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

                                   FORM 10 - Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                                       OR

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

             FOR THE TRANSITION PERIOD FROM _________ TO ___________


                         Commission File Number 0-11365
                                                -------

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

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

             147 KEYSTONE DRIVE, MONTGOMERYVILLE, PENNSYLVANIA 18936
             -------------------------------------------------------
          (Address of principal executive offices, including zip code)

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




Indicate  by check  mark  whether  the  registrant:  (i) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
                                  Yes X  No
                                     ---   ---
Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.)
                                  Yes   No X
                                     ---  ---

The number of shares outstanding of the issuer's Common Stock as of November 14,
2003, was 37,736,139 shares.


<PAGE>







                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                                      INDEX

PART I. FINANCIAL INFORMATION:                                              PAGE
------------------------------                                              ----

     ITEM 1.  Financial Statements:
     -------  -------------------- -

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

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

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

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

     e.  Notes to Consolidated Financial Statements (unaudited)                7

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

     ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk      25

     ITEM 4.  Controls and Procedures                                         25

PART II. OTHER INFORMATION:
---------------------------

     ITEM 1.  Legal Proceedings                                               25

     ITEM 2.  Changes in Securities and Use of Proceeds                       25

     ITEM 3.  Defaults Upon Senior Securities                                 25

     ITEM 4.  Submission of Matters to a Vote of Security Holders             25

     ITEM 5.  Other Information                                               25

     ITEM 6.  Exhibits and Reports on Form 8-K                                26

     Signatures                                                               27




                                       2
<PAGE>


                                          PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                         PHOTOMEDEX, INC. AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS



                                                                                             September 30,       December 31,
                                                                                                 2003                2002
                                                                                            ------------         ------------
                                      ASSETS                                                 (Unaudited)            (Audited)
<S>                                                                                         <C>                  <C>
     Current assets:
       Cash and cash equivalents ...................................................        $  8,144,687         $  4,008,051
        Restricted cash, cash equivalents and short-term investments ...............                  -             2,000,000
        Accounts  receivable,  net of  allowance  for  doubtful  accounts of
          $733,778 and $1,169,486, respectively ....................................           2,985,541            2,536,334
        Inventories ................................................................           4,627,804            5,055,783
        Prepaid expenses and other current assets ..................................             503,396              283,001
                                                                                            ------------         ------------
           Total current assets ....................................................          16,261,428           13,883,169

     Property and equipment, net ...................................................           4,148,211            3,672,438

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

     Patents and licensed technologies, net ........................................             801,778              933,802

     Other assets ..................................................................              74,793               79,372
                                                                                            ------------         ------------
           Total assets ............................................................        $ 24,230,633         $ 21,513,204
                                                                                            ============         ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

     Current liabilities:
        Current portion of notes payable ...........................................        $    217,007         $     75,263
        Current portion of long-term debt ..........................................           1,232,808            2,143,425
        Accounts payable ...........................................................           2,073,650            2,833,361
        Accrued compensation and related expenses ..................................             767,972              822,999
        Other accrued liabilities ..................................................             783,645            1,246,433
        Deferred revenues ..........................................................             622,058              183,475
                                                                                            ------------         ------------
           Total current liabilities ...............................................           5,697,140            7,304,956
                                                                                            ------------         ------------

     Long-term debt ................................................................             391,789              899,626
                                                                                            ------------         ------------

     Commitments and Contingencies

     Stockholders' equity:
        Common stock, $.01 par value, 50,000,000 shares authorized;
        37,732,389 and 31,439,058 shares issued and outstanding,
        respectively ...............................................................             377,324              314,391
        Additional paid-in capital .................................................          86,867,102           76,828,582
        Accumulated deficit ........................................................         (69,092,749)         (63,819,517)
        Deferred compensation ......................................................              (9,973)             (14,834)
                                                                                            ------------         ------------
           Total stockholders' equity ...............................................         18,141,704           13,308,622
                                                                                           ------------         ------------
           Total liabilities and stockholders' equity ..............................        $ 24,230,633         $ 21,513,204
                                                                                            ============         ============
</TABLE>


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


                                       3
<PAGE>


                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>

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

<S>                                                                                     <C>               <C>
     Revenues:
       Product sales ..........................................................         $  1,217,636      $    630,000
       Services ...............................................................            2,081,846           202,045
                                                                                        ------------      ------------
                                                                                           3,299,482           832,045

     Cost of revenues:
       Product cost of revenues ...............................................              897,155           298,772
       Services cost of revenues ..............................................            1,590,423           563,207
                                                                                        ------------      ------------
                                                                                           2,487,578           861,979
                                                                                        ------------      ------------

     Gross profit (loss) ......................................................              811,904           (29,934)
                                                                                        ------------      ------------

     Operating expenses:
       Selling, general and administrative ....................................            2,303,193         1,621,048
       Engineering and product development ....................................              418,331           428,755
                                                                                        ------------      ------------
                                                                                           2,721,524         2,049,803
                                                                                        ------------      ------------

     Loss from operations before interest and other expense (income) ..........           (1,909,620)       (2,079,737)

     Interest expense (income), net ...........................................                3,300           (14,908)

     Other expense, net .......................................................                    -               286
                                                                                        ------------      ------------

     Net loss .................................................................         $ (1,912,920)     $ (2,065,115)
                                                                                        ============      ============


     Basic and diluted net loss per share .....................................         $      (0.05)     $      (0.07)
                                                                                        ============      ============

     Shares used in computing basic and diluted net loss per share ............           37,622,358        28,337,953
                                                                                        ============      ============

</TABLE>


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

                                       4
<PAGE>



                        PHOTOMEDEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                           For the Nine Months Ended
                                                                                                 September 30,
                                                                                            2003               2002
                                                                                        ------------       ------------
<S>                                                                                     <C>                <C>
     Revenues:
       Product sales ..........................................................         $  5,176,060       $  1,939,500
       Services ...............................................................            5,439,598            687,617
                                                                                        ------------       ------------
                                                                                          10,615,658          2,627,117

     Cost of revenues:
       Product cost of revenues ...............................................            3,080,886            953,718
       Services cost of revenues ..............................................            4,483,178          2,027,580
                                                                                        ------------       ------------
                                                                                           7,564,064          2,981,298
                                                                                        ------------       ------------

     Gross profit (loss) ......................................................            3,051,594           (354,181)
                                                                                        ------------       ------------

     Operating expenses:
       Selling, general and administrative ....................................            6,984,811          4,926,117
       Engineering and product development ....................................            1,295,397          1,230,177
                                                                                        ------------       ------------
                                                                                           8,280,208          6,156,294
                                                                                        ------------       ------------

     Loss from operations before interest and other expense (income) ..........           (5,228,614)        (6,510,475)

     Interest expense (income), net ...........................................               44,738            (18,276)

     Other expense, net .......................................................                    -              4,657
                                                                                        ------------       ------------

     Net loss .................................................................         $ (5,273,352)      $ (6,496,856)
                                                                                        ============       ============


     Basic and diluted net loss per share .....................................         $      (0.15)      $      (0.25)
                                                                                        ============       ============

     Shares used in computing basic and diluted net loss per share ............           34,257,897         25,858,184
                                                                                        ============       ============



</TABLE>








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

                                       5
<PAGE>





                                         PHOTOMEDEX, INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    (Unaudited)
<TABLE>
<CAPTION>


                                                                                                      For the Nine Months Ended
                                                                                                           September 30,
                                                                                                       2003              2002
                                                                                                    -----------       -----------
<S>                                                                                                 <C>               <C>
     Operating activities:
           Net loss ........................................................................        $(5,273,352)      $(6,496,856)
           Adjustments to reconcile net loss to net cash used
              in operating activities:
                   Depreciation and amortization ...........................................          1,577,454         1,264,321
                   Stock options issued to consultants for services ........................             38,164            34,295
                   Stock options issued to employees .......................................             62,713                 -
                   Amortization of deferred compensation ...................................              4,861             6,781
                   Provision for bad debts .................................................            254,429           429,590
                   Loss on disposal of assets ..............................................              7,574                 -
           Changes in operating assets and liabilities:
              Accounts receivable ..........................................................           (703,636)         (117,190)
              Inventories ..................................................................            422,351           (41,511)
              Prepaid expenses and other assets ............................................            263,972           (92,209)
              Accounts payable .............................................................           (588,711)         (483,619)
              Accrued compensation and related expenses ....................................            (55,027)           17,168
              Other accrued liabilities ....................................................           (462,668)          365,713
              Deferred revenues ............................................................            438,583           (38,475)
                                                                                                    -----------       -----------

                       Net cash used in operating activities ...............................         (4,013,293)       (5,151,992)
                                                                                                    -----------       -----------

     Investing activities:
           Purchases of property and equipment .............................................            (33,741)          (73,538)
           Lasers (placed into) or retired from service ....................................         (1,389,375)          134,641
                                                                                                    -----------       -----------

                       Net cash (used in) provided from investing activities ...............         (1,423,116)           61,103
                                                                                                    -----------       -----------

     Financing activities:
           Proceeds from issuance of common stock, net .....................................          9,477,546         5,706,047
           Proceeds from exercise of options ...............................................             64,532            18,000
           Proceeds from exercise of warrants ..............................................            458,498            29,000
           Proceeds from issuance of notes payable .........................................                  -            60,905
           Payments on long-term debt ......................................................           (148,220)                -
           Payments on notes payable .......................................................           (509,043)          (81,494)
           Net repayments on line of credit ................................................         (1,770,268)                -
             Decrease in restricted  cash,  cash  equivalents and short-term
           investments .....................................................................          2,000,000                 -
                                                                                                    -----------       -----------

                       Net cash provided by financing activities ...........................          9,573,045         5,732,458
                                                                                                    -----------       -----------

     Net increase  in cash and cash equivalents ............................................          4,136,636           641,569

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

     Cash and cash equivalents, end of period ..............................................        $ 8,144,687       $ 4,708,389
                                                                                                    ===========       ===========


</TABLE>



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

                                       6
<PAGE>



                        PHOTOMEDEX, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY:

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

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

LIQUIDITY AND GOING CONCERN
The Company has incurred significant losses and has had negative cash flows from
operations  since emerging from bankruptcy in May 1995. To date, the Company has
dedicated most of its financial resources to engineering and product development
and general and administrative  expenses.  During the first quarter of 2003, the
Company  re-launched  the  marketing  of its XTRAC  system in the United  States
following  the  issuance of current  procedural  terminology  ("CPT")  codes and
associated  reimbursement rates by the Center for Medicare and Medicaid Services
("CMS").  The Company has  historically  financed its activities from borrowings
and the private  placement of debt and equity  securities.  As of September  30,
2003, the Company had an accumulated deficit of $69,092,749.

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

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

Cash and cash equivalents  were $8,144,687 as of September 30, 2003.  Management
believes  that the existing cash balance  together  with its existing  financial
resources,  including  the credit line  facility  (see Note 8),  access to lease
financing for capital expenditures,  and any revenues from sales,  distribution,
licensing  and  manufacturing  relationships,  will be  sufficient  to meet  the
Company's operating and capital requirements at least through the fourth quarter
of 2004. The 2003 operating  plan reflects  anticipated  revenue growth from the
use of the XTRAC system based on the recent approval of reimbursement  codes and
anticipated  growth in  private  insurance  coverage  in the United  States.  In
addition,  the operating plan reflects costs savings from the integration of the
combined  companies.  However,  depending  upon the Company's rate of growth and
other  operating  factors,  the Company may  require  additional  equity or debt
financing to meet its working capital requirements or capital expenditure needs.

                                       7
<PAGE>

There  can be no  assurance  that  additional  financing,  if  needed,  will  be
available   when  required  or,  if  available,   could  be  obtained  on  terms
satisfactory to the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

QUARTERLY FINANCIAL INFORMATION AND RESULTS OF OPERATIONS
The  financial  statements  as of September  30, 2003 and for the three and nine
months ended  September 30, 2003 and 2002,  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 September 30, 2003, and
the results of  operations  and cash flows for the three and nine  months  ended
September  30, 2003 and 2002.  The  results for the three and nine months  ended
September 30, 2003 are not necessarily  indicative of the results to be expected
for  the  entire  year.  While  management  of the  Company  believes  that  the
disclosures presented are adequate to make the information not misleading, these
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated financial statements and the notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002.

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

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

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

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

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

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

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

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

                                       8
<PAGE>

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

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

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

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

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

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

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

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

   Accrual at January 1, 2003                             $415,463
   Additions charged to warranty expense                   234,085
   Claims paid and charged against the accrual            (349,676)
                                                          --------
   Accrual at September 30, 2003                          $299,872
                                                          ========




                                       9
<PAGE>



REVENUE RECOGNITION
The  Company  has  two  distribution  channels  for its  phototherapy  treatment
equipment.  The Company will either (i) sell the laser through a distributor  or
directly to a physician or (ii) place the laser in a  physician's  office (at no
charge to the  physician)  and charge  the  physician  a fee for an agreed  upon
number of  treatments  or treatment  cards.  When the Company sells a laser to a
distributor or directly to a physician,  revenue is recognized when products are
shipped and the Company has no  significant  remaining  obligations,  persuasive
evidence  of an  arrangement  exists,  the  price  to  the  buyer  is  fixed  or
determinable,  and collectibility is reasonably  assured or probable.  At times,
units are shipped but revenue is not  recognized  until all of the  criteria are
met.

 Under the terms of the distributor agreements, the distributors do not have the
right to return any unit, which they have purchased.  However,  the Company does
allow products to be returned by its  distributors in redress of product defects
or other claims.

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

In the first  quarter of 2003,  the  Company  implemented  a limited  program to
support certain  physicians in addressing  treatments with the XTRAC system that
may  be  denied  reimbursement  by  private  insurance  carriers.   The  Company
recognizes  service revenue during the program from the sale of treatment cards,
or equivalent treatment codes, to physicians  participating in this program only
if and to the extent the physician has been reimbursed for the treatments.  This
program,  originally  scheduled to terminate on June 30, 2003, has been extended
to  December  31,  2003.  During the nine months of 2003,  the Company  deferred
revenues of $513,200 under this program,  net of $339,372 in revenues recognized
due to physician reimbursements known or estimated to have been received for the
treatments.

Through its surgical  businesses,  the Company generates revenues primarily from
three channels.  The first is through sales of recurring laser delivery  systems
and accessories;  the second is through the per-procedure surgical services; and
the third is through the sale of laser systems and related  maintenance  service
agreements.  The Company recognizes revenues from product sales, including sales
to  distributors,  when products are shipped and the Company has no  significant
remaining  obligations,  persuasive evidence of an arrangement exists, the price
to the buyer is fixed or determinable,  and collectibility is reasonably assured
or probable. At times, units are shipped but revenue is not recognized until all
of the criteria are met.

For per-procedure  surgical  services,  the Company  recognizes revenue upon the
completion of the  procedure.  Revenue from  maintenance  service  agreements is
deferred  and  recognized  on  a  straight-line  basis  over  the  term  of  the
agreements.  Revenue from  billable  services,  including  repair  activity,  is
recognized when the service is provided.

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

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

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

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



                                       10
<PAGE>



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

FAIR VALUE OF FINANCIAL INSTRUMENTS
The  estimated  fair  values  of  financial  instruments  under  SFAS  No.  107,
"Disclosures  about Fair Value of  Financial  Instruments,"  are  determined  at
discrete  points in time based on relevant market  information.  These estimates
involve uncertainties and cannot be determined with precision. The fair value of
cash is based on its demand  value,  which is equal to its carrying  value.  The
fair values of notes payable are based on borrowing  rates that are available to
the Company for loans with similar terms, collateral and maturity. The estimated
fair values of notes payable approximate the carrying values. Additionally,  the
carrying value of all other monetary assets and liabilities is equal to its fair
value due to the short-term nature of these instruments.

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

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

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

                                                    Three Months Ended September 30,         Nine Months Ended September 30,
                                                    --------------------------------         -------------------------------
                                                         2003                2002                2003                2002
                                                     -----------         -----------         -----------         -----------
  Net loss:
<S>                                                  <C>                 <C>                 <C>                 <C>
    As reported ................................     ($1,912,920)        ($2,065,115)        ($5,273,352)        ($6,496,856)
    Less: stock-based employee
      compensation expense included
      in reported net loss .....................           1,638               2,268               4,861               6,781
    Impact of total stock-based
      compensation expense
      determined under
      fair-value-based method for
      all grants and awards ....................        (347,740)           (456,045)         (1,204,114)         (1,473,922)
                                                     -----------         -----------         -----------         -----------
    Pro-forma ..................................     ($2,259,022)        ($2,518,892)        ($6,472,605)        ($7,963,997)
                                                     ===========         ===========         ===========         ===========
  Net loss per share:
    As reported ................................          ($0.05)             ($0.07)             ($0.15)             ($0.25)
                                                     ===========         ===========         ===========         ===========
    Pro-forma ..................................          ($0.06)             ($0.09)             ($0.19)             ($0.31)
                                                     ===========         ===========         ===========         ===========
</TABLE>


                                       11
<PAGE>

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

The fair value of the  options  granted  is  estimated  using the  Black-Scholes
option-pricing model with the following weighted average assumptions  applicable
to options granted in the three-month and nine-month periods:
<TABLE>
<CAPTION>

                                                             Three Months Ended Sept. 30,          Nine Months Ended Sept. 30,
                                                             ----------------------------          ---------------------------
                                                              2003                 2002             2003                2002
                                                             -------              -------          -------             -------
<S>                                                          <C>                  <C>              <C>                 <C>
  Risk-free interest rate ..............................       2.94%                2.98%            3.85%               4.48%
  Volatility ...........................................        100%                 100%             100%                100%
  Expected dividend yield ..............................          0%                   0%               0%                  0%
  Expected option life .................................     5 years              5 years          5 years             5 years
</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended  September 30, 2003, the Company  financed  vehicle
and equipment  purchases of $506,963 under capital  leases,  financed  insurance
policies  through  notes payable for $479,788 and financed  certain  acquisition
costs which were  included in accounts  payable at December 31, 2002,  through a
note payable for $171,000.

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

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

NOTE 2
ACQUISITION:

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

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

The aggregate purchase price was $6,760,445 and was paid through the issuance of
2,716,354  shares of common stock valued at $1.32 per share,  the  assumption of
$2,937,858 of debt and the incurrence of $237,000 of  capitalizable  transaction

                                       12
<PAGE>

costs.  Non-capitalizable  costs of $115,000  were incurred in  registering  the
common stock issued in connection with the acquisition.

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

                                                                             Three Months Ended       Nine  Months Ended
                                                                             September 30, 2002       September 30, 2002
                                                                             ------------------       ------------------

<S>                                                                                <C>                      <C>
   Net revenues ........................................................           $  3,722,700             $ 11,102,917
   Net loss ............................................................             (1,815,065)              (6,369,046)
   Basic and diluted loss per share ....................................                 ($0.06)                  ($0.22)
   Shares used in  calculating  basic and  diluted  loss
     per share .........................................................             30,945,273               28,465,504
</TABLE>

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



NOTE 3
INVENTORIES:

Set forth below is a detailed listing of inventories.

                                  September 30, 2003           December 31,2002
                                  ------------------           ----------------
         Raw materials                  $2,781,754                 $3,297,942
         Work-in-process                   111,825                    328,081
         Finished goods                  1,734,225                  1,429,760
                                        ----------                 ----------
         Total inventories              $4,627,804                 $5,055,783
                                        ==========                 ==========

NOTE 4
PROPERTY AND EQUIPMENT:

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

                                                                              September 30, 2003            December 31, 2002
                                                                              ------------------            -----------------
<S>                                                                                <C>                          <C>
         Lasers in service ...............................................         $ 6,966,464                  $ 5,147,134
         Computer hardware and software ..................................             256,340                      251,495
         Furniture and fixtures ..........................................             192,436                      173,507
         Machinery and equipment .........................................             105,778                      271,497
         Autos and trucks ................................................             196,870                      137,039
         Leasehold improvements ..........................................             103,863                      100,106
                                                                                   -----------                  -----------
                                                                                     7,821,752                    6,080,778
         Accumulated depreciation and
             amortization ................................................          (3,673,540)                  (2,408,340)
                                                                                   -----------                  -----------
         Property and equipment, net .....................................         $ 4,148,211                  $ 3,672,438
                                                                                   ===========                  ===========

</TABLE>

Depreciation  expense was  $1,445,430  and  $1,162,047 for the nine months ended
September  30, 2003 and 2002,  respectively.  At September 30, 2003 and December
31,  2002,   net  property  and  equipment   included   $682,837  and  $336,910,
respectively,  of assets recorded under capitalized lease arrangements, of which
$624,597 and $272,783 was included in long-term  debt at September  30, 2003 and
December 31, 2002, respectively (see Note 8).



                                       13
<PAGE>



NOTE 5
PATENTS AND LICENSED TECHNOLOGIES:

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

                                                                                  September 30, 2003         December 31, 2002
                                                                                  ------------------         -----------------
<S>                                                                                       <C>                        <C>
 Patents, net of accumulated
 amortization of $101,744 and $65,730 ........................................            $300,399                   $336,414
 Licensed technologies, net of
 accumulated amortization of $335,622
 and $239,612 ................................................................             501,379                    597,388
                                                                                          --------                   --------
 Total patents and licensed
 technologies, net ...........................................................            $801,778                   $933,802
                                                                                          ========                   ========
</TABLE>

Amortization  expense  was  $132,024  and  $102,274  for the nine  months  ended
September 30, 2003 and 2002, respectively.

NOTE 6
OTHER ACCRUED LIABILITIES:

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

                                                                                  September 30, 2003          December 31, 2002
                                                                                  ------------------          -----------------

<S>                                                                                     <C>                        <C>
Accrued professional and consulting fees .....................................          $   93,699                 $  190,182
Accrued warranty .............................................................             299,872                    415,463
Accrued liability from matured notes .........................................             247,218                    249,130
Royalty liability ............................................................              43,936                    169,368
Other accrued expenses .......................................................              98,920                    222,290
                                                                                        ----------                 ----------

Total other accrued liabilities ..............................................          $  783,645                 $1,246,433
                                                                                        ==========                 ==========
</TABLE>

During 2002,  SLT resumed  direct  control of $223,000 of funds  previously  set
aside for the payment of SLT's  subordinated  notes, which matured and ceased to
bear  interest on July 30,  1999,  and $31,000 of funds set aside to pay related
accrued  interest.  As of September 30, 2003 and December 31, 2002,  the matured
principal and related interest was $247,218 and $249,130, respectively.



                                       14
<PAGE>



Note 7
NOTES PAYABLE:
<TABLE>
<CAPTION>

Set forth below is a detailed listing of notes payable.
                                                                                     September 30, 2003    December 31, 2002
                                                                                     ------------------    -----------------
<S>                                                                                           <C>                 <C>

 Note  payable -  unsecured  creditor,  interest  at 7.47%,  payable in
 monthly principal and interest installments of $7,827 through June
 2004  .............................................................................          $  61,360           $       -

 Note  payable -  unsecured  creditor,  interest  at 7.37%,  payable in
 monthly principal and interest installments of $37,640 through
 January 2004  .....................................................................            148,277                   -

 Note  payable -  unsecured  creditor,  interest  at 6.63%,  payable in
 monthly  principal and interest installments of $1,868 through
 January 2004  .....................................................................              7,370                   -

 Note  payable -  unsecured  creditor,  interest  at 6.6%,  payable in
 monthly  principal and interest  installments of $5,524 through April
 2003  .............................................................................                  -              21,793

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

                                                                                              ---------           ---------
                                                                                                217,007              75,263

 Less: current maturities ..........................................................           (217,007)            (75,263)
                                                                                              ---------           ---------
 Notes payable, net of current maturities ..........................................          $       -           $       -
                                                                                              =========           =========
</TABLE>


NOTE 8
LONG-TERM DEBT:

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

                                                                    September 30, 2003      December 31, 2002
                                                                    ------------------      -----------------
<S>                                                                        <C>                   <C>
Borrowings on credit facility ................................             $ 1,000,000           $ 2,770,268
Capital lease obligations (see Note 4) .......................                 624,597               272,783
Less: current portion ........................................              (1,232,808)           (2,143,425)
                                                                           -----------           -----------
Total long-term debt .........................................             $   391,789           $   899,626
                                                                           ===========           ===========
</TABLE>

Concurrent with the SLT  acquisition,  the Company  assumed a $3,000,000  credit
facility  from a bank,  subsequently  amended on February 27, 2003 and March 26,
2003 to $1,400,000 and on May 13, 2003 to $1,000,000.  The credit facility has a
commitment  term of four years,  expiring  May 31,  2004,  permits  deferment of
principal payments until the end of the commitment term, and is secured by SLT's
business assets, including  collateralization (until May 13, 2003) of $2,000,000
of SLT's cash and cash equivalents and short-term  investments.  On February 27,
2003 and March 26, 2003,  the bank agreed to allow the Company to apply the cash
collateral to a paydown of the facility in 2003 and, accordingly, the $2,000,000
is included in the current  portion of long-term debt in the  accompanying  2002
consolidated  balance sheet.  During 2003, the Company paid the credit  facility
down to $1,000,000. The credit facility has an interest rate of the 30 day LIBOR
plus 2.25%. The rate at September 30, 2003 was 3.37%.

The credit  facility is subject to certain  restrictive  covenants and borrowing
base  limitations.  At December 31, 2002,  SLT did not meet the covenants set by
the bank.  The bank waived the  non-compliance  with the covenants at that date.
The restrictive  covenants and borrowing base  limitations will continue in 2003
to apply to SLT. In addition, the Company has agreed to meet certain restrictive
covenants at the  consolidated  group level. In the first two quarters of fiscal
2003,  the group  must  maintain  unrestricted  cash,  cash  equivalents  and/or
short-term investments in an amount equal to or greater than the amount by which
the line under the credit facility has been drawn down. In the last two quarters
of fiscal 2003 and beyond, the group must meet two cash flow covenants.  For all

                                       15
<PAGE>

of 2003 and  beyond,  the group must not  exceed a certain  ratio of debt to the
bank as compared to tangible  net worth.  The Company  fulfilled  all  covenants
applicable to the first three quarters in 2003; management expects to be able to
meet all  covenants,  both  those  applying  to SLT and  those  applying  to the
consolidated  group,  in the remaining  quarter of fiscal 2003.  The Company has
agreed to be  guarantor  to SLT's  obligations  under the  credit  facility.  At
September 30, 2003, the Company had $1,000,000 in  outstanding  obligations  and
had no availability under the credit facility. The outstanding obligations under
the credit  facility  are  classified  as current as they will be due on May 31,
2004.

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

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

NOTE 9
BUSINESS SEGMENT AND GEOGRAPHIC DATA:

The Company is engaged in one  business  segment:  the design,  development  and
manufacture  of laser products and the marketing of those laser products as well
as other instruments for medical applications.  The Company markets its offering
through traditional products sales as well as through the provision of fee-based
medical  procedures  services.  The Company's  customers are primarily  doctors,
hospitals and surgery centers. For the three and nine months ended September 30,
2003  and  2002,  the  Company  did not  have  material  net  revenues  from any
individual customer.

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

                                                      For the Three Months Ended                For  the Nine Months Ended
                                                           September 30,                             September 30,
                                                      2003                 2002                 2003                 2002
                                                   ----------           ----------           ----------           ----------
<S>                                                <C>                  <C>                  <C>                  <C>
Laser system sales .............................   $  187,662           $  630,000           $2,023,632           $1,939,500
Disposables and accessories ....................    1,029,974                    -            3,152,428                    -
                                                   ----------           ----------           ----------           ----------
     Total product sales .......................   $1,217,636           $  630,000           $5,176,060           $1,939,500
                                                   ==========           ==========           ==========           ==========

Excimer treatment procedures ...................   $  535,003           $  202,045           $  890,916           $  687,617
Surgical procedures ............................    1,546,843                    -            4,548,682                    -
                                                   ----------           ----------           ----------           ----------
     Total services ............................   $2,081,846           $  202,045           $5,439,598           $  687,617
                                                   ==========           ==========           ==========           ==========
</TABLE>

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

                                                For the Three Months Ended                    For the Nine Months Ended
                                                        September 30,                                 September 30,
                                                  2003                   2002                   2003                   2002
                                              -----------            -----------            -----------            -----------

<S>                                           <C>                    <C>                    <C>                    <C>
       Domestic ........................      $ 3,274,669            $   202,045            $ 8,905,438            $   687,617
       Foreign .........................           24,813                630,000              1,710,220              1,939,500
                                              -----------            -----------            -----------            -----------
                                              $ 3,299,482            $   832,045            $10,615,658            $ 2,627,117
                                              ===========            ===========            ===========            ===========
</TABLE>




                                       16
<PAGE>
>


NOTE 10
PRIVATE PLACEMENT:

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

NOTE 11
SIGNIFICANT ALLIANCES/AGREEMENTS:

The Company has entered into an agreement with True North Capital Ltd. (the "TNC
Agreement"),  dated as of October 28, 2003, pursuant to which True North Capital
has  agreed to  assist  the  Company  in  identifying  and  evaluating  proposed
strategic growth transactions  relating to the healthcare  industry.  True North
Capital is a fund  management  group which provides  management and  acquisition
advisory services with a specialty in the healthcare  industry.  As disclosed in
the proxy filing for 2002, one of the Company's  directors is a senior member of
the executive  management  staff of True North  Capital and holds  approximately
20.3%  equity  interests  in True North  Capital and its  affiliate,  True North
Partners, LLC.

 In the event of the  completion of an acquisition  or merger  transaction,  the
Company  has  agreed to pay True  North  Capital a  "success  fee"  equal to the
greater of: (i) $250,000,  or (ii) the sum of (a) 5% of the aggregate  purchase,
if the aggregate  consideration  is equal to or greater than $5,000,000 and less
than $10,000,000;  plus; (b) 3% of the aggregate  consideration from $10,000,000
to $50,000,000,  plus; (c) 2.5% of the aggregate  consideration from $50,000,000
to $100,000,000,  plus; (d) 2% of the aggregate  consideration from $100,000,000
to  $150,000,000,  plus;  (e) 1.5% of the aggregate  consideration  in excess of
$150,000,000. The Company has paid True North Capital a one-time $20,000 expense
reimbursement  for  the  deployment  of  its  personnel  and  resources  in  the
fulfillment of the goals set forth in the TNC  Agreement.  The TNC Agreement may
be canceled upon 30 days notice from ether party.

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




                                       17
<PAGE>




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

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

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

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

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

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

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

         As part of our commercialization  strategy in the United States, we are
providing the XTRAC system to targeted dermatologists at no initial capital cost
to them.  We  believe  that  this  strategy  will  create  incentives  for these
dermatologists  to adopt the XTRAC system and will further  market  penetration.
But  this  strategy   will  require  us  to  identify  and  target   appropriate
dermatologists  and to balance the planned  roll-out of our XTRAC lasers in 2003
against uncertainties in acceptance by physicians, patients and health plans and
constraints on the number of XTRAC systems we are able to provide. Our marketing
force has limited experience in dealing with such challenges.  We expect that as
we seek to increase the number of accepting  health plans in the last quarter of
2003 and into the near  term of 2004,  we will  continue  to  encounter  greater
difficulties and  uncertainties  in overcoming such  challenges.  Outside of the
United  States,   our  strategy  includes  selling  XTRAC  systems  directly  to
dermatologists through distributors and, potentially, placing XTRAC systems with
dermatologists to provide us with a usage-based revenue stream.

                                       18
<PAGE>

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

RESULTS OF OPERATIONS

REVENUES

         We  generated  revenues of  $3,299,482  during the three  months  ended
September  30,  2003,  of which  $2,888,219  were  from the  operations  of SLT,
including  both  product  revenues  and  services  revenues.  The balance of the
revenues was from our phototherapy products and services operations.

         We  generated  revenues of  $10,615,658  during the nine  months  ended
September  30,  2003,  of which  $8,914,462  were from the product and  services
operations  of SLT. The balance of the revenues was from  phototherapy  products
and services operations.

         In the first  quarter  of 2003,  we  implemented  a limited  program to
support certain  physicians in addressing  treatments with the XTRAC system that
may be  denied  reimbursement  by  private  insurance  carriers.  Following  the
requirements of Staff Accounting  Bulletin No. 101, we recognize service revenue
during the program from the sale of treatment  cards,  or  equivalent  treatment
codes, to physicians participating in this program only if and to the extent the
physician has been  reimbursed  for the  treatments.  This  program,  originally
scheduled to terminate on June 30, 2003, has been extended to December 31, 2003.
During the first nine months of 2003,  we deferred  revenues of $513,200,  under
this  program,   net  of  $339,372  in  revenues  recognized  due  to  physician
reimbursements known or estimated to have been received for the treatments.

COST OF REVENUES

         Product cost of revenues for the three months ended  September 30, 2003
were  $897,155,  compared to $298,772 for the three months ended  September  30,
2002.  Included in these costs were $668,105 related to SLT product revenues for
the three months ended September 30, 2003;  there were no comparable SLT product
cost of revenues in the three months ended  September  30, 2002.  The  remaining
product  cost of  revenues  during  these  periods  of  $229,050  and  $298,772,
respectively,  related  primarily  to the  production  costs of the XTRAC  laser
equipment  sold outside of the United States.  The decrease of $69,722,  or 23%,
was due to fewer  laser  sales for the three  months  ended  September  30, 2003
compared to September 30, 2002.

         Product cost of revenues for the nine months ended  September  30, 2003
were  $3,080,886,  compared to $953,718 for the nine months ended  September 30,
2002.  Included in these costs were $2,207,909  related to SLT product  revenues
for the nine months ended  September  30,  2003;  there were no  comparable  SLT
product  cost of revenues in the nine  months  ended  September  30,  2002.  The
remaining  product  cost of  revenues  during  these  periods  of  $872,977  and
$953,718,  respectively,  related primarily to the production costs of the XTRAC
laser equipment sold outside of the United States.

         Services  cost of revenues  was  $1,590,423  and  $563,207 in the three
months ended September 30, 2003 and 2002, respectively.  Included in these costs
were  $995,029  related  to SLT  service  revenues  for the three  months  ended
September 30, 2003.  The remaining  services cost of revenues,  during the three
months ended  September 30, 2003 and 2002,  represented  depreciation  and field
service costs on the lasers in service.

          Services cost of revenues was  $4,483,178  and  $2,027,580 in the nine
months ended September 30, 2003 and 2002, respectively.  Included in these costs
were  $2,796,897  related to SLT  service  revenues  for the nine  months  ended
September  30, 2003.  The remaining  services  cost of revenues  during the nine
months ended  September 30, 2003 and 2002,  represented  depreciation  and field
service costs on the lasers in service.

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



                                       19
<PAGE>
>


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses for the three months ended
September 30, 2003 were $2,303,193,  compared to $1,621,048 for the three months
ended  September  30, 2002, an increase of 42%. The increase was due to expenses
for SLT of $882,560,  which was offset, in part, by $285,000 of bad debt expense
in September 30, 2002 for which there was no corresponding expense for the three
months ended September 30, 2003.

          Selling, general and administrative expenses for the nine months ended
September 30, 2003 were  $6,984,811,  compared to $4,926,117 for the nine months
ended  September  30, 2002, an increase of 42%. The increase was due to expenses
for SLT of  $2,904,466.  SLT's  expenses  were offset,  in part,  by $320,000 of
additional  warranty-related expense and $184,000 of additional bad debt expense
in September 30, 2002 for which there was no  corresponding  additional  expense
for the three months ended September 30, 2003. The increase was also offset,  in
part, by reductions in duplicative expenses between PhotoMedex and SLT.


ENGINEERING AND PRODUCT DEVELOPMENT

         Engineering and product development expenses for the three months ended
September  30, 2003  decreased  to $418,331  from  $428,755 for the three months
ended  September  30, 2002.  This decrease  related  primarily to a reduction of
$135,000  of product  development  expenses  and  $30,000 of  professional  fees
related to the improvements to the excimer laser.  This decrease was offset,  in
part,  by SLT's  engineering  expenses of $145,000  for the three  months  ended
September  30, 2003,  for which no  comparable  amount was incurred in the three
months ended September 30, 2002.

         Engineering and product development  expenses for the nine months ended
September 30, 2003 increased to $1,295,397  from  $1,230,177 for the nine months
ended September 30, 2002. This increase related  primarily to the recording of a
severance  of $87,500 and SLT's  engineering  expenses of $393,000  for the nine
months ended  September  30, 2003.  These  expenses  were  offset,  in part,  by
clinical  trial  expenses  of  $173,000  and  product  development  expenses  of
$305,000,  related to the improvements to the excimer laser, for the nine months
ended September 30, 2002.

INTEREST EXPENSE, NET

         Net interest  expense for the three months ended September 30, 2003 was
$3,300, as compared to net interest income of $14,908 for the three months ended
September 30, 2002. Net interest expense for the nine months ended September 30,
2003 was  $44,738,  as compared to net  interest  income of $18,276 for the nine
months ended  September 30, 2002.  The increases in net interest  expense in the
comparable  periods  related to the  interest  on the line of credit and on long
term-debt that was assumed with the acquisition of SLT.

NET LOSS

         The  aforementioned  factors  resulted in a net loss of $1,912,920  and
$5,273,352  during  the three and nine  months  ended  September  30,  2003,  as
compared to a net loss of $2,065,115  and  $6,496,856  during the three and nine
months ended September 30, 2002, a decrease of 7% and 19%,  respectively.  These
decreases  in net losses were  primarily  the result of the  acquisition  of SLT
along with a reduction of operating and production costs.

LIQUIDITY AND CAPITAL RESOURCES

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

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

         On May 28, 2003, we closed on a private  placement for 5,982,353 shares
of common  stock at a price of $1.70 per share  resulting  in gross  proceeds of
$10,170,000. The closing price of our common stock on May 28, 2003 was $2.07 per
share. In connection with this private placement,  we paid commissions and other

                                       20
<PAGE>

expenses of $669,954,  resulting in net proceeds of $9,500,046. In addition, the
investors  received warrants to purchase  1,495,588 shares of common stock at an
exercise  price of $2.00 per share.  The warrants have a five-year  term and are
not  exercisable  until November 29, 2003. We intend to use the proceeds of this
financing to pay for working capital and other general corporate  purposes.  The
shares  sold in the  private  placement,  including  the shares  underlying  the
warrants, have been registered with the Securities and Exchange Commission.

         On June 13, 2002, we completed a private  placement of 4,115,000 shares
of common  stock at a price of $1.50 per share  resulting  in gross  proceeds of
$6,172,500. The closing price of our common stock on June 13, 2002 was $1.68 per
share. In connection with this private placement,  we paid commissions and other
expenses of $466,453,  resulting in net proceeds of $5,706,047. In addition, the
investors  received warrants to purchase  1,028,750 shares of common stock at an
exercise  price of $1.90 per share.  The warrants have a five-year term and were
not  exercisable  until  December  14,  2002.  We have used the proceeds of this
financing to pay for working capital and other general corporate purposes.

         On  December  27,  2002,  we  acquired  SLT.  While  the  impact of the
acquisition  was marginal on our results of operations  for 2002, we expect that
the surgical  products and  services  provided by SLT will  continue to increase
revenues for 2003.  Revenues  from  surgical  products and services  amounted to
$2,888,219  and  $8,914,462  for the three and nine months ended  September  30,
2003. We also expect to save costs from the consolidation of the  administrative
and marketing  infrastructure  of the combined  company.  With the  consolidated
infrastructure  in  place,  we  expect  that  growth  of our  revenues,  both in
phototherapy and surgical products and services, may occur, without commensurate
growth in our fixed costs.  We believe that results of  operations  for the nine
months ended  September 30, 2003 have reflected each of these  expectations.  We
believe that the results of  operations  during the nine months ended  September
30, 2003  reflect  that the  established  revenues  from  surgical  products and
services  have  served to help  absorb  the costs of the  infrastructure  of the
combined company and thereby improve cash flows.

         At  September  30,  2003,  the  ratio  of  current  assets  to  current
liabilities  was 2.85 to 1.00 compared to 1.90 to 1.00 at December 31, 2002. The
improvement in this ratio was due to the private placement in May 2003, detailed
above,  and was also due in part to the fact that as of the end of fiscal  2002,
we had  classified  $2,000,000 of the obligation to SLT's bank as currently due,
but as of September 30, 2003, we had applied the cash collateral to pay down the
credit  facility with that bank to $1,000,000.  As of September 30, 2003, we had
$10,564,288 of working capital.

         Cash and cash  equivalents were $8,144,687 as of September 30, 2003, as
compared to $4,008,051 as of December 31, 2002.

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

         Concurrent  with the SLT  acquisition,  we assumed a $3,000,000  credit
facility  from a bank  subsequently  amended on February  27, 2003 and March 26,
2003 to $1,400,000 and on May 13, 2003 to $1,000,000.  The credit facility has a
commitment term expiring May 31, 2004,  permits deferment of principal  payments
until the end of the commitment  term, and is secured by SLT's business  assets,
including  collateralization  (until  May 13,  2003)  of  SLT's  cash  and  cash
equivalents  and short-term  investments.  In the first quarter of 2003, we paid
the credit  facility  down to  $1,362,817.  As various  certificates  of deposit
matured in the second quarter of 2003, the proceeds were applied to pay down the
balance  outstanding  under the  facility,  bringing  the  credit  limit down to
$1,000,000.  The credit  facility has an interest  rate of the 30 day LIBOR plus
2.25%. The rate at September 30, 2003 was 3.37%.

         The credit  facility is subject to certain  restrictive  covenants  and
borrowing base  limitations.  At September 30, 2003, SLT was in compliance  with

                                       21
<PAGE>

all  covenants set by the bank.  The  restrictive  covenants and borrowing  base
limitations set under the credit facility will continue in 2003 to apply to SLT.

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

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

         At September 30, 2003, we had $1,000,000 in outstanding obligations and
had no availability under the credit facility. The outstanding obligations under
the credit  facility are  classified as current,  as they will be due on May 31,
2004.

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

         For the  nine  months  ended  September  30,  2003,  net  cash  used in
operating  activities  was  $4,013,293.  The net loss of $5,273,352 for the nine
months ended September 30, 2003 included $1,577,454 of non-cash depreciation and
amortization  expense,  $38,164 of payment in our securities  (including  common
stock  options and  warrants)  of fees for services to  consultants,  $62,713 of
expense  related to the stock  options  issued to an  employee  and  $254,429 of
non-cash  provisions  for  doubtful  accounts.  The usage  also  included  a net
increase  in account  receivables  of  $703,636  and a net  decrease  in current
liabilities  of  $667,823,  the  effects of which  were  offset,  in part,  by a
decrease in inventories of $422,351.

         For the  nine  months  ended  September  30,  2002,  net  cash  used in
operating  activities  was  $5,151,992.  The net loss of $6,496,856 for the nine
months ended September 30, 2002 included $1,264,321 of non-cash depreciation and
amortization expense and $34,295 of payment in our securities  (including common
stock  options) of fees for services to  consultants.  The usage also included a
net  increase in accounts  receivable  of $117,190 and a net decrease in current
liabilities of $139,213.

         Net cash  used in  investing  activities  was  $1,423,116  for the nine
months  ended  September  30, 2003  compared to net cash  provided by  investing
activities of $61,103 for the nine months ended  September 30, 2002.  During the
nine months ended September 30, 2003, we utilized $1,389,375,  for production of
our lasers in service. During the nine months ended September 30, 2003 and 2002,
we used  $33,741 and  $73,538,  respectively,  for  purchases  of  computer  and
manufacturing equipment as well as leasehold improvements to support our excimer
laser business operations.

         Net cash provided by financing  activities  was $9,573,045 for the nine
months ended  September 30, 2003 compared to net cash provided of $5,732,458 for
the nine months ended September 30, 2002. In the nine months ended September 30,
2003, we received net proceeds of $9,477,546  from the private  placement in May
2003. We also received  $2,000,000  from the release of  restricted  cash,  cash
equivalents  and  short-term  investments,  which was offset by a net payment of
$1,770,268 on the line of credit, and $657,263 for the payment of certain debts.
In the nine  months  ended  September  30,  2002,  we received  net  proceeds of
$5,706,047 from the private placement in June 2002, $18,000 and $29,000 from the
exercise of options and  warrants,  respectively,  and $60,905 in proceeds  from
notes payable.  These receipts were offset,  in part, by $81,494 for the payment
of certain debts.

                                       22
<PAGE>

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

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

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

IMPACT OF INFLATION

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
of  Variable  Interest  Entities,   an  Interpretation  of  ARB  No.  51."  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the Interpretation.  The Interpretation  applies
immediately to variable  interests in variable  interest  entities created after
January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained  after  January 31, 2003.  For public  enterprises,  such as us, with a
variable interest in a variable interest entity created before February 1, 2003,
the  Interpretation  is effective  December 31, 2003.  The  application  of this
Interpretation  is not expected to have an effect on our consolidated  financial
statements.

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

CRITICAL ACCOUNTING POLICIES

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

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different  from  those  assumptions.  Management  believes  that  the  following
critical accounting policies affect our more significant judgments and estimates
in the  preparation of our  consolidated  financial  statements.  These critical
accounting  policies and the significant  estimates made in accordance with them
have been discussed with our Audit Committee.

         REVENUE  RECOGNITION.   We  have  two  distribution  channels  for  our
phototherapy  treatment  equipment.  We will either (i) sell the laser through a
distributor  or directly to a physician or (ii) place the laser in a physician's
office (at no charge to the  physician)  and charge the  physician  a fee for an
agreed upon number of treatments or treatment  cards.  When we sell a laser to a
distributor or directly to a physician,  revenue is recognized when products are
shipped and the Company has no  significant  remaining  obligations,  persuasive
evidence  of an  arrangement  exists,  the  price  to  the  buyer  is  fixed  or
determinable,  and collectibility is reasonably  assured or probable.  At times,
units are shipped but revenue is not  recognized  until all of the  criteria are
met. Under the terms of the distributor agreements, the distributors do not have
the right to return any unit.  However,  we do allow  products to be returned by
our distributors in redress of product defects or other claims.  When we place a
laser in a  physician's  office,  service  revenues are  recognized  based on an
estimate of patient  treatments.  To use the laser,  the  physician  purchases a
treatment card or an access code that allows  performance of a specified  number
of treatments.  This amount is included in deferred revenues on the accompanying
consolidated balance sheets until the treatment occurs.

         In the first  quarter  of 2003,  we  implemented  a limited  program to
induce some  physicians to perform  treatments  with the XTRAC system and at the
same time to support these  physicians in coping with claims for such treatments
that may be denied  reimbursement  by  private  insurance  carriers.  Under this
limited  program,  currently  set to  expire on  December  31,  2003,  we record
deferred   revenue  when  we  sell  treatment  cards  or  access  codes  to  the
participating physicians and relieve the deferred service revenue account during
the program only when it is  determined  or  estimated  that the  physician  has
received reimbursement for the treatment.

         Through our surgical  businesses,  we generate revenues  primarily from
three channels.  The first is through sales of recurring laser delivery  systems
and accessories;  the second is through the per-procedure surgical services; and
the third is through the sale of laser systems and related  maintenance  service
agreements.  We  recognize  revenues  from  product  sales,  including  sales to
distributors,  when  products  are shipped  and the  Company has no  significant
remaining  obligations,  persuasive evidence of an arrangement exists, the price
to the buyer is fixed or determinable,  and collectibility is reasonably assured
or probable. At times, units are shipped but revenue is not recognized until all
of the criteria  are met.  For  per-procedure  surgical  services,  we recognize
revenue upon the completion of the procedure.  Revenue from maintenance  service
agreements is deferred and recognized on a straight-line  basis over the term of
the agreements.  Revenue from billable services,  including repair activity,  is
recognized when the service is provided.

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

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

         PROPERTY AND EQUIPMENT. As of September 30, 2003 and December 31, 2002,
we had net property and equipment of $4,148,211  and  $3,672,438,  respectively.
The most significant  component of these amounts related to the lasers placed by
us in  physicians'  offices.  We own the equipment and charge the physician on a
per-treatment  basis  for use of the  equipment.  The  realizability  of the net
carrying  value of the lasers is  predicated  on  increasing  revenues  from the

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<PAGE>

physicians'  use of the lasers.  We believe that such usage will increase in the
future   based  on  the  recently   approved  CPT  codes  and  wider   insurance
reimbursement.

         INTANGIBLES.  Our balance sheet includes  goodwill and other intangible
assets  which  affect  the  amount of future  period  amortization  expense  and
possible impairment expense that we will incur. Management's judgments regarding
the existence of impairment  indicators are based on various factors,  including
market conditions and operational  performance of our business.  As of September
30, 2003 and December 31, 2002, we had $3,746,201 and $3,878,225,  respectively,
of  goodwill  and  other  intangibles,  accounting  for 15% and 18% of our total
assets  at the  respective  dates.  The  determination  of  the  value  of  such
intangible  assets requires  management to make estimates and  assumptions  that
affect our consolidated financial statements.

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 4.  CONTROLS AND PROCEDURES

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

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.

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<PAGE>

ITEM 5.  OTHER INFORMATION

         We have  entered into an agreement  with True North  Capital Ltd.  (the
"TNC  Agreement"),  dated as of October 28,  2003,  pursuant to which True North
Capital has agreed to assist us in identifying and evaluating proposed strategic
growth transactions relating to the healthcare industry. True North Capital is a
fund  management  group  which  provides  management  and  acquisition  advisory
services with a specialty in the healthcare industry.  As disclosed in the proxy
filing  for 2002,  one of our  directors  is a senior  member  of the  executive
management  staff of True North  Capital and holds  approximately  20.3%  equity
interests in True North Capital and its affiliate, True North Partners, LLC.

          In  the  event  of  the   completion  of  an   acquisition  or  merger
transaction,  we have agreed to pay True North  Capital a "success fee" equal to
the  greater  of:  (i)  $250,000,  or (ii)  the  sum of (a) 5% of the  aggregate
purchase, if the aggregate  consideration is equal to or greater than $5,000,000
and less than  $10,000,000;  plus;  (b) 3% of the aggregate  consideration  from
$10,000,000 to $50,000,000,  plus; (c) 2.5% of the aggregate  consideration from
$50,000,000 to $100,000,000,  plus; (d) 2% of the aggregate  consideration  from
$100,000,000 to $150,000,000,  plus; (e) 1.5% of the aggregate  consideration in
excess of  $150,000,000.  We have paid True  North  Capital a  one-time  $20,000
expense  reimbursement  for the deployment of its personnel and resources in the
fulfillment of the goals set forth in the TNC  Agreement.  The TNC Agreement may
be canceled upon 30 days notice from ether party.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         A.  REPORTS ON FORM 8-K
             -------------------

         On July 30,  2003,  we filed a Report on Form 8-K with  respect  to our
press  release,  dated July 24, 2003,  with  respect to our second  quarter 2003
earnings.

         On October 29, 2003,  we filed a Report on Form 8-K  concerning,  among
other things, the agreement between PhotoMedex, Inc. and True North Capital Ltd.

         On October 31, 2003,  we filed a Report on Form 8-K with respect to our
press  release,  dated October 30, 2003,  with respect to our third quarter 2003
earnings.

         B.  OTHER EXHIBITS
             --------------

    10.45  Letter agreement dated October 28, 2003 between PhotoMedex,  Inc. and
           True North Capital Ltd.
     31.1  Rule 13a-14(a) Certificate of Chief Executive Officer
     31.2  Rule 13a-14(a) Certification of Chief Financial Officer
     32.1  Certificate of Chief Executive  Officer pursuant to 18 U.S.C. Section
           1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
           2002
     32.2  Certificate of Chief Financial  Officer pursuant to 18 U.S.C. Section
           1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
           2002




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                       DOCUMENTS INCORPORATED BY REFERENCE

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



                                   SIGNATURES

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



                                        PHOTOMEDEX, INC.



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


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




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