<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-Q/A

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

     For the quarterly period ended September 28, 2002

                                       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 0-21667

                            PHOTOELECTRON CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

                 MASSACHUSETTS                                    04-3035323
       (State or Other Jurisdiction of                        (I.R.S. Employer
       Incorporation or Organization)                        Identification No.)

            9 EXECUTIVE PARK DRIVE                                   01862
              NORTH BILLERICA, MA                                 (Zip code)
   (Address of Principal Executive Offices)

                                 (978) 670-8777
              (Registrant's Telephone Number, Including Area Code)

                               __________________

     Indicate by check mark whether the registrant: (1) has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]

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

                               __________________

     10,055,902 shares of Common Stock, $.01 par value, were outstanding as of
November 4, 2002

                                       -1-

<PAGE>

                                EXPLANATORY NOTE

This Form 10-Q/A amends our quarterly report on Form 10-Q for the quarter ended
September 28, 2002 and is being filed to reflect the restatement of our
condensed consolidated financial statements as of September 28, 2002 and
December 29, 2001, and for the periods ending September 28, 2002 and September
29, 2001. The restatement relates to premature revenue recognition pursuant to a
single contract with a customer that was granted extended payment terms. The
terms of the sale required a partial, non-refundable payment upon shipment, with
the remaining balance due within twelve months from the date of shipment. These
terms are not customary for the company and it has no history of successful
collection for amounts due under extended payment terms. Therefore, the company
determined, subsequent to the filing of the 10-Q, that the entire contract fee
was not fixed and determinable until such time as the customer remits payment in
full. Accordingly, revenue should not have been recognized in the three or
nine-month periods ended September 28, 2002.

The significant effects of this restatement on the financial statements are
presented in Note 7 to the condensed consolidated financial statements.

For the convenience of the reader, this Form 10-Q/A amends and restates the
entire original filing on Form 10-Q made on November 12, 2002. However, the only
changes to the original filing are (i) the addition of Note 7 to the condensed
consolidated financial statements; (ii) the inclusion of new certifications as
required by the Sarbanes-Oxley Act of 2002; and (iii) amendments to the
following sections of the 10-Q:

..    The condensed consolidated financial statements in Item 1;

..    Note 1 to the condensed consolidated financial statements;

..    The "Overview" and "Results of Operations" sections of "Management's
     Discussion and Analysis of Financial Condition and Results of Operations"
     in Item 2;

..    The "Liquidity and Capital Resources" section of "Management's Discussion
     and Analysis of Financial Condition and Results of Operations" in Item 2;
     and

..    Item 4, "Controls and Procedures."

We have made no other changes to the previously filed Form 10-Q. Except for the
new certifications required by the Sarbanes-Oxley Act of 2002 and Item 4,
"Controls and Procedures," all information in this Form 10-Q/A is as of
September 28, 2002 and no attempts have been made to modify or update other
disclosures or any subsequent information or events other than disclosures
relating to the restatement.

                                       -2-

<PAGE>

                            PHOTOELECTRON CORPORATION

                          QUARTERLY REPORT ON FORM 10-Q
                     FOR THE PERIOD ENDED SEPTEMBER 28, 2002

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
PART I--   FINANCIAL INFORMATION

Item 1    Condensed Consolidated Financial Statements ............................     4

          Condensed Consolidated Balance Sheets at September 28, 2002 (Restated)
          and December 29, 2001 ..................................................     4

          Condensed Consolidated Statements of Operations for the Three and
          Nine Months Ended September 28, 2002 (Restated) and
          September 29, 2001 .....................................................     5

          Condensed Consolidated Statements of Cash Flow for the Nine Months
          Ended September 28, 2002 (Restated) and September 29, 2001 .............     6

          Notes to Unaudited Condensed Consolidated Financial Statements .........     7

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations ..................................................    10

Item 3    Quantitative and Qualitative Disclosures About Market Risk .............    14

Item 4    Controls and Procedures ................................................    14

PART II--  OTHER INFORMATION

Item 1    Legal Proceedings ......................................................    15

Item 2    Changes in Securities and Use of Proceeds ..............................    15

Item 3    Defaults upon Senior Securities ........................................    15

Item 4    Submission of Matters to a Vote of Security Holders ....................    15

Item 5    Other Information ......................................................    15

Item 6    Exhibits and Reports on Form 8-K .......................................    15
</TABLE>

                                       -3-

<PAGE>

                    PHOTOELECTRON CORPORATION AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     September 28,        December 29,
                                                                                     -------------        ------------
                                                                                         2002                2001
                                                                                         ----                ----
                                                                                      (Unaudited)
                                                                                        Restated
<S>                                                                                  <C>                  <C>
                                       ASSETS

Current Assets:
     Cash and cash equivalents .................................................       $  1,451,482       $ 4,007,547
     Accounts receivable .......................................................            186,120           277,674
     Inventories ...............................................................          1,553,666         1,656,889
     Prepaid expenses ..........................................................            118,633           198,289
     Held to maturity investments ..............................................                 --         1,594,166
                                                                                       ------------       -----------
          Total current assets .................................................          3,309,901         7,734,565
                                                                                       ============       ===========
Property and Equipment:
     Computer equipment ........................................................          1,026,534         1,026,534
     Lab and production equipment ..............................................          1,229,074         1,188,131
     Clinical site equipment ...................................................            875,122           875,122
     Sales demo equipment ......................................................            148,450           148,450
     Furniture and fixtures ....................................................            183,104           183,104
     Leasehold improvements ....................................................            107,254           866,230
                                                                                       ------------       -----------
     Property and equipment ....................................................          3,569,538         4,287,571
     Less--Accumulated depreciation and amortization ...........................          3,230,423         3,849,728
                                                                                       ------------       -----------
     Net property and equipment ................................................            339,115           437,843
                                                                                       ------------       -----------
Other Assets:
     Deferred offering costs, net ..............................................            808,972         1,030,444
                                                                                       ------------       -----------
          Total assets .........................................................       $  4,457,988       $ 9,202,852
                                                                                       ============       ===========

                       LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
     Accounts payable ..........................................................       $    378,169       $   298,182
     Accrued expenses ..........................................................            462,818           659,360
     Accrued payroll and benefits ..............................................             93,583           171,712
     Deferred revenue ..........................................................            135,000                --
                                                                                       ------------       -----------
          Total current liabilities ............................................          1,069,570         1,129,254
                                                                                       ============       ===========
Long Term Liabilities
     Senior convertible debentures .............................................         15,592,796        15,024,333
                                                                                       ------------       -----------
Commitments and Contingencies (Note 4)
Shareholders' Deficit:
     Preferred stock, $0.01 par value
          Authorized--2,500,000
          Issued and outstanding--none at September 28, 2002 and December 29,
            2001, respectively .................................................                 --                --
     Common stock, $0.01 par value
          Authorized--25,000,000 and 20,000,000 at September 28, 2002 and
            December 29, 2001 respectively
          Issued and outstanding--10,054,901 and 9,947,418 at September 28, 2002
            and December 29, 2001, respectively ................................            100,549            99,474
     Capital in excess of par value common stock ...............................         48,757,583        48,374,531
     Deferred compensation .....................................................            (28,630)          (77,298)
     Accumulated deficit .......................................................        (61,033,880)      (55,347,442)
                                                                                        -----------       -----------
          Total shareholders' deficit ..........................................        (12,204,378)       (6,950,735)
                                                                                        -----------       -----------
          Total liabilities and shareholders' deficit ..........................        $ 4,457,988       $ 9,202,852
                                                                                        ===========       ===========
</TABLE>

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

                                       -4-

<PAGE>

                    PHOTOELECTRON CORPORATION AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      Three Months Ended                 Nine Months Ended
                                                      ------------------                 -----------------
                                            September 28,        September 29,       September 28,    September 29,
                                            -------------        -------------       -------------    -------------
                                                2002                 2001                2002             2001
                                                ----                 ----                ----             ----
                                             (Unaudited)          (Unaudited)        (Unaudited)       (Unaudited)
                                               Restated                                Restated
<S>                                         <C>                  <C>                 <C>              <C>
Revenues ................................     $    313,258        $    157,585       $ 1,165,891        $    760,365
Cost of Goods Sold ......................          189,295              90,825           631,456             479,728
                                              ------------        ------------       -----------        ------------
Gross Margin ............................          123,963              66,760           534,435             280,637
                                              ------------        ------------       -----------        ------------
Operating Expenses
     Research and development
        Expenses ........................          973,314           1,236,850         2,943,272           3,040,524
     Sales, general and administrative
        Expenses ........................          711,031           1,132,777         2,343,551           3,562,633
                                              ------------        ------------       -----------        ------------
        Total operating expenses ........        1,684,345           2,369,627         5,286,823           6,603,157
                                              ------------        ------------       -----------        ------------
        Operating loss ..................       (1,560,382)         (2,302,867)       (4,752,388)         (6,322,520)
Interest income .........................           12,956              31,284            49,952             191,963
Interest expense ........................         (330,447)           (241,082)         (984,000)           (761,274)
                                              ------------        ------------       -----------        ------------
Interest expense, net ...................         (317,491)           (209,798)         (934,048)           (569,311)
                                              ------------        ------------       -----------        ------------
Net loss ................................     $ (1,877,873)       $ (2,512,665)      $(5,686,436)       $ (6,891,831)
                                              ============        ============       ===========        ============
Basic and diluted net loss per
    share ...............................     $      (0.19)       $      (0.25)      $     (0.57)       $      (0.72)
                                              ============        ============       ===========        ============
Weighted average basic and
   diluted shares .......................       10,049,749           9,912,370        10,001,961           9,627,677
                                              ============        ============       ===========        ============
</TABLE>

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

                                       -5-

<PAGE>

                    PHOTOELECTRON CORPORATION AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                      -----------------------------
                                                                      September 28,   September 29,
                                                                      -------------   -------------
                                                                          2002             2001
                                                                          -----            ----
                                                                       (Unaudited)     (Unaudited)
                                                                         Restated
<S>                                                                   <C>             <C>
Cash flows from operating activities:
  Net loss ........................................................   $ (5,686,436)   $ (6,891,831)
   Adjustments to reconcile net loss to net cash used in operating
    activities--
      Depreciation and amortization ...............................        246,926         367,208
      Noncash amortization of offering expenses ...................        226,883         160,879
      Noncash compensation expense ................................         11,767          44,041
      Noncash commission expense ..................................          9,174              --
      Noncash consulting expense ..................................          7,878           9,106
      Noncash interest expense on 10% convertible debt ............        752,300         761,274
      Noncash interest expense on 6% convertible debt .............        231,700              --
   Changes in current accounts--
      Accounts receivable .........................................         91,554         105,997
      Inventories .................................................        103,223        (246,045)
      Prepaid expenses ............................................         79,656          64,122
      Accounts payable ............................................         79,987         347,830
      Accrued expenses and accrued payroll and benefits ...........       (274,671)       (183,714)
      Deferred revenue ............................................        135,000               -
        Net cash used in operating activities .....................     (3,985,059)     (5,461,133)
                                                                      ------------    ------------
Cash flows from investing activities:
   Proceeds from  held to maturity investments ....................      1,594,166       3,972,770
   Purchases of equipment and leasehold improvements ..............       (148,197)       (142,464)
                                                                      ------------    ------------
        Net cash provided by investing activities .................      1,445,969       3,830,306
                                                                      ------------    ------------
Cash flows from financing activities:
   Proceeds from issuance of common stock .........................          9,221       3,881,109
   Deferred offering expenses .....................................        (26,196)       (177,377)
                                                                      ------------    ------------
        Net cash provided by (used in) financing activities .......        (16,975)      3,703,732
                                                                      ------------    ------------
Increase (decrease) in cash and cash equivalents ..................     (2,556,065)      2,072,905
                                                                      ------------    ------------
Cash and cash equivalents, beginning of period ....................      4,007,547         662,857
                                                                      ------------    ------------
Cash and cash equivalents, end of period ..........................   $  1,451,482    $  2,735,762
                                                                      ------------    ------------
Noncash financing activities:
   Conversion of 10% convertible debentures to common stock .......   $    415,537    $  1,568,241
                                                                      ============    ============
</TABLE>

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

                                       -6-

<PAGE>

                            PHOTOELECTRON CORPORATION

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

     The interim unaudited condensed consolidated financial statements contained
herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In management's opinion, the unaudited information
includes all adjustments (consisting of normal recurring entries) necessary for
a fair presentation of the financial position, results of operations, and cash
flows for the periods presented. The results of operations for the interim
periods shown on this report are not necessarily indicative of the results
expected for the full year. The interim financial statements should be read in
conjunction with the financial statements and notes for the year ended December
29, 2001 included in Photoelectron Corporation's (the "Company" or "PeC") Annual
Report on Form 10-K filed with the Securities and Exchange Commission.

     The Company's financial statements have been presented on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has experienced
significant operating losses in each year since its inception, due primarily to
substantial research and development expenditures. As of September 28, 2002, the
Company had an accumulated deficit of approximately $61 million and expects to
continue to incur losses until such time as its commercialization efforts yield
offsetting revenues. There can be no assurance that the Company's products will
ever gain commercial acceptance, or that the Company will ever generate
significant revenues or achieve profitability. The Company's ability to achieve
profitable operations will be dependent in a large part on whether it can
successfully commercialize its products and make the transition to a
manufacturing and marketing company. The Company believes that its existing cash
and investments together with anticipated revenues will be sufficient for at
least the remainder of the year. The Company's primary source of liquidity in
2002 is the $5,000,000 of proceeds from the 6% Debenture issued in December
2001. The Company has reached agreements in principle with Carl Zeiss and PYC
Corporation to provide $500,000 each in a bridge financing, which the Company
anticipates will provide sufficient cash to continue operations through the
first quarter of 2003. The Company anticipates that the $500,000 to be provided
by Carl Zeiss will be in the form of advance purchase orders under the existing
distribution agreement between the Company and Carl Zeiss, and that the $500,000
to be provided by PYC Corporation will be under a line of credit secured by
certain of the Company's assets. In order to continue operations, the Company
will have to raise additional capital in fiscal 2003 unless revenues are greater
than anticipated. The Company is currently reviewing potential financing options
for the upcoming year. There is no assurance that it will be able to find
additional financing on acceptable terms, if at all.

Significant Accounting Policies

     The significant accounting policies followed by the Company in preparing
its financial statements are set forth in Note 1 to the financial statements
included in its Form 10-K for the year ended December 29, 2001. The Company has
made no changes to these policies during this quarter. The Company has since
amended its revenue recognition policy as follows.

     Revenue Recognition

     The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the fee is
fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (4) is based on management's judgments regarding the
collectibility of those revenues. Revenue related to contracts that contain
extended payment terms is recognized only upon receipt of final payment,
provided that all other criteria for revenue recognition have been met. Extended
payment terms are defined as payment terms outside of the Company's customary
business practice, generally greater than 90 days. Should changes in conditions
cause management to determine these criteria are not met for certain future
transactions, revenue recognized for any reporting period could be adversely
affected. Revenue results are difficult to predict, and any shortfall in revenue
or delay in recognizing revenue could cause PeC's operating results to vary
significantly from quarter to quarter and could result in future operating
losses.

2. Net Loss Per Share

     The computation of diluted earnings per share for September 28, 2002 and
September 29, 2001 excludes the effect of assuming the exercise of certain
outstanding stock options and the conversion of convertible securities because
the effect would be anti-dilutive, due to the Company's net loss during the
period. As of September 28, 2002 and September 29, 2001, there were 907,367 and
980,707 of such options outstanding, respectively, with exercise prices ranging
from $2.125-$9.00 per share and with expiration dates ranging from March 18,
2003 to July 31, 2012. As of September 28, 2002, there were securities
convertible into 4,953,596 shares of common stock, with conversion prices
ranging from $2.45-$4.74 per share and with expiration dates ranging from May 1,
2003 to September 27, 2007. As of September 29, 2001, there were securities
convertible into 3,459,055 shares of common stock, with conversion prices
ranging from $2.45-$4.74 per share and with expiration dates ranging from
January 27, 2002 to June 30, 2005.

                                       -7-

<PAGE>

3. Comprehensive Income (Loss)

     Comprehensive income (loss) approximates the net loss for all periods
presented.

4. Commitments and Contingencies

     On May 22, 2002, the Company entered into a lease agreement with the
American Power Conversion Corporation for approximately 23,700 square feet of
space at 9 Executive Park Drive in North Billerica, Massachusetts. In July 2002,
the Company relocated to the new facility which now serves as the principal
offices of the Company. The term of the lease agreement expires on August 31,
2007, but may be extended by the Company for an additional five-year term. The
Company has commitments under this lease agreement to make payments of
approximately $108,625 in 2002, $260,700 in each of 2003 through 2006, and
$152,075 in 2007.

5. Recent Accounting Pronouncements

     On December 30, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No.144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses financial reporting for the impairment or
disposal of long-lived assets. SFAS 144 supersedes SFAS 121 and the accounting
and reporting provisions of APB 30 related to the disposal of a segment of a
business. The adoption of this statement did not have a significant effect on
the Company's financial position or results of operations.

     In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated With Exit or Disposal Activities." SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and is effective for such activities that are initiated
after December 31, 2002, with earlier adoption encouraged. The adoption of SFAS
No. 146 is not expected to have any effect on the Company's results of
operations or financial position upon adoption.

6. Other Events

     Effective August 21, 2002, the Company entered into a Distribution
Agreement (the "Distribution Agreement") with Carl-Zeiss-Ziftung, dba Carl
Zeiss, a trust foundation organized and existing under the laws of Germany
("Carl Zeiss"). The Distribution Agreement appoints Carl Zeiss as exclusive
worldwide (other than Japan) distributor of the Company's Photon Radiosurgery
System ("PRS") and the Company's INTRABEAM(TM) intra-operative radiosurgery
system that combines the PRS with a counterbalanced surgical support stand and a
set of applicators. Also included are all improvements, redesigns, successor
models and other developments to such products and any device, component, part,
accessory or consumable in or intended for use with any such product. The
Distribution Agreement replaces the Development and Distribution Agreement with
Carl Zeiss Oberkochen that expired August 21, 2002. Carl Zeiss has committed to
certain minimum purchase requirements during the term of the Distribution
Agreement

     Under an agreement with Cordis Corporation ("Cordis") dated as of February
5, 2001 (the "2001 Agreement"), the Company agreed to develop for Cordis a
miniature x-ray source for intravascular radiation therapy (the "X-Ray System")
that would be subsequently distributed by Cordis. Effective September 6, 2002,
the Company and Cordis amended the 2001 Agreement (a) to grant the Company sole
authority to determine the amount of resources it will devote from time to time
to its development efforts under the 2001 Agreement, and (b) if the Company
completes the product development efforts contemplated by the 2001 Agreement, to
grant Cordis the option to proceed with the terms of the 2001 Agreement or, if
Cordis elects not to proceed with the 2001 Agreement, to grant the Company the
exclusive right to manufacture and distribute the X-Ray System.

7. Restatement

     Subsequent to the issuance of the Company's condensed consolidated
financial statements for the three and nine-month periods ended September 28,
2002, the Company's management determined that the accounting treatment that had
been originally applied to a certain customer contract was inappropriate. The
restatement relates to premature revenue recognition pursuant to a single
contract with a customer that was granted extended payment terms. The terms of
the sale required a partial, non-refundable payment upon shipment, with the
remaining balance due within twelve months from the date of shipment. These
terms are not customary for the Company and it has no history of successful
collection for amounts due under extended payment terms. Therefore, the Company
determined that the entire contract fee was not fixed and determinable, until
such time as the customer remits payment in full. Accordingly, revenue should
not have been recognized in the three or nine-month periods ended September 28,
2002.

                                       -8-

<PAGE>

     As a result, the condensed consolidated balance sheet as of September 28,
2002 has been restated from the amounts previously reported. Results of
operations for the three and nine-month periods ended September 28, 2002 have
also been restated. A summary of the significant effects of the restatement is
as follows:

<TABLE>
<CAPTION>
                               Three-Months Ended
                               September 28, 2002

                        As Previously Reported          As Restated
<S>                     <C>                             <C>
Revenue                        448,258                      313,258
Cost of Goods Sold             285,133                      189,295
Gross Margin                   163,125                      123,963
Operating Loss              (1,521,220)                  (1,560,382)
Net Loss                    (1,838,711)                  (1,877,873)

Basic and Diluted
Net loss per share              ($0.18)                      ($0.19)
</TABLE>

<TABLE>
<CAPTION>
                                Nine-Months Ended
                               September 28, 2002

                        As Previously Reported          As Restated
<S>                     <C>                             <C>
Revenue                      1,300,891                    1,165,891
Cost of Goods Sold             727,294                      631,456
Gross Margin                   573,597                      534,435
Operating Loss              (4,713,226)                  (4,752,388)
Net Loss                    (5,647,274)                  (5,686,436)

Basic and Diluted
Net loss per share              ($0.56)                      ($0.57)
</TABLE>

<TABLE>
<CAPTION>
Balance Sheet as of             As Previously
September 28, 2002                 Reported             As Restated
<S>                             <C>                     <C>
Inventories                          1,457,828            1,553,666
Total current assets                 3,214,063            3,309,901
Total assets                         4,362,150            4,457,988
Deferred revenue                             -              135,000
Total current liabilities              934,570            1,069,570
Accumulated deficit                 60,994,718           61,033,880
Total shareholders' deficit         12,165,216           12,204,378
Total liabilities and
  shareholders'deficit               4,362,150            4,457,988
</TABLE>

                                       -9-

<PAGE>

                          PART I: FINANCIAL INFORMATION

Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Overview

     Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words "expects,"
"anticipates," "believes" and words of similar import, constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward looking statements are subject to various
risks and uncertainties, including those referred to in the Company's Annual
Report on Form 10-K for the fiscal year ended December 29, 2001, that could
cause actual future results and events to differ materially from those currently
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements.

     Photoelectron Corporation ("PeC" or the "Company") is a technology company
dedicated to developing, manufacturing and marketing miniature x-ray systems for
multiple market applications.

     Established in 1989, the Company initially focused on research and
development for the miniaturization of an x-ray system for cancer treatment. The
Company has since expanded its development efforts and is now creating and
adapting miniature x-ray systems for a variety of applications in healthcare and
non-healthcare related markets. The Company has established an intellectual
property portfolio of twenty-three (23) U.S. patents and has twelve (12)
additional U.S. patents pending, all of which relate to the Company's core
technology and use.

     The Company's business strategy is to identify opportunities in which its
patented core technology can be used to gain access to new markets by means of
strategic alliances with industry leaders. This strategy allows the Company to
foster the development of multiple applications of its technology, while
remaining focused on its core expertise of developing, manufacturing and
marketing miniature x-ray systems. By joining with one or more industry leaders
to develop an x-ray system to satisfy the needs of a specific market, the
Company gains market and application expertise without having to internalize
many of the costs and organizational overhead necessary to support the specific
application. Leveraging the market expertise of these strategic relationships
allows the Company to rapidly bring the technology to new markets. The Company
plans to identify additional market opportunities that can both be linked to the
core technology and present the opportunity to access the market through a
strategic partner with application expertise and the sales and marketing
organization necessary to drive market acceptance.

     The Company is currently pursuing initiatives in the medical and industrial
markets with miniature x-ray systems designed for intra-operative radiation
therapy, radiosurgery, intravascular radiation therapy, brachytherapy, and x-ray
fluorescence analysis.

     On August 12, 2002, the Company engaged Deloitte & Touche LLP to serve as
independent public accountants for the fiscal year ending December 28, 2002. The
decision to engage Deloitte & Touche LLP was approved by the Company's Audit
Committee of the Board of Directors under authority of the Company's Board of
Directors.

     Effective August 21, 2002, the Company entered into a Distribution
Agreement (the "Distribution Agreement") with Carl-Zeiss-Ziftung, dba Carl
Zeiss, a trust foundation organized and existing under the laws of Germany
("Carl Zeiss"). The Distribution Agreement appoints Carl Zeiss as exclusive
worldwide (other than Japan) distributor of the Company's Photon Radiosurgery
System ("PRS") and the Company's INTRABEAM(TM) intra-operative radiosurgery
system that combines the PRS with a counterbalanced surgical support stand and a
set of applicators. Also included are all improvements, redesigns, successor
models and other developments to such products and any device, component, part,
accessory or consumable in or intended for use with any such product. The
Distribution Agreement replaces the Development and Distribution Agreement with
Carl Zeiss Oberkochen that expired August 21, 2002. Carl Zeiss has committed to
certain minimum purchase requirements during the term of the Distribution
Agreement.

     Under an agreement with Cordis Corporation ("Cordis") dated as of February
5, 2001 (the "2001 Agreement"), the Company agreed to develop for Cordis a
miniature x-ray source for intravascular radiation therapy (the "X-Ray System")
that would be subsequently distributed by Cordis. Effective September 6, 2002,
the Company and Cordis amended the 2001 Agreement (a) to grant the Company sole
authority to determine the amount of resources it will devote from time to time
to its development efforts under the 2001 Agreement, and (b) if the Company
completes the product development efforts contemplated by the 2001 Agreement, to
grant Cordis the option to proceed with the terms of the 2001 Agreement or, if
Cordis elects not to proceed with the 2001 Agreement, to grant the Company the
exclusive right to manufacture and distribute the X-Ray System.

                                       -10-

<PAGE>

     The Company's financial statements have been presented on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has experienced
significant operating losses in each year since its inception, due primarily to
substantial research and development expenditures. As of September 28, 2002, the
Company had an accumulated deficit of approximately $61 million and expects to
continue to incur losses until such time as its commercialization efforts yield
offsetting revenues. There can be no assurance that the Company's products will
ever gain commercial acceptance, or that the Company will ever generate
significant revenues or achieve profitability. The Company's ability to achieve
profitable operations will be dependent in a large part on whether it can
successfully commercialize its products and make the transition to a
manufacturing and marketing company. The Company anticipates that its sales and
marketing efforts through its existing sales and distribution channels will
continue to increase sales of its products in the current year.

     This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section has been revised to reflect the restatement as
described in Note 7 to the condensed consolidated financial statements.

Results of Operations

     Three Months Ended September 28, 2002 and September 29, 2001

     Revenue. The Company had revenues of $313,258 in the third quarter of 2002,
as compared with $157,585 in the third quarter of 2001. The 2002 third quarter
revenue reflects the sale of an INTRABEAM system through the Company's
distributor, Carl Zeiss, to a leading neurological center in Poland. In
addition, during the quarter, the Company continued to achieve sales of
LASER-X(TM), the Company's x-ray source for industrial x-ray fluorescence, as
well as Dosimetry products for the characterization of small radiation sources.
The 2001 revenue reflects the sale of a core PRS to the University of
Heidleberg, Germany, combined with sales of the LASER-X industrial x-ray source.

     Gross Margin. Gross margins for the third quarter of 2002 totaled $123,963
(40%) as compared to $66,760 (42%) for the third quarter of 2001. The increase
in gross margin dollars reflects the $155,673 in increased revenue for the
quarter. The decrease in gross margin percentage is due to product mix.

     Research and development expenses. The Company's research and development
expenses decreased by $263,536 from $1,236,850 in the third quarter of 2001 to
$973,314 in the third quarter of 2002. The decrease primarily represents the
completion of certain development projects coupled with lower expenditures
associated with the development of the miniature x-ray sources for intravascular
radiation therapy (X-SEED(TM)) and x-ray fluorescence systems (LASER-X).

     Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $421,746 from $1,132,777 in the third
quarter of 2001 to $711,031 in the third quarter of 2002. The decrease is
primarily attributable to a reduction in direct marketing programs and personnel
as a result of the distribution arrangement in place with Carl Zeiss.

     Interest income. Interest income decreased by $18,328 from $31,284 in the
third quarter of 2001 to $12,956 in the third quarter of 2002. The decrease
resulted from a decrease in amounts invested by the Company in conjunction with
lower market interest rates.

     Interest expense. Interest expense increased by $89,365 from $241,082 in
the third quarter of 2001 to $330,447 in the third quarter of 2002. The change
resulted from an increase in amounts borrowed, which is primarily attributable
to the sale by the Company of a $5,000,000 6% senior convertible debenture to
PYC Corporation in December 2001.

     Nine Months Ended September 28, 2002 and September 29, 2001

     Revenue. The Company had revenues of $1,165,891 in the first nine months of
2002, as compared with $760,365 in the first nine months of 2001. The 2002
revenue reflects increased sales of the Company's INTRABEAM system for
intra-operative radiation therapy, LASER-X industrial x-ray source and Dosimetry
products.

     Gross Margin. Gross margins for the nine months ended September 28, 2002
totaled $534,435 (46%) as compared to $280,637 (37%) for the nine months ended
September 29,2001. The increase in gross margin dollars reflects the $405,526 in
increased revenue for the nine month period. The increase in gross margin
percentage is due to product mix and favorable system pricing as compared to the
same period in 2001.

     Research and development expenses. The Company's research and development
expenses decreased by $97,252 from $3,040,524 in the first nine months of 2001
to $2,943,272 in the first nine months of 2002. The decrease primarily
represents the completion of certain development projects coupled with lower
expenditures associated with the continued development of the miniature x-ray
sources for intravascular radiation therapy (X-SEED) and x-ray fluorescence
systems (LASER-X).

                                      -11-

<PAGE>

     Selling, general and administrative expenses. The Company's selling,
general and administrative expenses decreased by $1,219,082 from $3,562,633 in
the first nine months of 2001 to $2,343,551 in the first nine months of 2002.
The decrease is primarily attributable to a reduction in direct marketing
programs and personnel as a result of the distribution arrangement in place with
Carl Zeiss.

     Interest income. Interest income decreased by $142,011 from $191,963 in the
first nine months of 2001 to $49,952 in the first nine months of 2002. The
decrease resulted from a decrease in amounts invested by the Company in
conjunction with lower market interest rates.

     Interest expense. Interest expense increased by $222,726 from $761,274 in
the first nine months of 2001 to $984,000 in the first nine months of 2002. The
change resulted from an increase in amounts borrowed, which is primarily
attributable to the sale by the Company of a $5,000,000 6% senior convertible
debenture to PYC Corporation in December 2001.

Liquidity and Capital Resources

     The Company has expended substantial funds to research and develop the PRS,
INTRABEAM, LASER-X, X-SEED and other potential products, conduct clinical
trials, pursue regulatory approvals, establish commercial scale manufacturing in
its own facilities or in the facilities of others, and market the PRS,
INTRABEAM, LASER-X, X-SEED and other products. The Company anticipates it will
continue to expend substantial funds in the future on such activities as such
funds become available.

     Since its inception, the Company has financed its operations through the
issuance of convertible debt and equity in a series of private placements
totaling approximately $36.6 million and its initial public offering with net
proceeds of approximately $16.8 million.

     Consolidated working capital was $2,240,331 at September 28, 2002, compared
with $6,605,311 at December 29, 2001. Included in working capital are cash and
cash equivalents of $1,451,482 at September 28, 2002, compared with $4,007,547
at December 29, 2001. During the first nine months of 2002, the Company used
$3,985,059 of cash for operating activities as compared to $5,461,133 for the
first nine months of 2001.

     The Company used $148,197 of cash in the first nine months of 2002 for lab
and production equipment, and leasehold improvements. The Company does not
expect to expend significant funds for capital equipment for the remainder of
the fiscal year.

     The Company received an aggregate of $0 and $9,221 of cash from the
exercise of stock options to purchase common stock for the three and nine months
ended September 28, 2002, respectively.

     In June 2000, the Company issued in a private placement $10,458,909 of 10%
senior convertible debentures. The Company used the net proceeds of the private
placement for general and administrative expenses, refinancing of $2,312,755 of
short-term debt bridge financing provided by PYC Corporation and $786,153 due
under an 8% Subordinated Convertible Demand Note to Peter M. Nomikos, and for
general corporate purposes, including, without limitation, to support the
accelerated testing and marketing of the Company's new products.

     The holders of the 10% senior convertible debentures are entitled to
receive interest payments at the rate of 10% per annum on the outstanding
principal amount of the debentures. At the option of the Company, interest may
be paid when due by adding the amount payable to the outstanding principal of
the debentures. The principal amount of the debentures, together with all
accrued and unpaid interest, is due and payable on May 1, 2005. The holders of
the debentures have the option, at any time prior to May 1, 2005, to convert the
debentures, in whole or in part, into shares of the Company's common stock at a
price of $4.00 per share. In the three and nine months ended September 28, 2002,
holders of $138,957 and $415,537 worth of debentures, respectively, exercised
their option to convert such amounts of debentures into shares of the Company's
common stock.

     On February 5, 2001, Johnson & Johnson Development Corporation purchased
904,762 shares of the Company's common stock for an aggregate purchase price of
$3.8 million.

     On December 17, 2001, the Company raised $5,000,000 in a private placement
of a 6% senior convertible debenture (the "6% Debenture") to PYC Corporation,
whose advisor, Peter M. Nomikos, is the Company's Chairman of the Board of
Directors and Chief Executive Officer. The entire financial interest in PYC
Corporation is held by adult members of Mr. Nomikos's family.

                                      -12-

<PAGE>

     The Company is using the net proceeds of the private placement for general
and administrative expenses and for general corporate purposes, including,
without limitation, to fund intra-operative radiation therapy for breast cancer
clinical trials, for the sales and marketing of PRS400(TM) system cancer
treatment products, for the development of an X-SEED intravascular radiation
therapy device, for brachytherapy product development, for the general support
of clinical trials, and for further development of industrial applications and
distribution alliances.

     PYC Corporation is entitled to receive interest payments at the rate of 6%
per annum on the outstanding principal amount of the 6% Debenture. At the option
of the Company, interest may be paid when due by adding the amount payable to
the outstanding principal amount of the 6% Debenture. The principal amount of
the 6% Debenture, together with all accrued but unpaid interest, is due and
payable on May 1, 2005. The holder of the 6% Debenture has the option, at any
time prior to May 1, 2005, to convert the 6% Debenture, in whole or in part,
into shares of the Company's common stock at a price of $3.25 per share. If any
shares of common stock or securities convertible into shares of common stock are
issued at an effective price lower than $3.25 per share (as adjusted and subject
to certain exclusions), then the conversion price of the 6% Debenture will be
automatically adjusted to that lower price.

     The Company may redeem any portion of the 6% Debenture at any time,
provided that the average closing bid price per share of the Company's common
stock as reported on the American Stock Exchange for the twenty (20) consecutive
trading days prior to the date of the redemption notice is at least 175% of the
conversion price. The redemption price will be 105% of the outstanding principal
amount of the 6% Debenture being redeemed, along with accrued but unpaid
interest. In addition, so long as 50% of the outstanding principal amount of the
6% Debenture originally issued is outstanding and subject to certain exceptions,
the Company may not incur more than $10,000,000 in indebtedness after December
17, 2001.

     Prior to entering into the transaction with PYC Corporation, the Company
attempted over a period of several months to raise funds from other sources.
After considering other financing alternatives, including a proposal from
another stockholder of the Company, the Board of Directors determined that the
terms and conditions of the financing proposal from PYC Corporation were more
favorable to the Company than the terms and conditions available from the other
stockholder or from non-related parties.

     The securities sold in the private placement have not been registered under
the Securities Act of 1933 or the securities laws of any state. The offering was
made in reliance upon the exemptions from the registration provisions afforded
by Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
thereunder. The Company has agreed to use its best efforts to file with the
Securities and Exchange Commission by December 31, 2002 a registration statement
on Form S-3 with respect to the resale of shares of the Company's common stock
issuable upon conversion of the 6% Debenture.

     The Company maintains medical product liability insurance policies which
the Company believes contain reasonable deductibles and other ordinary and
customary provisions. The Company believes that these policies cover such risks
in such amounts as are reasonable and prudent under the circumstances, and the
Company does not anticipate that claims under these policies, if any, will have
a material adverse impact on the Company's liquidity or capital resources. Prior
to commercial sale of its products, the Company obtained product liability
insurance covering the commercial use of its products.

     The Company's future capital requirements will depend on a variety of
factors, including the time and costs involved in obtaining new and expanding
existing United States Food and Drug Administration and other regulatory
approvals, the results of the Company's ongoing clinical trials, the market
acceptance of the PRS, INTRABEAM, LASER-X, X-SEED and any other Company
products, the expense and results of the Company's continued scientific research
and development programs, the time and costs expended in filing, prosecuting and
enforcing patent claims, and the development of competing technologies.

     The Company believes that its existing cash and investments together with
anticipated revenues will be sufficient for at least the remainder of the year.
The Company's primary source of liquidity in 2002 is the $5,000,000 of proceeds
from the 6% Debenture issued in December 2001. The Company has reached
agreements in principle with Carl Zeiss and PYC Corporation to provide $500,000
each in a bridge financing, which the Company anticipates will provide
sufficient cash to continue operations through the first quarter of 2003. The
Company anticipates that the $500,000 to be provided by Carl Zeiss will be in
the form of advance purchase orders under the existing distribution agreement
between the Company and Carl Zeiss, and that the $500,000 to be provided by PYC
Corporation will be under a line of credit secured by certain of the Company's
assets. In order to continue operations, the Company will have to raise
additional capital in fiscal 2003 unless revenues are greater than anticipated.
The Company is currently reviewing potential financing options for the upcoming
year. There is no assurance that it will be able to find additional financing on
acceptable terms, if at all.

                                      -13-

<PAGE>

     The Company has commitments under an operating lease agreement for office
space to make payments of approximately $108,625 in 2002, $260,700 in each of
2003 through 2006, and $152,075 in 2007. The Company's senior convertible
debentures, in the outstanding principal amount of $15,592,796 as of September
28, 2002, are due and payable on May 1, 2005.

Critical Accounting Policies

     In the Company's Form 10-K for the fiscal year ended December 29, 2001, the
Company's most critical accounting policies and estimates upon which its
financial status depends were identified as those relating to revenue
recognition, warranty reserve and inventory valuation. The Company considered
the disclosure requirements of Financial Release ("FR") 60 ("FR-60") regarding
critical accounting policies and FR-61 regarding liquidity and capital
resources, certain trading activities and related party/certain other
disclosures, and concluded that nothing materially changed during the three and
nine months ended September 28, 2002 that would warrant further disclosure under
these releases.

Item 3: Quantitative and Qualitative Disclosures about Market Risk.

     There have been no material changes in the market risk associated with the
Company's financial instruments. The Company is exposed to market risk from
changes in interest rates, which may adversely affect the Company's financial
position, results of operations and cash flows. In seeking to minimize the risks
from interest rate fluctuations, the Company manages exposure through its
regular operating and financial activities. The Company does not use financial
instruments for trading or other speculative purposes and is not a party to any
leveraged financial instruments.

Item 4: Controls and Procedures

     The Company's principal executive officer and principal financial officer,
after evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the
filing date of this quarterly report have concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures were adequate and
designed to ensure that material information relating to the Company (including
its consolidated subsidiary) is made known to them by others within the Company.
There were no significant changes in the Company's internal controls or, to the
Company's knowledge, in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the Evaluation Date.

                                      -14-

<PAGE>

                           PART II: OTHER INFORMATION

Item 1: Legal Proceedings

        Not Applicable

Item 2: Changes in Securities and Use of Proceeds

        On July 9, 2002, the Company filed an amendment to its Articles of
Organization with the Massachusetts Secretary of the Commonwealth, which
amendment increased the number of authorized shares of the Company's common
stock from 20,000,000 to 25,000,000.

Item 3: Defaults upon Senior Securities

        Not Applicable

Item 4: Submission of Matters to a Vote of Security Holders

        Not Applicable

Item 5: Other Information

        None

Item 6: Exhibits and Reports on Form 8-K.

        (A) Exhibits

        No.         Description

        10.1*       Distribution Agreement dated as of August 21, 2002 by and
                    between the registrant and Carl- Zeiss-Ziftung, dba Carl
                    Zeiss (portions of this exhibit have been omitted pursuant
                    to a request for confidential treatment and have been filed
                    separately with the Commission)

        10.2 *      Amendment No. 1 to Agreement, dated as of September 6, 2002,
                    by and between the registrant and Cordis Corporation

        99.1        Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        *     Filed as an exhibit to the Company's Current Report on Form 8-K
              filed with the SEC on October 2, 2002 and incorporated herein by
              reference.

        (B)   Reports on Form 8-K

        On July 2, 2002, the Company filed a Current Report on Form 8-K
announcing the dismissal of Arthur Andersen LLP as the Company's independent
public accountants. On August 13, 2002, the Company filed a Current Report on
Form 8-K announcing the Company's engagement of Deloitte & Touche LLP to serve
as independent public accountants for the fiscal year ending December 28, 2002.
The decision to engage Deloitte & Touche LLP was approved by the Company's Audit
Committee of the Board of Directors under authority of the Company's Board of
Directors.

                                      -15-

<PAGE>

                                   SIGNATURES

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

                                                  Photoelectron Corporation

                                                  By: /s/ Timothy W. Baker
                                                      --------------------
                                                      Timothy W. Baker
                                                      President and Chief
                                                      Financial Officer

Dated: April 10, 2003

I, Timothy W. Baker, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Photoelectron
     Corporation;
2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;
3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;
4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;
     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and
     c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;
5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):
     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and
     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and
6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: April 10, 2003

                                           /s/ Timothy W. Baker
                                           --------------------
                                           President and Chief Financial Officer

                                      -16-

<PAGE>

                                  EXHIBIT INDEX

Exhibit
No.       Description

10.1*     Distribution Agreement dated as of August 21, 2002 by and between the
          registrant and Carl-Zeiss-Ziftung, dba Carl Zeiss (portions of this
          exhibit have been omitted pursuant to a request for confidential
          treatment and have been filed separately with the Commission)

10.2*     Amendment No. 1 to Agreement, dated as of September 6, 2002, by and
          between the registrant and Cordis Corporation

99.1      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002

*     Filed as an exhibit to the Company's Current Report on Form 8-K filed with
      the SEC on October 2, 2002 and incorporated herein by reference.