------------
                                      $   1,892,238      $  1,250,702
                                      ==============     =============

           The Company's psoriasis treatment equipment will either be (i) placed
in a physician's office and remain the property of the Company or (ii) be sold
to distributors or physicians directly. Relative to the equipment placed in a
physician's office, the Company earns revenue each time the laser is used for a
patient treatment.

           Throughout the manufacturing process of a laser, the related
production costs are recorded within inventory. Once a laser is completed and
placed in a physician's office, the cost is transferred from inventory to
"lasers in service" within property and equipment. The cost of lasers which will
be sold to distributors or physicians is maintained in inventory until the unit
is sold.

Property and Equipment

           Property and equipment are recorded at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the assets, which
range from three to seven years. Improvements and betterments are capitalized,
while 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:

<TABLE>
<CAPTION>
                                                        June 30,        December 31,
                                                          2001              2000
                                                      -------------    -------------

           <S>                                        <C>              <C>
           Lasers in service                          $  4,161,520     $  1,630,440
           Computer hardware and software                  213,618          212,965
           Furniture and fixtures                          151,637           90,273
           Machinery and equipment                          58,714           11,584
           Leasehold improvements                           78,716           78,716
                                                      -------------    -------------
                                                         4,664,205        2,023,978
           Accumulated depreciation and amortization      (695,193)        (236,913)
                                                      -------------    -------------
                                                      $  3,969,012     $  1,787,065
                                                      =============    =============
</TABLE>

           Lasers in service represent psoriasis and vitiligo treatment
equipment currently located in physician offices. Lasers in service are
depreciated over an estimated useful life of three years. The Company began to
generate revenues from these lasers in the fourth quarter of 2000.

           The Company 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
the net realizable value. As of June 30, 2001, no such write-down was required.

                                       6
<PAGE>

Intangible Assets

           Intangible assets consist of goodwill, license fees (see Note 5) and
patents, which are carried at cost less accumulated amortization. License fees
and patents are amortized on a straight-line basis over the estimated useful
lives of eight years for license fees and eight to twelve years for patents.
Goodwill relates to the purchase of the minority interest of Acculase, Inc. and
is being amortized on a straight-line basis over 10 years.

           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 the net
realizable value. As of June 30, 2001, no such write-down was required (see Note
5).

Revenue Recognition

           The Company has two distribution channels for its psoriasis treatment
lasers. The Company generates revenue by either (i) selling lasers through
distributors or directly to physicians or (ii) placing lasers in physician's
offices (at no charge to the physician) and charging the physician a fee each
time the laser is used for a patient treatment. When the Company sells a laser
to a distributor or directly to a physician, revenues are recognized upon
shipment of the product. The Company does not allow products to be returned by
its distributors. When the Company places a laser in a physician's office,
service revenues are recognized each time the laser is used for a patient
treatment. The physician purchases a treatment card that allows performance of a
specified number of treatments. This amount is included in deferred revenues
until the treatment occurs.

Net Loss Per Share

           The Company computes net 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 net income (loss) per
share for complex capital structures on the face of the statements of
operations. In accordance with SFAS No. 128, basic net income (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
net income (loss) per share reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options and warrants.

           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 would be
anti-dilutive.

Reclassifications

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

New Accounting Pronouncements

           In June 2001, the Financial Accounting Standards Board approved SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest
method of accounting for business combinations initiated after June 30, 2001.
SFAS No. 142 requires companies to cease amortizing goodwill that existed at
June 30, 2001. The amortization of existing goodwill will cease on December 31,
2001. Any goodwill resulting from acquisitions completed after June 30, 2001
will not be amortized. SFAS No. 142 also establishes a new method of testing
goodwill for impairment on an annual basis or on an interim basis if an event
occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value. The adoption of SFAS No. 142 will result in the
Company's discontinuation of amortization of its goodwill; however, the Company
will be required to test its goodwill for impairment under the new standard
beginning in the first quarter of 2002, which could have an adverse effect on
the Company's future results of operations if an impairment occurs.

                                       7
<PAGE>

2.  DISCONTINUED OPERATIONS:

           Due to the limited financial resources of the Company, the business
strategy changed in 1997 to focus 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 certain assets related to its non-excimer laser
businesses, which were located at its Orlando, Florida and Wilmington,
Massachusetts facilities and discontinued its operations related to those
businesses..

           The Company completed 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, Inc. ("Lastec") for a
purchase price of $375,000. Lastec is unaffiliated with the Company. Lastec paid
the Company a deposit of $37,500, and executed a secured promissory note in the
amount of $337,500, payable in three (3) installments, all of which were due
prior to December 31, 2000. The promissory note accrues interest at 8% per year.
The promissory note was secured by the assets assigned by the Company to Lastec
in connection with the transaction, and was personally guaranteed by the
principals of Lastec. The Company has not received the scheduled payments due
under the promissory note. The Company is currently involved in litigation with
Lastec, as well as its principals. Accordingly, the promissory note has been
written off and included in the loss on sale of the discontinued operations. Any
gain resulting from future payments received by the Company will be recognized
when received.

           The Company completed 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 obligations
under the Company's Massachusetts office lease.

           Accordingly, these two operations are being accounted for together as
discontinued 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 recognized a loss of $277,401 on the sale of these
discontinued operations in the quarter ended June 30, 2000.

           Revenues from discontinued operations were $9,000 and $189,000 for
the three and six months ended June 30, 2000, respectively. Loss from
discontinued operations in the accompanying consolidated statements of
operations was $20,565 and 369,141 for the three and six months ended June 30,
2000, respectively.

3. NOTES PAYABLE:

Notes payable consist of the following:
                                               June 30,            December 31,
                                                 2001                  2000
                                           ----------------      ---------------

Note payable - unsecured creditor,
interest at 7.6%, payable in monthly
principal and interest installments
of $18,000 through November 2001.          $        88,312       $           --

Note payable - lessor, interest at 10%,
payable in monthly principal and
interest installments of $1,775
through December 31, 2002, unsecured.               29,562               38,474

Note payable - unsecured creditor,
interest at 8.5%, payable in monthly
principal and interest installments
of $9,563 through 2001.                                 --               47,818
                                           ----------------      ---------------
                                                   117,874               86,292
Less-current maturities                           (107,526)             (66,098)
                                           ----------------      ---------------
                                           $        10,348       $       20,194
                                           ================      ===============


                                       8
<PAGE>

4. PRIVATE STOCK OFFERING:

           On March 27, 2001, the Company completed a private offering of
1,230,000 shares of common stock at $5.00 per share. The Company received gross
proceeds of $6,150,000 and net proceeds of $5,506,442.


5. EDWARDS AGREEMENT:

           In 1997, the Company executed a series of agreements with Edwards
Lifesciences Corp. ("Edwards"). Reference is made to the Company's Form 10K for
the period ended December 31, 2000 for further information on the agreements.
There were no revenues recognized under this agreement for the three or six
months ended June 30, 2001 or 2000.

           On September 23, 1997, Edwards purchased from a third party rights to
related patents for the use of an excimer laser to oblate tissue in vascular and
cardiovascular applications for $4,000,000. The oblation technology underlying
the patents has been successfully used in other applications for many years. In
December 1997, the Company acquired a license to these patent rights from
Edwards thereby entitling the Company to sell an excimer laser and related
products for use in cardiovascular procedures. A license fee was recorded for
the $4,000,000 cash payment made by the Company to Edwards to acquire the
license.

           In January 2001, Edwards stopped performance under the agreement and
began to commercialize a TMR product with an unrelated third party. The Company
believes that Edwards has breached the aforementioned agreement, and has
notified Edwards of its position regarding its performance or lack thereof. The
Company has reserved all of its rights under the agreement and is evaluating the
legal action necessary to protect its rights. Accordingly, the Company currently
does not have a strategic partner with whom to market its TMR laser and does not
currently have sufficient financial resources to commercialize the TMR laser on
its own.

           Due to the non-performance of Edwards under the Edwards Agreement
described above, the Company is currently evaluating its various alternatives
for exploiting the license obtained. Management of the Company currently
believes that the net book value of the license as of June 30, 2001 of
$2,208,333 is fully realizable.

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.

                                       9
<PAGE>

OVERVIEW OF BUSINESS OPERATIONS

           We are engaged in the development, manufacturing and marketing of
proprietary excimer laser and fiber optic equipment and techniques directed at
the treatment of psoriasis, vitiligo and cardiovascular and vascular disease.

           Prior to November 1999, our 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, we sold over 1,000 lasers,
usually on a private label basis, to other manufacturers. In the opinion of our
current management, although we generated revenues from the sale of our
products, we would never be able to operate profitably in the markets where we
were then doing business. Accordingly, we currently believe that our current
business strategy and our existing excimer laser technology provides the basis
for reliable cost-effective systems that will increasingly be used in connection
with a variety of applications. Therefore, we have discontinued our business
operations related to our former business strategy and are focused solely on
excimer laser products for various medical applications.

           Our excimer laser power source was developed to perform a variety of
material processing applications. Our overall system, known as the pulsed
excimer laser, was approved by the FDA under an investigational device exemption
for use in the treatment of occlusive coronary artery disease, as an adjunct to
coronary artery bypass grant surgery. We chose not to pursue completion of the
exemption due to the lack of funds to pay the costs of, and to recruit patients
into the necessary studies. In connection with the cardiovascular and vascular
uses of the our excimer laser technology, on August 19, 1997, we entered into a
strategic alliance with Edwards for the manufacture and marketing of excimer
laser products for an experimental procedure known as transmyocardial
revascularization, or TMR. Our strategic relationship with Edwards has
terminated, and we have no current business plan to commercialize our excimer
laser system for TMR.

           In connection with our current business plan, the initial medical
applications for our excimer laser technology ("the XTRAC system") are the
treatment of psoriasis, vitiligo and atopic dermatitis. In January 2000, we
received approval of our 510(k) submission to the FDA relating to the use of our
XTRAC system for the treatment of psoriasis. The 510(k) establishes that our
technology has been determined to be substantially equivalent to currently
marketed devices for purposes of treating psoriasis. In January 2001, the FDA
reviewed another 510(K) submission related to the treatment of Vitiligo and
approved the XTRAC system for its treatment. Again, in July 2001, the FDA
reviewed our 510(K) submission for the treatment of Atopic Dermatitis and has in
August of 2001 approved the XTRAC system for the treatment of this disease.

           In August 2000, after significant progress toward completing beta
testing of our psoriasis products, we shipped our first four XTRAC systems to
dermatologists for commercial use. As of June 30, 2001, we have generated
$426,354 revenues from the treatment of psoriasis and vitiligo and $3,224,500
from sales of XTRAC systems.

           In February 2001, we received notification from CIGNA, that CIGNA
will reimburse medically necessary claims submitted by patients or their doctors
for payment of treatments for psoriasis utilizing our XTRAC system. During the
quarter ended June 30, 2001, fourteen other insurance companies began to
reimburse patients or their doctors for procedures performed.

           We anticipate that our international marketing plans, while currently
focused on the sale of lasers to distributors throughout the world, will include
a combination of the placement of the XTRAC system in physician's offices in
return for usage fees and direct sales and leasing through unrelated
distributors.

DISCONTINUED OPERATIONS

           To facilitate our focus on excimer laser technology, we sold certain
of our non-excimer laser assets, which were related to our business operations
at our Orlando, Florida and Wilmington, Massachusetts facilities. As of May 4,
2000, we sold certain assets, including certain patents related to non-excimer
laser products related to our Florida business operations, to Lastec, Inc., or
Lastec, for a purchase price of $375,000. Lastec is not affiliated with us. We
have discontinued our Florida operations. Lastec paid us a deposit of $37,500,
and executed a secured promissory note in the principal amount of $337,500,
payable in three installments, all of which were due prior to December 31, 2000.

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<PAGE>

Lastec currently is in default with respect to each of the three scheduled
installments payable under the $337,500 promissory note. The promissory note
accrues interest at the rate of 8% per annum. The promissory note is secured by
the assets assigned by us to Lastec in connection with the transaction, and is
guaranteed by the two principals of Lastec. As of the date of this Report, we
have not received any payments due under the secured promissory note. We filed
an action against Lastec and its principals to collect on the secured promissory
note and for breach of the related asset purchase agreement. Concurrently with
the sale of the Florida operations, we sold certain assets and granted an
exclusive license for certain patents related to non-excimer lasers related to
our Massachusetts business operations to Laser Components GmbH, for a purchase
price of $213,000. Laser Components is not affiliated with us. In addition,
Laser Components assumed our prospective obligations under our Massachusetts
office lease. We have discontinued our Massachusetts operations.

           Accordingly, the former operations at our Florida and Massachusetts
facilities are being accounted for in our consolidated financial statements
included elsewhere in this Report, as "discontinued operations," using 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. We 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 our new business strategy and has resulted in the discontinuance
of business operations. Revenues from discontinued operations during the three
and six months ended June 30, 2000 were approximately $9,000 and $189,000,
respectively. Losses from discontinued operations during the three and six
months ended June 30, 2000 were $20,565 and $369,141, respectively.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED  JUNE 30, 2001 AND 2000

           We generated revenues of $2,090,752 and $3,311,354 during the three
and six months ended June 30, 2001, respectively, of which $2,924,500 related to
the sale of thirty-two of our excimer lasers to distributors outside of the
United States. Additionally, for the three and six months ended June 30, 2001 we
generated $321,252 and $386,854, respectively, in revenues from treatments
performed with our excimer laser in the United States. During the three months
ended June 30, 2001, we shipped 46 excimer laser systems to dermatologists for
commercial use in the United States. As of June 30, 2001, we have a total of 147
excimer laser systems at dermatologists offices' for commercial use throughout
the United States. We generated revenues of $570,000 during the three and six
months ended June 30, 2000, which were related to the sale of laser equipment in
connection with the Edwards Agreement (See Note 5 to financial statements).

           Cost of revenues during the three and six months ended June 30, 2001
was $557,600 and $892,160, respectively, primarily due to the costs of the of
XTRAC laser equipment sold outside of the United States. Cost of revenues during
the three and six months ended June 30, 2000 was $325,000 due primarily to the
costs of the laser equipment sold in connection with the Edwards Agreement.

           Selling, general and administrative expenses for the three and six
months ended June 30, 2001 and 2000 were $3,705,794 and $7,549,408 compared to
$2,203,162 and $4,515,333, respectively. Included in selling, general and
administrative expenses for the six months ended June 30, 2000 was $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. Also
included in selling, general and administrative expenses during the three and
six months ended June 30, 2001 and 2000 was $83,804 and $279,101, respectively,
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 these charges, the increase primarily
related to the building of our infrastructure thereby enabling us to implement
our business plan to commercialize the XTRAC system. Specifically, these
increases included expenditures for consulting and professional fees related to
marketing expenses for our XTRAC systems and increased personnel and overhead
expenses with respect to the infrastructure.

           Research and development expenses during the three months ended June
30, 2001 increased to $800,209 from $727,933 during the three months ended June
30, 2000. This increase primarily related to the increased amount of funds
available for research expenses during 2001. During the six months ended June
30, 2001, research and development expenses decreased to $1,363,884 from
$1,427,630 during the six months ended June 30, 2000. This decrease related
primarily to our focus on the sale of the psoriasis laser product. Research and
development expenses for the three and six months ended June 30, 2000 related to
the development and subsequent commercialization of our excimer laser systems
for our psoriasis and vitiligo products.

                                       11
<PAGE>

           Depreciation and amortization during the three months ended June 30,
2001 increased to $502,313 from $144,164 during the three months ended June 30,
2000. Depreciation and amortization during the six months ended June 30, 2001
increased to $932,441 from $282,004 during the six months ended June 30, 2000.
This increase related primarily to depreciation on lasers in service during the
three and six months ended June 30, 2001. In addition, the increase related to
amortization of goodwill associated with our purchase of the remaining 23.9% of
Acculase, Inc., a California corporation, or Acculase, our wholly-owned
subsidiary, which took place on August 31, 2000. The amortization associated
with the Acculase goodwill was $105,861 and $211,722 during the three and six
months ended June 30, 2001, respectively.

           Net interest income during the three months ended June 30, 2001
decreased to $85,187, as compared to $194,738 for the three months ended June
30, 2000. Net interest income during the six months ended June 30, 2001
decreased to $197,336, as compared to $266,985 for the six months ended June 30,
2000. This decrease related primarily to our smaller average balance of cash and
investments during the three and six months ended June 30, 2001 as significant
investments have been made in infrastructure development and capital investment
in lasers in service.

           Other income during the three months ended June 30, 2001 increased to
$32,052 from $10,917 during the three months ended June 30, 2000. Other income
during the six months ended June 30, 2001 decreased to $30,305 from $327,262 for
the six months ended June 30, 2000. Other income in 2000 primarily related to
the forgiveness of certain payables by certain of our creditors.

           The aforementioned factors resulted in a net loss of $3,357,925 and
$7,198,898 during the three and six months ended June 30, 2001, as compared to a
net loss of $2,922,570 and $6,032,262 during the three and six months ended June
30, 2000. We incurred a loss from continuing operations of $3,357,925 and
$7,198,898 during the three and six months ended June 30, 2001, as compared to a
loss from continuing operations of $2,624,604 and $5,385,720 during the three
and six months ended June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

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

           Due to our limited financial resources, our strategy changed in 1997
to focus our efforts on our 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.

           As of March 16, 2000, we completed a financing to 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 us of
approximately $15,500,000. The market price of the common stock on the date that
the transaction was negotiated was $13.50 per share and on the closing date of
the transaction was approximately $15.88 per share. We paid ING Barings LLC, or
ING, a commission of 6% of the gross proceeds, or approximately $930,000. We
used the proceeds of this financing to pay for the marketing of our products
(including our psoriasis treatment products) and research and development
expenses, and working capital.

           On March 27, 2001, we completed a private offering of 1,230,000
shares of our common stock at $5.00 per share and received gross proceeds of
$6,150,000. We received net proceeds of $5,506,442. The market price of the
common stock on the date that the transaction was negotiated was $5.75 per share
and on the closing date of the transaction the market price was approximately
$4.875 per share. We paid Pacific Growth Equities, Inc. a commission of 6.5% of
the gross proceeds, or approximately $400,000. We intend to use and have used a
portion of the proceeds of this financing to pay for the marketing of our
products (including our psoriasis and vitiligo treatment products) and research
and development expenses and working capital.

           At June 30, 2001, the ratio of current assets to current liabilities
was 2.41 to 1.00 compared to 5.45 to 1.00 at December 31, 2000. As of June 30,
2001, we had $6,075,920 of working capital.

                                       12
<PAGE>

           Cash and cash equivalents and short-term investments were $5,180,774
as of June 30, 2001, as compared to $9,561,040 as of December 31, 2000. This
decrease was primarily attributable to operating expenses and capital investment
which was offset by the receipt of $5,506,442 in net cash proceeds from the
March 27, 2001 financing.

           We believe that our existing cash balance will be sufficient to meet
our cash requirements for a period of at least six months following the date of
this Report. However, depending upon our rate of growth and other operating
factors, we may require additional equity or debt financing to meet our working
capital requirements or capital expenditure needs. The Company is currently in
discussions with certain members of its Board of Directors for them to provide
additional equity financing to the Company. There can be no assurance that
additional financing, if needed, will be available when required or, if
available, on terms satisfactory to us.

           As of June 30, 2001, we had borrowings in the aggregate amount of
$117,874. As of December 31, 2000, we had borrowings in the aggregate amount of
$86,292. The increase in long-term borrowings relates to the proceeds from notes
payable.

           Net cash used in operating activities was $7,269,800 and $6,564,671
for the six months ended June 30, 2001 and 2000, respectively. Net cash used in
operating activities during the six months ended June 30, 2001 and 2000
primarily consisted of net losses, increases in current assets (2001 only) and
decreases in current liabilities (2000 only), partially offset by depreciation
and amortization, increases in current liabilities (2001 only), the payment in
our securities (including common stock, options and warrants) of fees for
services to consultants and the acceleration of stock options issued to
employees and consultants (2000 only) and the forgiveness of certain payables by
our creditors (2000 only).

           Net cash used in investing activities was $648,490 and $459,400 for
the six months ended June 30, 2001 and 2000, respectively. In the six months
ended June 30, 2001, we utilized $117,410 to acquire equipment for our excimer
laser business operations. We also used $2,531,080 associated with the
construction of our psoriasis treatment lasers. During the six months ended June
30, 2000, we utilized $189,619 to purchase equipment to support our excimer
laser operations. We also used $520,281 associated with the construction of our
psoriasis treatment lasers. We received proceeds of $250,500 from the sale of
certain assets related to our discontinued Florida and Massachusetts operations.

           Net cash provided by financing activities was $5,538,024 and
$15,989,748 during the six months ended June 30, 2001 and 2000, respectively. In
the six months ended June 30, 2001, we received $5,506,642 from the net proceeds
of the sale of 1,230,000 shares of common stock in connection with the March 27,
2001 financing and $156,978 of proceeds from the issuance of notes payable,
which was partially offset by the utilization of $125,396 for the payment of
principal on the aforementioned notes payable. In the six months ended June 30,
2000, we 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 notes payable, $1,452,940 from the exercise of stock
options and $543,586 from the exercise of warrants, which was partially offset
by the utilization of $316,269 for the payment of principal on certain debts.

           The ability to expand our business operations is currently dependent
on financing from external sources. There can be no assurance that changes in
our manufacturing, marketing, research and development plans or other changes
affecting our operating expenses and business strategy will not result in the
expenditure of such resources before such time or that we will be able to
develop profitable operations prior to such date, or at all, or that we 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 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 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.

                                       13
<PAGE>

IMPACT OF INFLATION

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

           In June 2001, the Financial Accounting Standards Board approved SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest
method of accounting for business combinations initiated after June 30, 2001.
SFAS No. 142 requires companies to cease amortizing goodwill that existed at
June 30, 2001. The amortization of existing goodwill will cease on December 31,
2001. Any goodwill resulting from acquisitions completed after June 30, 2001
will not be amortized. SFAS No. 142 also establishes a new method of testing
goodwill for impairment on an annual basis or on an interim basis if an event
occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value. The adoption of SFAS No. 142 will result in the
Company's discontinuation of amortization of its goodwill; however, the Company
will be required to test its goodwill for impairment under the new standard
beginning in the first quarter of 2002, which could have an adverse effect on
the Company's future results of operations if an impairment occurs.

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 risk management issues in connection
with changes in interest rates and foreign currency rates.


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, 2000 for descriptions of our legal
proceedings.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

           None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

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

           None.

ITEM 5.    OTHER INFORMATION

           None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           None.

                                       14
<PAGE>

                       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, 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.
We intend to furnish our stockholders with annual reports containing audited
financial statements and such other periodic reports as we may 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, 2001                      By:  /s/ Jeffrey F. O'Donnell
                                                --------------------------------
                                                  Jeffrey F. O'Donnell
                                                  President and Chief Executive
                                                    Officer


Date:  August 14, 2001                     By:  /s/ Dennis M. McGrath
                                                --------------------------------
                                                  Dennis M. McGrath
                                                  Chief Financial Officer

                                       15