|UNITED STATES
                                                  SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

                                                           FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the quarterly period ended September 30, 2003.


Commission file number 0-22340

                                                    
      PALOMAR MEDICAL TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | 
|--------------------------------------- | 
|Delaware                                | 
|(State
      or other jurisdiction      | 
|of incorporation
      or organization) | 

|82
      Cambridge Street, Burlington, Massachusetts | 01803            | 
|---------------------------------------------------- | ---------------- | 
|(Address
      of principal executive offices)       | (Zip
      code) | 

|Registrants
        telephone number, including area code:(781) 993-2300
|-------------------------------------------------------------------------

|Indicate by check mark whether the registrant (1) 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 (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of
1934).
Yeso No ý


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 
|---------------------------- | 
|Class                        | 
|Common Stock, $.01 par value | 

|
|

|Palomar Medical
Technologies, Inc. and Subsidiaries

Table of Contents
|----------------------------------------------------------------------

|                               |                                                                                              |  | Page No.
|------------------------------ | -------------------------------------------------------------------------------------------- |  | --------
|PART I - Financial Information |                                                                                              |  |         
|                               |                                                                                              |  |         
|Item 1                         | Condensed Consolidated Financial Statements                                                  |  |         
|                               | Condensed Consolidated Balance Sheets                                                        |  | 1       
|                               | Condensed Consolidated Statements of Operations                                              |  | 2       
|                               | Condensed Consolidated Statement of Stockholders' Equity                                     |  | 3       
|                               | Condensed Consolidated Statements of Cash Flows                                              |  | 4       
|                               | Notes to Unaudited Condensed Consolidated Financial Statements                               |  | 5       
|Item 2.                        | Management's Discussion and Analysis of Financial Condition and the
   Results of Operations |  | 9       
|                               | Cautionary Statements                                                                        |  | 13      
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 19      
|Item 4.                        | Controls and Procedures                                                                      |  | 19      
|                               |                                                                                              |  |         
|PART II - Other Information    |                                                                                              |  |         
|                               |                                                                                              |  |         
|Item 1.                        | Legal Proceedings                                                                            |  | 20      
|Item 2.                        | Changes in Securities                                                                        |  | 20      
|Item 3.                        | Defaults Upon Senior Securities                                                              |  | 20      
|Item 4.                        | Submission of Matters to a Vote of Security Holders                                          |  | 20      
|Item 5.                        | Other Information                                                                            |  | 20      
|Item 6.                        | Exhibits and Reports on Form 8-K                                                             |  | 21      
|SIGNATURES                     |                                                                                              |  | 22      

|i
|-

|Palomar Medical Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|-----------------------------------------------------------------------------------------

|                                                                             | September 30,
2003 | December 31,
2002
|---------------------------------------------------------------------------- | ------------------ | -----------------
|                                                                             | (Unaudited)        | (Audited)        
|Assets                                                                       |                    |                  
|Current assets:                                                              |                    |                  
|Cash and cash equivalents                                                    |                    |                  
|Accounts receivable, net of allowance of $877,471 and $553,559, respectively |                    |                  
|Inventories                                                                  |                    |                  
|Other current assets                                                         |                    |                  
|                                                                             |                    |                  
|Total current assets                                                         |                    |                  
|                                                                             |                    |                  
|Property and equipment, net                                                  |                    |                  
|                                                                             |                    |                  
|Other assets                                                                 |                    |                  
|                                                                             |                    |                  
|Total Assets                                                                 |                    |                  
|                                                                             |                    |                  
|Liabilities and Stockholders' Equity                                         |                    |                  
|Current liabilities:                                                         |                    |                  
|Note payable to related party                                                |                    |                  
|Accounts payable                                                             |                    |                  
|Accrued liabilities                                                          |                    |                  
|Deferred income taxes                                                        |                    |                  
|Deferred revenue                                                             |                    |                  
|                                                                             |                    |                  
|Total current liabilities                                                    |                    |                  
|                                                                             |                    |                  
|Stockholders' equity:                                                        |                    |                  
|Common stock, $.01 par value-                                                |                    |                  
|Authorized - 45,000,000 shares                                               |                    |                  
|Issued - 14,199,910 and 11,538,706 shares, respectively                      |                    |                  
|Additional paid-in capital                                                   |                    |                  
|Accumulated deficit                                                          |                    |                  
|                                                                             |                    |                  
|Total stockholders' equity                                                   |                    |                  
|                                                                             |                    |                  
|Total liabilities and stockholders' equity                                   |                    |                  
|                                                                             |                    |                  

|The accompanying notes are an integral part of these consolidated financial statements.
1




    Palomar Medical Technologies, Inc. and Subsidiaries
        Condensed Consolidated Statements of Operations
                          (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Three Months Ended
September 30, | Nine Months Ended
September 30, |   |                  
|---------------------------------------------- | -------------------------------- | ------------------------------- | - | -----------------
|
|Revenues:                                      |                                  |                                 |   |                  
|Product revenues                               |                                  | $   8,302,460                   |   | $   6,495,295    
|Royalty revenues                               |                                  | 179,659                         |   | 858,799          
|Funded product development revenues            |                                  | 700,000                         |   | --               
|                                               |                                  |                                 |   |                  
|Total revenues                                 |                                  | 9,182,119                       |   | 7,354,094        
|                                               |                                  |                                 |   |                  
|Costs and expenses:                            |                                 
|Cost of product revenues                       |                                  | 3,510,724                       |   | 3,250,074        
|Cost of royalty revenues                       |                                  | 71,864                          |   | 343,520          
|Research and development                       |                                  | 1,510,907                       |   | 1,154,774        
|Selling and marketing                          |                                  | 2,394,868                       |   | 1,646,798        
|General and administrative                     |                                  | 1,080,989                       |   | 832,643          
|                                               |                                  |                                 |   |                  
|Total costs and expenses                       |                                  | 8,569,352                       |   | 7,227,809        
|                                               |                                  |                                 |   |                  
|Income (loss) from operations                  |                                  | 612,767                         |   | 126,285          
|                                               |                                  |                                 |   |                  
|Interest income                                |                                  | 18,753                          |   | 22,143           
|Interest expense                               |                                  | (2,029                          | ) | (29,172          
|Other income                                   |                                  | --                              |   | --               
|                                               |                                  |                                 |   |                  
|Income (loss) from operations                  |                                  | 629,491                         |   | 119,256          
|                                               |                                  |                                 |   |                  
|Benefit from income taxes                      |                                  | 275,000                         |   | --               
|                                               |                                  |                                 |   |                  
|Net income (loss)                              |                                  | $      904,491                  |   | $      119,256   
|                                               |                                  |                                 |   |                  
|Net income (loss) per share:                   |                                 
|Basic                                          |                                  | $            0.07               |   | $            0.01
|                                               |                                  |                                 |   |                  
|Diluted                                        |                                  | $            0.05               |   | $            0.01
|                                               |                                  |                                 |   |                  
|Weighted average number of shares outstanding: |                                 
|Basic                                          |                                  | 13,859,356                      |   | 11,504,563       
|                                               |                                  |                                 |   |                  
|Diluted                                        |                                  | 16,524,300                      |   | 11,944,058       
|                                               |                                  |                                 |   |                  

|The accompanying notes are an integral part of these consolidated financial statements.
2
|-----------------------------------------------------------------------------------------

|Palomar Medical Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity(Unaudited)
|-----------------------------------------------------------------------------------------------------------------------

|                                                                 | Common Stock | Additional |               | Total          |              
|---------------------------------------------------------------- | ------------ | ---------- | ------------- | -------------- | -------------
|
|Balance, December 31, 2002                                       | 11,538,706   | $115,387   | $ 162,021,265 | $(157,418,901) | $   4,717,751
|Net income                                                       | --           | --         | --            | 2,331,699      | 2,331,699    
|Issuance of stock for employee stock purchase plan               | 19,060       | 190        | 23,648        | --             | 23,838       
|Issuance of stock for 2002 employer 401(k) matching contribution | 184,109      | 1,841      | 193,870       | --             | 195,711      
|Costs incurred related to the issuance of common stock           | --           | --         | (180,625)     | --             | (180,625)    
|Tax benefit from the exercise of stock options                   | --           | --         | 32,500        | --             | 32,500       
|Exercise of stock options                                        | 1,164,780    | 11,648     | 1,273,747     | --             | 1,285,395    
|Exchange of note payable for common stock                        | 293,255      | 2,933      | 997,067       | --             | 1,000,000    
|Sale of common stock                                             | 1,000,000    | 10,000     | 3,400,000     | --             | 3,410,000    
|                                                                 |              |            |               |                |              
|Balance, September 30, 2003                                      | 14,199,910   | $141,999   | $ 167,761,472 | $(155,087,202) | $ 12,816,269 
|                                                                 |              |            |               |                |              

|The accompanying notes are an integral part of these consolidated financial statements.
3
|-----------------------------------------------------------------------------------------

|Palomar Medical Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
 (Unaudited)
|---------------------------------------------------------------------------------------------------------------

|                                                                             | Nine Months Ended September 30, | 
|---------------------------------------------------------------------------- | ------------------------------- | 
|
|Cash flows from operating activities:                                        |                                 | 
|Net income (loss)                                                            |                                 | 
|Adjustments to reconcile net income (loss) from operations                   |                                 | 
|to net cash provided by (used in) operating activities:                      |                                 | 
|Depreciation and amortization                                                |                                 | 
|Increase in allowance for doubtful accounts                                  |                                 | 
|Issuance of commons stock for services                                       |                                 | 
|Inventory write-off                                                          |                                 | 
|Tax benefit from the exercise of stock options                               |                                 | 
|Changes in assets and liabilities,                                           |                                 | 
|Accounts receivable                                                          |                                 | 
|Inventories                                                                  |                                 | 
|Other current assets                                                         |                                 | 
|Accounts payable                                                             |                                 | 
|Accrued liabilities                                                          |                                 | 
|Deferred income taxes                                                        |                                 | 
|Deferred revenue                                                             |                                 | 
|                                                                             |                                 | 
|Net cash provided by (used in) operating activities                          |                                 | 
|                                                                             |                                 | 
|Cash flows from investing activities:                                        |                                 | 
|Purchases of property and equipment                                          |                                 | 
|Decrease in other assets                                                     |                                 | 
|                                                                             |                                 | 
|Net cash used in investing activities                                        |                                 | 
|                                                                             |                                 | 
|Cash flows from financing activities:                                        |                                 | 
|Proceeds from the exercise of stock options and employee stock purchase plan |                                 | 
|Payment on convertible debenture                                             |                                 | 
|Costs incurred related to issuance of common stock                           |                                 | 
|Proceeds from sale of common stock                                           |                                 | 
|                                                                             |                                 | 
|Net cash provided by (used in) financing activities                          |                                 | 
|                                                                             |                                 | 
|Net increase (decrease) in cash and cash equivalents                         |                                 | 
|Cash and cash equivalents, beginning of the period                           |                                 | 
|                                                                             |                                 | 
|Cash and cash equivalents, end of the period                                 |                                 | 
|                                                                             |                                 | 
|Supplemental disclosure of cash flow information:                            |                                 | 
|Cash paid for interest                                                       |                                 | 
|                                                                             |                                 | 
|Supplemental disclosure of noncash financing and investing activities:       |                                 | 
|Issuance of stock for employer 401(k) matching contribution                  |                                 | 
|                                                                             |                                 | 
|Preferred stock accrued dividends and interest                               |                                 | 
|                                                                             |                                 | 
|Issuance of stock for settlement                                             |                                 | 
|                                                                             |                                 | 
|Exchange of note payable for common stock                                    |                                 | 
|                                                                             |                                 | 

|The accompanying notes are an integral part of these consolidated financial statements.
4


Palomar Medical Technologies, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements


1.       Basis of
presentation


The
accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
information.  Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete
financial statements.  The results of operations for the interim periods shown in this
report are not necessarily indicative of expected results for any future interim period
or for the entire fiscal year.  Palomar Medical Technologies, Inc. and its subsidiaries
(the "Company" or "Palomar") believes that the quarterly information presented includes
all adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation in accordance with accounting principles generally accepted in the United
States.  The accompanying condensed consolidated financial statements and notes should be
read in conjunction with the Company's Form 10-K for the year ended December 31, 2002.


2.       Stock based
compensation.


The
Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) and related interpretations, in accounting for its stock-based
compensation plans, rather than the alternative fair value accounting method provided for
under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. Under APB 25, when the exercise price of options granted under
these plans equals or exceeds the market price of the underlying stock on the date of
grant, no compensation expense is required. In accordance with Emerging Issues Task Force
(EITF) 96-18, the Company records compensation expense equal to the fair value of options
and warrants granted to non-employees over the vesting period.


The
following table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation. The Company has computed the pro forma disclosures required under
SFAS No. 123 for all stock options granted to employees of the Company for the
three-months and nine-months ended September 30, 2003 and 2002, respectively, using the
Black-Scholes option-pricing model prescribed by SFAS No. 123.


Pro
forma disclosure. The pro forma effect on the Company of applying SFAS No. 123 for all
options and warrants to purchase common stock of the Company would be as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | Three Months Ended
September 30, | Nine Months Ended
September 30, |   |         
|--------------------------------------------- | -------------------------------- | ------------------------------- | - | --------
|
|Net income (loss), as reported                |                                  |                                 | $ | 904,491 
|Less: Preferred stock dividends               |                                  |                                 |   | --      
|Less: Total stock-based employee compensation |                                  |                                
|expense determined under fair value based     |                                  |                                
|method for all awards                         |                                  |                                 |   | (225,247
|                                              |                                  |                                 |   |         
|Pro forma income (loss)                       |                                  |                                 | $ | 679,244 
|                                              |                                  |                                 |   |         
|Basic net income (loss) per share:            |                                  |                                
|As reported                                   |                                  |                                 | $ | 0.07    
|Pro forma                                     |                                  |                                 | $ | 0.05    
|Diluted net income (loss) per share:          |                                  |                                
|As reported                                   |                                  |                                 | $ | 0.05    
|Pro forma                                     |                                  |                                 | $ | 0.04    

|3. Cash and cash
equivalents


Cash
equivalents consist principally of corporate notes, U.S. government-agency securities,
commercial paper, money market funds, and other marketable securities when purchased with
an original maturity of three months or less. These investments are carried at cost, which
approximates market value.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5

Palomar Medical Technologies, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements







4. Inventories


Inventories
consist of the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | September 30,
2003 | December 31,
2002
|--------------- | ------------------ | -----------------
|Raw materials   |                    | $2,233,867       
|Work in process |                    | 762,957          
|Finished goods  |                    | 453,095          
|                |                    |                  
|                |                    | $3,449,919       

|During
the quarter ended March 31, 2003, the Company wrote-off $250,000 of certain inventory related to the SLP 1000 product line to cost of product revenues.



5. Property and equipment


Property
and equipment consist of the following:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | September 30,
2003 | December 31,
2002
|------------------------------- | ------------------ | -----------------
|Machinery and equipment         |                    | $1,600,369       
|Furniture and fixtures          |                    | 1,008,960        
|Leasehold improvements          |                    | 257,326          
|                                |                    |                  
|                                |                    | 2,866,655        
|Less:  accumulated depreciation |                    |                  
|and amortization                |                    | 2,357,327        
|                                |                    |                  
|                                |                    | $   509,328      

|6. Segment information


Product
revenue from international sources were $4.0 million for both the three-months ended September
30, 2003 and 2002, and $11.6 million and $8.3 million for the nine-months ended September
30, 2003 and 2002, respectively. The following table represents the percentage of product
revenue by geographic region from for the three and nine-months ended September 30, 2003
and 2002:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Three Months Ended
September 30, | Nine Months Ended
September 30, |        |       
|----------------------- | -------------------------------- | ------------------------------- | ------ | ------
|
|United States           | 52.4%                            | 34.0%                           | 46.5%  | 41.3% 
|Japan                   | 23.8%                            | 41.9%                           | 25.7%  | 39.7% 
|Canada                  | 7.6%                             | 8.2%                            | 8.4%   | 6.1%  
|Europe                  | 6.5%                             | 7.4%                            | 7.7%   | 4.1%  
|Asia / Pacific Rim      | 4.2%                             | 1.9%                            | 2.9%   | 1.1%  
|Australia               | 2.3%                             | 2.6%                            | 4.3%   | 3.5%  
|Central / South America | 2.0%                             | 0.0%                            | 2.6%   | 1.0%  
|Middle East             | 1.2%                             | 4.0%                            | 1.9%   | 3.2%  
|                        |                                  |                                 |        |       
|Total                   | 100.0%                           | 100.0%                          | 100.0% | 100.0%
|                        |                                  |                                 |        |       

|7. Guarantees


The
Companys products generally carry a standard one-year warranty. The Company provides
a reserve based on anticipated warranty claims at the time product revenue is recognized.
In anticipation of actual warranty claims, the Company amortizes the reserve ratably over
the life of the warranty thereby offsetting actual warranty claims incurred. Actual
warranty claims incurred and charged to cost of product revenues during an interim period
may be more or less than the amount of amortized warranty reserve allocated against them.
Factors that affect the Companys product warranty liability include the number of
installed units, the anticipated cost of warranty repairs and historical and anticipated
rates of warranty claims.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6

Palomar Medical Technologies, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements




During
the three months ended September 30, 2002, the Company experienced unusually high warranty
claims for one of its products due to issues related to a key component. Accordingly, the
Company increased its warranty reserve by $250,000 in the third quarter of 2002. During
2003, the Company began replacing the key component that was causing the product failure.
At September 30, 2003, the Companys warranty reserve for this particular product
failure was approximately $350,000. At this time, the Company believes that the
replacement part will rectify the problem and, if so, the Companys reserve may
exceed its estimated warranty obligation. However, managements assessment is that it
is too early to adjust such reserve until the replacement part has operated satisfactorily
for a longer period of time.


The
following table reflects the changes in the Companys accrued warranty during the
nine-months ended September 30, 2003:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Total
(in thousands)
|------------------------------------------ | --------------------
|
|Warranty accrual as of December 31, 2002   |                     
|Plus accruals related to new sales         |                     
|Less amortization of prior period accruals |                     
|                                           |                     
|Warranty accrual as of September 30, 2003  |                     
|                                           |                     

|8. Stockholders
equity


Options
to purchase common stock.During the nine-months ended September 30, 2003, the
Company granted options to purchase 432,000 shares of the Companys common stock at
exercise prices ranging from $1.51 to $8.23. During the nine-months ended September 30,
2003, 1,164,780 shares of the Companys common stock were exercised at exercise
prices ranging from $0.90 to $3.1875 per share. During the nine-months ended September 30,
2003, options to purchase 85,074 shares of the Companys common stock were cancelled.


Warrants
to purchase common stock.During the nine-months ended September 30, 2003, no warrants
were granted or exercised and warrants to purchase 1,515,691 shares of common stock were
cancelled.


Exchange
of note payable for common stock. On March 14, 2003, a director surrendered the $1
million principal balance of a Promissory Note and was issued 293,255 shares of the
Companys common stock with no registration rights at a price of $3.41 per share. The
price was calculated at 110% of the Companys common stock trailing ten-day average
closing price of $3.10 per share.


Private
placement purchase of common stock. On March 14, 2003, the Company completed a private
placement with Craig Drill Capital, a private investment firm based in New York City, for
the purchase of 1 million shares of the Companys common stock with no registration
rights at a price of $3.41 per share for an aggregate subscription price of $3.4 million.
The price was calculated at 110% of the Companys common stock trailing ten-day
average closing price of $3.10 per share.


Issuance
of common stock for employee stock purchase plan. During the nine-months ended
September 30, 2003, employees purchased 19,060 shares of the Companys common stock
for $24,000 pursuant to the Purchase Plan.


Issuance
of stock for 401(k) match. The Company issued 184,109 shares of its common
stock to the 401(k) Plan in satisfaction of the Companys employer match for 2002
employee contributions during the nine-months ended September 30, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7

Palomar Medical Technologies, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements






9. Net income (loss) per
common share


Basic
net income (loss) per share was determined by dividing net income (loss) attributable to
common stockholders by the weighted average common shares outstanding during the period.
Diluted net income (loss) per share was determined by dividing net income (loss)
attributable to common stockholders by diluted weighted average shares outstanding.
Diluted weighted average shares reflect the dilutive effect, if any, of common stock
options and warrants based on the treasury stock method and the assumed conversion of all
debt obligations and convertible preferred stock and the elimination of related interest
expense and preferred stock dividends.


The
Companys reconciliation of basic and diluted weighted average shares outstanding is
as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Three Months Ended
September 30, | Nine Months Ended
September 30, |            |           
|------------------------------------ | -------------------------------- | ------------------------------- | ---------- | ----------
|
|Basic weighted average number of     |                                  |                                 |            |           
|shares outstanding:                  | 13,859,356                       | 11,504,563                      | 13,092,732 | 11,317,499
|Potential common shares pursuant to:
|stock options and warrants           | 2,664,944                        | 439,495                         | 2,412,025  | _         
|                                     |                                  |                                 |            |           
|Diluted weighted average number of   |                                  |                                 |            |           
|shares outstanding:                  | 16,524,300                       | 11,944,058                      | 15,504,757 | 11,317,499
|                                     |                                  |                                 |            |           

|For
the nine-months ended September 30, 2002, potential common shares of 118,749 of certain
outstanding stock options and stock warrants were not included in the diluted weighted
average shares outstanding as they were antidilutive.




10. Funded product
development revenue


As
of February 14, 2003, the Company entered into a Development and License Agreement with
the Gillette Company (NYSE: G) (Gillette) to complete development and
commercialize a home-use, light-based, hair removal device for women. The device is
protected by multiple patents within the Companys patent portfolio. The agreement
provides up to $7 million in initial development support funding to be paid by Gillette to
the Company over approximately the first 30 months of the agreement, with $2.6 million to be
provided during 2003.


The
Company accounts for funded product development revenue under the Gillette agreement
ratably over the funding period. In September 2003, Gillette made a $700,000 payment to
the Company to fund development for the fourth quarter of 2003. This amount is included in
deferred revenue at September 30, 2003.



11. Income taxes


During
the three months ended June 30, 2003, the Company recognized a tax benefit of $470,000,
which is associated with the recovery of carryback operating losses paid in prior years
pursuant to the Economic Stimulus package of 2002. During the three months ended,
September 30, 2003, the Company recognized a benefit from income taxes of $300,000, which
is attributed to the reduction in deferred income tax accruals associated with certain tax
deductions taken in the Companys 1999 Federal Tax return. Offsetting these refund
claims during each of these periods, the Company provided a 4% effective tax rate for
both the three-months and nine-months ended September 30, 2003 for the anticipated federal
alternative minimum taxes and minimum state income taxes due for 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8



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


We
are a full service Company including research, development, manufacturing and selling of
proprietary light based systems for hair removal and other cosmetic treatments; as well
as, the first company to obtain clearance from the FDA using laser systems for
permanent hair reduction. Palomars light based hair removal systems have
been installed in physician practices worldwide. Through Palomars research
partnerships with Massachusetts General Hospitals Wellman Laboratories
(General) and other centers, new indications are being tested to further
advance the hair removal market and other cosmetic light based applications including fat
reduction, acne treatment and skin rejuvenation.



Broad
market acceptance of light based hair and tattoo removal and other cosmetic applications
and further acceptance of the Palomar MediLux lamp based system, the Palomar
EsteLux lamp based system, the Palomar NeoLux lamp based system and the
Palomar Q-Yag 5 Q-Switched ND: Yag laser system are critical to the Companys
success. These four systems, all of which have FDA clearance, cover a wide spectrum of
cosmetic applications. The Palomar MediLux system is a higher powered system than the
Palomar EsteLux system, and also has a higher repetition rate (treatment rate) and quick
connect handpiece connector. Both the Palomar MediLux and EsteLux systems are fast,
compact and efficient lamp based systems for both temporary and permanent hair reduction
and pigmented and vascular lesion removal. In addition, the Palomar MediLux and EsteLux
systems are sold outside the United States for treatment of acne and Palomar is currently
seeking FDA clearance for this application in the United States. The Palomar NeoLux is a
fast, compact and efficient lamp based system for both temporary and permanent hair
reduction and pigmented lesion removal. The Palomar Q-Yag 5 is a laser system for tattoo
and pigmented lesion removal. The Company has traditionally spent a significant amount of
its resources in developing new technologies and products and believes that the successful
introduction and marketing of new products is critical to the Companys long-term
success.



On
February 14, 2003, the Company entered into a Development and License Agreement with
Gillette to complete development and commercialize a home-use, light-based hair removal
device for women.



Critical Accounting
Policies


The
discussion and analysis of the Companys financial condition and results of
operations are based upon the Companys consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those related to revenue
recognition, bad debts, inventories, warranty obligations, contingencies, restructurings
and income taxes. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. A discussion of the
Companys critical accounting policies and the related judgments and estimates
affecting the preparation of the Companys consolidated financial statements is
included in the Annual Report on Form 10-K of the Company for fiscal year 2002.



Results of Operations



Product
revenues. Product revenues increased to $8.3 million from $6.5 million during the
three-month period ended September 30, 2003 and increased to $22.1 million from $15.3
million during the nine-month period ended September 30, 2003 in comparison to the same
period in 2002. The leading contributor to these increases of $1.8 million or 28% and $6.8
million or 45% in product revenues for the three and nine months ended September 30, 2003,
respectively, was the increase in unit sales of the family of Lux product lines
which includes the MediLux, EsteLux, NeoLux and additional handpieces. During the
three-month and nine-month periods ended September 30, 2003, the revenue generated by the
sale of additional Lux handpiece increased substantially compared to the same periods in 2002.
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|9

Royalty
revenues. Royalty revenues decreased to $180,000 from $859,000 for the three-months
ended September 30, 2003 and 2002, respectively. Royalty revenues decreased to $648,000
from $2.7 million for the nine-months ended September 30, 2003 and 2002, respectively.
These decreases in comparison to the same periods in 2002 are attributed to Lumenis
Inc.s (Nasdaq: LUME) (Lumenis) failure to make its royalty payments
starting in October 2002 (see Legal Proceedings).


Funded
product development revenues. For the three-months and nine-months ended September 30,
2003, funded product development revenue of $700,000 and $1.9 million, respectively, was
for work performed in connection with payments made by Gillette. On February 14, 2003, the
Company entered into a Development and License Agreement with Gillette to complete
development and commercialize a home-use, light-based hair removal device for women. In
September 2003, Gillette made a $700,000 payment to the Company to fund development for
the fourth quarter of 2003. This amount is included in deferred revenue at September 30,
2003.


Cost
of product revenues. Cost of product revenues increased to $3.5 million from $3.3
million for the three-months ended September 30, 2003 in comparison to the same period in
2002. The increase in cost of product revenues during 2003 as compared to 2002 is
attributed to increased product sales volume. As a percentage of product revenues, cost of
product revenues decreased to 42% for the three-months ended September 30, 2003 from 50%
for the same period in 2002. Contributing to this decrease of the cost of product revenue
as a percentage of product revenue is the efficient use of the Companys fixed
overhead costs with the increased volume associated with the growth in product revenues
offset by additional warranty costs of $150,000, recognized in the third quarter of 2002,
associated with issues related to some of the Companys prior generation products.


Cost
of product revenues increased to $9.4 million from $8.1 million for the nine-months ended
September 30, 2003 in comparison to the same period in 2002. The increase in cost of
product revenues during 2003 as compared to 2002 is primarily attributed to increased
product sales volume. As a percentage of product revenues, cost of product revenues
decreased to 42% for the nine-months ended September 30, 2003 from 53% for the same period
in 2002. Contributing to this decrease of the cost of product revenue as a percentage of
product revenue is the efficient use of the Companys fixed overhead costs with the
increased volume associated with the growth in product revenues and the adjustment made to
royalty reserves of approximately $332,000 to reflect royalty rates established with
General. A portion of this decrease as a percentage of product revenues in 2003 was offset
by additional warranty costs of $150,000 associated with issues related to some of the
Companys prior generation products and by the Company writing off $250,000 of
certain inventory related to the SLP 1000 product line during the first
quarter of 2003.



Cost
of royalty revenues. Cost of royalty revenues decreased to $72,000 from
$344,000 for the three-month period ended September 30, 2003 and as a percentage of
royalty revenues was consistent at 40%. Cost of royalty revenues decreased in dollars to
$259,000 from $1.1 million for the nine-month period ended September 30, 2003 and as a
percentage of royalty revenues was consistent at 40%. The decrease in royalty revenues is
attributed to Lumenis failure to make its royalty payments resulting in a reduced
cost of royalty due to General (see Legal Proceedings).



Research
and development expenses. Research and development expenses increased to $1.5 million
(16% of total revenues) from $1.2 million (16% of total revenues) for the three-months
ended September 30, 2003 and 2002, respectively. Research and development expenses
increased to $4.2 million (17% of total revenues) from $3.3 million (18% of total
revenues) for the nine-months ended September 30, 2003 and 2002, respectively. This
increase in dollars is attributed to costs associated with the Development and License
Agreement with Gillette to complete development and commercialize a home-use, light-based
hair removal device for women. Research and development costs as a percentage of total
revenues remained consistent during the three-months ended September 30, 2003 as compared
to the same period in 2002. Research and development costs as a percentage of total
revenues decreased during the nine-months ended September 30, 2003 as compared to the same
period in 2002, due to the increase in total revenues. The spending on research and
development reflects the Companys commitment to continuing dermatology research for
a better understanding of various cosmetic and medical conditions and to continuing
research and development of devices and delivery systems to better treat those various
cosmetic and medical conditions. The research and development goals in the fields of light
based hair removal and pigmented and vascular lesion removal are to design systems that
(1) permit more rapid treatment of large areas, (2) have high gross margins, and (3) are
manufactured at lower costs, to expand our current markets. Furthermore, the Company is
developing products to address other dermatology and cosmetic conditions, including the
fields of fat reduction, acne treatment and skin rejuvenation.
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|10

Selling
and marketing expenses. Selling and marketing expenses increased to $2.4 million (26%
of total revenues) from $1.6 million (22% of total revenues) for the three-months ended
September 30, 2003 as compared to 2002. Selling and marketing expenses increased to $6.1
million (25% of total revenues) from $3.8 million (21% of total revenues) for the
nine-months ended September 30, 2003 as compared to 2002. This increase in selling and
marketing expenses is due to increased costs associated with the roll-out of the
Companys product lines and an expanded direct sales force and higher commissions.


General
and administrative expenses. General and administrative expenses increased to $1.1
million (12% of total revenues) from $833,000 (11% of total revenues) for the three-months
ended September 30, 2003 as compared to 2002. General and administrative expenses
increased to $3.2 million (13% of total revenues) from $2.2 million (13% of total
revenues) for the nine-months ended September 30, 2003 as compared to 2002. The increase
in general and administrative expense dollars and as a percentage of revenues is primarily
related to additional legal expenses incurred as a result of enforcing the Companys
patent position against infringers, defending the opposition of a European Patent
exclusively licensed to the Company by General and an increase in the incentive
compensation accrual.


Interest
income. Interest income decreased to $19,000 from $22,000 for the three-months ended
September 30, 2003 and 2002, respectively. Interest income decreased to $54,000 from
$57,000 for the nine-months ended September 30, 2003 and 2002 as the higher levels of
excess cash was offset by lower interest rates.


Interest
expense. Interest expense decreased to $2,000 from $29,000 for the three-months ended
September 30, 2003 as compared to 2002. Interest expense decreased to $27,000 from $87,000
for the nine-months ended September 30, 2003 as compared to 2002. This decrease is
attributable to the reduction of debt, on March 14, 2003, which a director
surrendered a $1 million Promissory Note and was issued 293,255 shares of the
Companys Common Stock with no registration rights at a price of $3.41 per share. The
price was calculated at 110% of the Companys Common Stock trailing ten-day average
closing price of $3.10 per share.


Other
income. Other income decreased to $58,000 from $168,000 for the nine-months ended
September 30, 2003 as compared to 2002. Other income is attributable to payments received
from a previously written-off equity investment and a partial payment of a note receivable
that was written off in a prior year.


Income
Taxes. During the three months ended June 30, 2003, the Company recognized a tax
benefit of $470,000, which is associated with the recovery of carryback operating losses
paid in prior years pursuant to the Economic Stimulus package of 2002. During the three
months ended, September 30, 2003, the Company recognized a benefit from income taxes of
$300,000, which is attributed to the reduction in deferred income tax accruals associated
with certain tax deductions taken in the Companys 1999 Federal Tax return.
Offsetting these refund claims during each of these periods, the Company provided a 4%
effective tax rate for both the three-months and nine-months ended September 30, 2003 for
the anticipated federal alternative minimum taxes and minimum state income taxes due for
2003.
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|11


Liquidity and Capital
Resources


As
of September 30, 2003, the Company had $9.2 million in cash and cash equivalents. The
continued, successful sales of the Companys current products and future products
will be critical to the Companys future liquidity.


The
Company believes that cash balances will be sufficient to meet anticipated cash
requirements for the next twelve months.


Cash
provided by operating activities amounted to $403,000 for the nine months ended September
30, 2003, in comparison to cash used by operating activities in the amount of $730,000 for
the same period one year earlier. This increase in cash provided by operating activities
for the nine-month period ended September 30, 2003 compared to the same period a year
earlier primarily reflects the effects of a net profit. Cash used by investing activities
totaled $174,000 for the nine months ended September 30, 2003, compared to $89,000 for the
same period in the prior year. These amounts reflect cash used for purchases of property
and equipment. Cash provided by financing activities amounted to $4.5 million for the
nine-month period ended September 30, 2003 in comparison to cash used by financing
activities of $663,000 for the same period a year earlier. This increase in cash
provided by financing activities for the nine months ended September 30, 2003, compared to
the same period a year earlier primarily reflects proceeds from the sale of common stock
and proceeds from the exercise of stock options and employee stock purchase plan offset by
costs related to the issuance of common stock. For the nine-months ended September 30,
2002, the Company made payments on a convertible debenture and incurred costs related to
the issuance of common stock.



The
Company anticipates that capital expenditures for the remainder of 2003 will total
approximately $75,000, consisting primarily of machinery, equipment, computers and
peripherals. The Company expects to finance these expenditures with cash on hand.



Lumenis
has failed to make the royalty payments due since October 30, 2002 for sales of their
Lightsheer diode laser system. On February 14, 2003, the Company terminated its license
agreement with Lumenis (see Legal Proceedings). During
the second quarter of 2003, Carl Zeiss Meditec AG, parent company to Asclepion-Meditec AG,
notified the Company that it had sold Asclepion to EL.EN and Quanta System and,
consequently, terminated the sub-license agreement between Asclepion and the Company
effective July 31, 2003. To date, Asclepion has only paid the Company a minimum royalty
payment of fifty thousand dollars ($50,000) per year, prorated in the first and last
years. The Company faces risks associated with pending litigation and there can be no assurance that
these royalty amounts from other third parties will not decrease or that the Company will
be able to collect all licensing royalties owed by current licensees or increase royalties
by sub-licensing additional third parties.


On
February 14, 2003, the Company entered into a Development and License Agreement with
Gillette to complete development and commercialize a home-use, light-based, hair removal
device for women. The agreement provides up to $7 million in initial development support
funding to be paid by Gillette to Palomar over approximately the first 30 months of the
agreement, with $2.6 million to be provided during 2003.


On
March 14, 2003, a director surrendered the $1 million principal balance of a Promissory
Note and was issued 293,255 shares of the Companys common stock with no registration
rights at a price of $3.41 per share. The price was calculated at 110% of the
Companys common stock trailing ten-day average closing price of $3.10 per share.
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|12

On
March 14, 2003, the Company completed a private placement with Craig Drill Capital, a
private investment firm based in New York City, for the purchase of 1 million shares of
the Companys common stock with no registration rights at a price of $3.41 per share
for an aggregate subscription price of $3.4 million. The price was calculated at 110% of
the Companys common stock trailing ten-day average closing price of $3.10 per share.



Statement Under the
Private Securities Litigation Reform Act


In
addition to the other information in this Form 10-Q, the following cautionary statements
should be considered carefully in evaluating the Company and its business. Statements
contained in this Form 10-Q that are not historical facts may contain certain
forward-looking information, as defined by (i) the Private Securities Litigation Reform
Act of 1995 (the Reform Act) and (ii) releases by the SEC including but not
limited to statements relating to new markets, development and introduction of new
products, and financial projections that involve risk and uncertainties that may
individually or mutually impact the matters herein, and cause actual results, events and
performance to differ materially from such forward-looking statements. Our actual results
could differ materially from those suggested in such forward-looking statements due to the
cautionary statements identified below and other factors including, without limitation,
risks concerning the timing of new product introductions, financing of future operations,
manufacturing risks, variations in our quarterly results, the occurrence of unanticipated
events and circumstances and general economic conditions, including stock market
volatility, results of future operations, technological difficulties in developing or
introducing new products, the results of future research, lack of product demand and
market acceptance for current and future products, challenges in managing joint ventures
and research with third-parties, the impact of competitive products and pricing,
governmental regulations with respect to medical devices, including whether FDA clearance
will be obtained for future products, the results of litigation, difficulties in
collecting royalties, potential infringement of third-party intellectual property rights,
and/or other factors, which are detailed from time to time in the Companys SEC
reports, including the report on Form 10-K for the year ended December 31, 2002 and the
Companys quarterly reports on Form 10-Q. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. The cautionary
statements below are being made pursuant to the provisions of the Reform Act and with the
intention of obtaining the benefits of safe harbor provisions of the Reform Act. Forward
looking statements include statements regarding our expectations, beliefs, intentions or
strategies regarding the future and can be identified by forward-looking words such as
anticipate, believe, could, estimate,
expect, intend, may, should,
will,, would and potential or similar words.



Cautionary Statements


Our future revenue depends on our
successfully developing and marketing new products.


Light
based technology is rapidly changing and improving. In order to be successful, we must
continue to make significant investments in research and development in order to develop
in a timely and cost-effective manner new products that meet changing market demands,
enhance existing products, and achieve market acceptance for such products. We have in the
past experienced delays in developing and marketing new products and enhancing existing
products. Furthermore, some of our new products under development are based on unproven
technology and/or technology with which the Company has no previous experience. In
addition, the market for professional hair removal light based devices may already be
saturated. At present, broader market acceptance of light based hair removal is critical
to our success and we intend to continue our goals of bringing light based hair removal
devices to the mass consumer market. We also intend to continue to diversify our product
line by developing cosmetic light based products for uses other than hair and tattoo
removal and treatment of pigmented and vascular lesions. There can be no assurance that we
will be able to successfully implement such strategy in a timely fashion or at all.


We face intense competition from
companies with superior financial, marketing and other resources.
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|13

The
light based hair removal industry is highly competitive and companies frequently introduce
new products. We compete in the development, manufacture, marketing, sales and servicing
of light based hair removal devices with numerous other companies, some of which have
substantially greater financial, marketing and other resources than the Company. Our
products also face competition from medical products and cosmetic procedures, such as
electrolysis and waxing, among others. We may not be able to differentiate our products
from the products of our competitors, and customers may not consider our products to be
superior to competing products or procedures, especially if competitive products and
procedures are offered at lower prices. Our competitors may develop products or new
technologies that make our products obsolete or less competitive.



We may need to secure
additional financing.


Although
the Company has generated a profit in recent quarters, the Company has a history of
losses. We may have to secure additional financing to complete our research and
development activities, commercialize our current and proposed light based products, and
fund ongoing operations. However, there can be no assurance that such financing will be
obtained. We may also determine, depending upon the opportunities available, to seek
additional debt or equity financing to fund the costs of operations or expansion.
Additionally, if we incur indebtedness to fund increased levels of accounts receivable,
finance the acquisition of capital equipment, or if we issue debt securities in connection
with any acquisition we will be subject to risks associated with incurring substantial
additional indebtedness. Our quarterly operating results are and may continue to be
volatile, and that may hurt the price of our common stock. If our operating results fall
below the expectations of investors or public market analysts, the price of our common
stock could decline.


We depend on a number of vendors
for critical components in our current and future products.


We
develop light based systems that incorporate third-party components. Some of these items
are custom made or otherwise not readily available on the market. We purchase some of
these components from small, specialized vendors that are not well capitalized. A
disruption in the delivery of these key components could have an adverse effect on our
business. We depend on an acceptable level of reliability for purchased components.
Reliability below expectations for key components could have an adverse affect on
inventory and inventory reserves.


Our products are subject to
numerous medical device regulations. Compliance is expensive and time-consuming. Our new
products may not be able to obtain the necessary clearances in order to sell them.


All
of our current products are light based devices, which are subject to FDA regulations for
clinical testing, manufacturing, labeling, sale, distribution and promotion. Before a new
product or a new use of or claim for an existing product can be marketed in the United
States, we must obtain clearance from the FDA. We have modified some of our products under
letters to file. The FDA could retroactively decide that the modification require 510(k)
or PMA clearance and may force us to cease marketing and/or recall the modified products.
Our products may also be subject to state regulations, which are, in many instances, in
flux. Changes in state regulations may enhance or impede sales. Our products are subject
to similar regulations in our major international markets. Complying with these
regulations is necessary for our strategy of expanding the markets for sales of our
products into these countries. Compliance with the regulatory clearance process in any
country is expensive and time-consuming, and we may not be able to obtain such clearances
in a timely fashion or at all. Regulatory clearances may necessitate clinical testing,
limitations on the number of sales and limitations on the type of end user, among other
things. In certain instances, these constraints can delay planned shipment schedules as
design and engineering modifications are made in response to regulatory concerns and
requests.
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|14

Federal
regulation allows our products to be sold to and used by licensed practitioners as
determined on a state-by-state basis. As a result, in some states non-physicians may
operate our product. However, a state could disagree with our decision to sell to a
particular type of end user or change regulations allowing sales to particular types of
end users. Similar risks apply to our international markets. The purchase and use of our
products by non-physicians may result in their misuse, which could harm our reputation and
expose us to costly product liability litigation.



We are dependent on
third-party researchers.


We
are dependent upon third-party researchers over whom we do not have absolute
control to satisfactorily conduct and complete research on our behalf. We are also
dependent upon third-party researchers to grant us licensing terms, which
may or may not be favorable for products and technology, which they may develop. At
present, our principal research partner is the Wellman Laboratories of Photomedicine at
Massachusetts General Hospital. We provide research funding, light technology and optics
know-how in return for licensing rights with respect to specific medical applications and
patents. In return for certain exclusive license rights, the Company is subject to due
diligence obligations in order to maintain such exclusivity. Our success will be
dependent upon the results of research with our partners and meeting due diligence
obligations. We cannot be sure that third-party researchers will agree with the
Companys interpretation of the terms of our agreements, that we will meet our due
diligence obligations, or that such research agreements will provide us with marketable
products in the future or that any of the products developed under these agreements will
be profitable for us.


Our common stock could be further
diluted as the result of outstanding options and warrants.


In
the past, we have issued and still have outstanding convertible securities in the form of options and
warrants. We have and may continue to issue options and warrants as compensation for services and incentive
compensation for our employees, directors and consultants or others who provide services to the Company.
We have a substantial number of shares of common stock reserved for issuance upon the conversion and exercise of these securities.
Such a conversion would dilute our stockholders, and could adversely affect the market
price of our common stock.



Our proprietary
technology has only limited protections.


Our
business could be materially and adversely affected if we are not able to adequately
protect our intellectual property rights. We rely on a combination of patent, copyright,
trademark and trade secret laws, license and confidentiality agreements to protect our
proprietary rights. We generally enter into non-disclosure agreements with our employees
and third parties with whom we work, including but not limited to consultants and vendors,
to restrict access to, and distribution of, our proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our technology. Monitoring unauthorized use of our technology is
difficult and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States. If competitors are able to use
our technology, our ability to compete effectively could be harmed. Costly and time
consuming lawsuits may be necessary to enforce and defend patents issued or licensed
exclusively to us, to protect our trade secrets and/or know-how or to determine the
enforceability, scope and validity of others intellectual property rights. Such
lawsuits may result in patents issued or licensed exclusively to us to be found invalid
and unenforceable. Our competitors also may independently develop technologies that are
substantially equivalent or superior to our technology and which do not infringe our
patents.


We could become subject to claims
by third parties regarding intellectual property rights.


In
recent years, there has been significant litigation in the United States involving patents
and other intellectual property rights. The light based hair removal industry in
particular is characterized by the large number of patents and frequent claims and related
litigation regarding patent and other intellectual property rights. Because our resources
are limited and patent applications are maintained in secrecy for a period of time, we can
conduct only limited searches to determine whether our technology infringes any patents or
patent applications. Any claims for patent infringement, regardless of merit, could be
time-consuming, result in costly litigation and diversion of technical and management
personnel, cause shipment delays, require us to develop non-infringing technology or to
enter into royalty or licensing agreements. Although patent and intellectual property
disputes in the light based industry have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and often require
the payment of ongoing royalties, which could have a negative impact on gross margins.
There can be no assurance that necessary licenses would be available to us on satisfactory
terms, or that we could redesign our products or processes to avoid infringement, if
necessary. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from manufacturing and
selling some of our products. This could have a material adverse effect on our business,
results of operations and financial condition.
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|15

Our charter documents and Delaware
law may discourage potential takeover attempts.


Our
Second Restated Certificate of Incorporation and our By-laws contain provisions that could
discourage takeover attempts or make more difficult the acquisition of a substantial block
of our common stock. Our By-laws require a stockholder to provide to the Secretary of the
Company advance notice of director nominations and business to be brought by such
stockholder before any annual or special meeting of stockholders, as well as certain
information regarding such nomination and/or business, the stockholder and others known to
support such proposal and any material interest they may have in the proposed business.
They also provide that a special meeting of stockholders may be called only by the
affirmative vote of a majority of the Board of Directors. These provisions could delay any
stockholder actions that are favored by the holders of a majority of the outstanding stock
of the Company until the next stockholders meeting. In addition, the Board of
Directors is authorized to issue shares of common stock and preferred stock that, if
issued, could dilute and adversely affect various rights of the holders of common stock
and, in addition, could be used to discourage an unsolicited attempt to acquire control of
the Company.


The
Company is also subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits the Company from engaging in a business
combination with an interested stockholder for a period of three years
after the date of the transaction in which the person becomes an interested stockholder,
unless the business combination is approved in a prescribed manner. The application of
Section 203 may limit the ability of stockholders to approve a transaction that they may
deem to be in their best interests. These provisions of our Second Restated Certificate of
Incorporation, By-laws and the Delaware General Corporation Law could deter certain
takeovers or tender offers or could delay or prevent certain changes in control or
management of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over the then current market price.


As with any new products, there is
substantial risk that the marketplace may not accept or be receptive to the potential
benefits of our products.


Market
acceptance of our current and proposed products will depend, in large part, upon our or
any marketing partners ability to demonstrate to the marketplace the advantages of
our products over other types of products. There can be no assurance that the marketplace
will accept applications or uses for our current and proposed products or that any of our
current or proposed products will be able to compete effectively.



We may not be able to
successfully collect licensing royalties.


In
past years, material portions of our revenues consisted of royalties from sub-licensing
patents licensed to us on an exclusive basis by General.


Lumenis
failed to make the royalty payments due since October 30, 2002 for sales of their
Lightsheer diode laser system. On February 14, 2003, the Company terminated its license
agreement with Lumenis (see Legal Proceedings). This reduction and any other loss or reduction in the Companys royalty revenues could
have a material adverse effect on the business and financial condition, affect future
liquidity and prevent the Company from maintaining profitability. The Company faces risks
associated with pending litigation and there can be no assurance that these royalty
amounts from other third parties will not decrease or that the Company will be able to
collect all licensing royalties owed by current licensees or increase royalties by
sub-licensing additional third parties.
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|16

We
are involved in disputes with other third parties, including Altus Medical Inc.
(Altus) (see part II, item 1, Legal Proceedings). Such disputes have resulted
in litigation with such parties. We have incurred, and likely will continue to incur,
legal expenses in connection with such matters. There can be no assurance that such
litigation will result in favorable outcomes for us. Any adverse result in litigation
could have a material adverse effect on our business, financial condition and results of
operations.


We may not be able to retain our
key executives and research and development personnel.


As
a small company with less than 125 employees, our success depends on the services of key
employees in executive and research and development positions. The loss of the services of
one or more of these employees could have a material adverse effect on our business.


We face a risk of financial
exposure to product liability claims in the event that the use of our products results in
personal injury.


Our
products are and will continue to be designed and manufactured with numerous safety
features, but it is possible that consumers could be adversely affected by use of one of
our products. Furthermore, in the event that any of our products prove to be defectively
designed and manufactured, we may be required to recall and redesign such products.
Although we have not experienced any material losses due to product liability claims to
date, there can be no assurance that we will not experience such losses in the future. We
maintain general liability insurance in the amount of $1 million per occurrence and $2
million in the aggregate and maintain umbrella coverage in the aggregate amount of $25
million; however, there can be no assurance that such coverage will continue to be
available on terms acceptable to us or that such coverage will be adequate for liabilities
actually incurred. In the event we are found liable for damages in excess of the limits of
our insurance coverage or if any claim or product recall results in significant adverse
publicity against us, our business, financial condition and results of operations could be
materially and adversely affected. In addition, although our products have been and will
continue to be designed to operate in a safe manner, and although we attempt to educate
customers with respect to the proper use of our products, misuse of our products by
personnel over whom we cannot exert control may result in the filing of product liability
claims or significant adverse publicity against us.


We face risks of obsolete
inventory as a result of rapid changes in technology.


We
operate in an industry that is subject to rapid changes in technology and intense
competition, which could make our light based systems obsolete. If forecasted demand
decreases, we could have excess inventories, which could obsolete certain product lines
and result in a write-off of some or all of our inventory.



We face risks associated
with revenues.


There
can be no certainty as to the severity or duration of the current economic downturn and
its impact on our future revenues.



We face risks associated
with product warranties.


We
could incur substantial costs as a result of product failures for which the Company is
responsible under warranty obligations.



We face risks associated
with liquidity and capital resources.


There
can be no assurance that we will not require additional financing to fund our operations
or that such additional funding, if needed, will be available on terms acceptable to us or
at all. We may be unable to generate sufficient revenues to achieve profitability.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17

There
can be no assurance that our revenues will increase or that we will generate sufficient
revenues to achieve or sustain profitability. While we strive to minimize the
Companys business expenses, we will continue to have large fixed expenses and we
expect to continue to incur significant sales and marketing, product development, customer
support and service, administrative, legal and other expenses. As a result, we need to
generate a significant amount of revenue to achieve and maintain profitability.


We face risks associated with
selling approximately half of our products and services internationally.


We
sell approximately half of our products and services outside of the United States and
expect that these sales will continue to be significant. As a result, a major part of our
revenues and operating results could be adversely affected by risks associated with
international sales. In particular, longer payment cycles common in foreign markets,
credit risk and delays in obtaining necessary import or foreign regulating approvals for
products may occur.


We face risks associated with
managing a joint development and license agreement.


On
February 14, 2003, we entered into a Development and License Agreement with Gillette to
complete development and commercialize a home-use, light-based hair removal device for
women. We believe that this represents a unique opportunity to bring light based devices
to the mass market. Under the agreement, significant resources and the attention of key
technical personnel and management will be directed to the development of such a device
even though such device will not likely be commercialized for several years, if ever. In
addition, we cannot be sure that Gillette will agree with our interpretation of the terms
of the agreement, that the agreement will provide us with marketable products in the
future or that we will receive payments for any of the products developed under the
agreement. After the expiration of 12 months and at several points thereafter, Gillette
has the ability to choose not to continue and may terminate the agreement. In such cases,
we will not receive certain payments but may proceed to develop and commercialize the
device on our own or with a third party. There can be no assurance that we will be able to
successfully implement such a strategy. In addition, after commercialization of such
device, Gillette is to pay us a percentage of net sales of such device. Certain of these
percentages of net sales are only owed if the device is covered by valid patents. There
can be no assurance that valid patents will cover the device in any or all countries in
which the device will be manufactured, used or sold. This could have a material adverse
effect on our business, results of operations and financial condition.



We face risks associated
with Section 11 (a)(4) Securities Act of 1933.


Prior
to June 28, 2002, Arthur Andersen LLP served as the Companys independent auditors.
On March 14, 2002, Arthur Andersen was indicted on federal obstruction of justice charges
arising from the governments investigation of Enron Corporation and on June 15,
2002, Arthur Andersen was found guilty. Arthur Andersen informed the SEC that it would
cease practicing before the SEC by August 31, 2002, unless the SEC determined that another
date was appropriate. On June 28, 2002, the Company dismissed Arthur Andersen and retained
Ernst & Young LLP as its independent auditors for its fiscal year ended December 31,
2002. SEC rules require the Company to present historical audited financial statements in
various SEC filings, such as registration statements, along with Arthur Andersens
consent to the Companys inclusion of Arthur Andersens audit report in those
filings. Since Arthur Andersen no longer practices public accounting, the Company will
not be able to obtain the consent of Arthur Andersen to the inclusion of Arthur
Andersens audit report in the Companys relevant current and future filings.
The SEC recently has provided regulatory relief designed to allow companies that file
reports with the SEC to dispense with the requirement to file a consent of Arthur Andersen
in certain circumstances, but purchasers of securities sold under the Companys
registration statements, which were not filed with the consent of Arthur Andersen to the
inclusion of Arthur Andersens audit report will not be able to sue Arthur Andersen
pursuant to Section 11(a)(4) of the Securities Act of 1933 and therefore the
purchasers right of recovery under that section may be limited as a result of the
lack of the Companys ability to obtain Arthur Andersens consent.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18

Terrorist acts and acts of war may
seriously harm our business and revenues, costs and expenses and financial condition.


Terrorist
acts or acts of war (wherever located around the world) may cause damage or disruption to
the Company, our employees, facilities, partners, suppliers, distributors, resellers, or
customers, which could significantly impact our revenues, costs and expenses and financial
condition. The terrorist attacks that took place in the United States on September 11,
2001 were unprecedented events that have created many economic and political
uncertainties, some of which may materially harm our business and results of operations.
The potential for future terrorist attacks, the national and international responses to
terrorist attacks, and other acts of war or hostility have created many economic and
political uncertainties, which could adversely affect our business and results of
operations in ways that cannot presently be predicted.




Item 3. Quantitative and
Qualitative Disclosures About Market Risk.



Derivative Financial
Instruments, Other Financial Instruments, and Derivative Commodity Instruments.


SFAS
No. 107 requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, accounts receivable, accounts payable and
short-term debt obligations. The fair value of these financial instruments approximates
their carrying amount as of September 30, 2003 due to their short-term nature. All of the
Companys investments are considered cash equivalent money market accounts and debt
securities which are carried at cost, which approximates market value. The Company has no
quantitative information concerning the market risk of participating in such investments.


Under
its current policies, the Company does not use derivative financial instruments,
derivative commodity instruments or other financial instruments to manage its exposure to
changes in interest rates, foreign currency exchange rates, commodity prices or equity
prices.



Primary Market Risk
Exposures


The
Companys primary market risk exposures are in the areas of interest rate risk. The
Companys investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial because of the short-term
nature of these investments. The Companys currency exchange rate fluctuations have
been and are expected to continue to be modest since the Company sells its products in
United States currency.




Item 4. Controls and
Procedures


(a)        Evaluation of disclosure 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 the end of the period covered by this report.  Our disclosure controls and procedures
are the controls and other procedures that we designed to ensure that we record, process, summarize and report the information
we must disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, within the time periods
specified in the SEC's rules and forms.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were reasonably effective.




(b)        Changes in internal controls.


During
the three month period ended September 30, 2003, there were no changes in our internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19


PART II  Other
Information



Item 1. Legal Proceedings


The
Company is a party to various legal proceedings incident to its business. Except as noted
below, there are no legal proceedings pending or threatened against the Company that
management believes are likely to have a material adverse effect on the Companys
consolidated financial position.


The
Company is the exclusive licensee of U.S. Patent Nos. 5,595,568 and 5,735,844 (the
568 and 844 patents) from The General Hospital Corporation
(General). Pursuant to a Patent License Agreement dated December 7, 1998,
Lumenis paid the Company a 7.5% royalty on net sales of the LightSheer diode laser system.
As of the quarter ended September 30, 2002, the Company received approximately $3.6
million dollars in royalties from Lumenis for sales of the LightSheer system. On October
24, 2002, Lumenis told the Company that it would no longer pay royalties for sales of the
LightSheer system and filed a complaint in the United States District Court for the
Northern District of California seeking a declaratory judgment that the 568 and
844 patents are invalid and/or unenforceable and not infringed by any Lumenis
products. The Company believes that Lumenis claims are without merit, and on October
29, 2002, the Company filed a complaint in the Middlesex County Superior Court in
Massachusetts against Lumenis for breach of contract, breach of the implied covenant of
good faith and fair dealing, and violation of Massachusetts General Laws Chapter 93A. The
Company has also answered Lumenis Federal Court compliant in California with similar
counter claims. On February 14, 2003, the Company terminated the Patent License Agreement.
The parties are in negotiations in an attempt to settle the matter as an alternative to
litigation.


On
February 15, 2002, the Company commenced an action for patent infringement in the United
States District Court for the District of Massachusetts against Altus seeking both
monetary damages and injunctive relief. The complaint alleges Altus CoolGlide and
CoolGlide Excel laser systems willfully infringe U.S. patent No. 5,735,844 (the
844 patent), which is exclusively licensed to the Company by General. General
has been added as a plaintiff in this lawsuit. Altus answered the complaint denying that
its products infringe the asserted patent and filed a counterclaim seeking a declaratory
judgment that the asserted patent is invalid and not infringed. The Company and General
filed a reply denying the material allegations of the counterclaims. The Company and
General have further alleged that Altus CoolGlide Vantage and CoolGlide XEO laser
systems also willfully infringe the asserted patent. On June 4, 2003, Altus amended their
answer and asserted a counter claim alleging that the 844 patent is unenforceable
due to inequitable conduct. The Company and General believe that this claim is without
merit and filed a reply denying the material allegations of this counterclaim. A claim construction (Markman)
hearing on claim construction was held June 12, 2003. The Judge has not yet issued a
ruling. A trial date has not yet been set.



Item 2.  Changes in Securities
Not applicable.

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.
Not Applicable.
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|20


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

(a)Exhibits
|------------------------------------------------------------

|Number |  | Description                                                                                 
|------ |  | --------------------------------------------------------------------------------------------
|31.1   |  | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002        
|31.2   |  | CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002        
|32.1   |  | CEO and CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002

|(b)Reports on Form 8-K
Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2003.
|---------------------------------------------------------------------------------------------------------------------

|21


Signatures


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


Palomar Medical
Technologies, Inc.(Registrant)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |                                                                                           
|---------------------- | ------------------------------------------------------------------------------------------
|Date: November 7, 2003 | By:/s/ Joseph P. Caruso
      Joseph P. Caruso
      President and Chief Executive Officer
|                       |                                                                                           

|                       |                                                                        
|---------------------- | -----------------------------------------------------------------------
|Date: November 7, 2003 | By:/s/Paul S. Weiner
      Paul S. Weiner
      Chief Financial Officer
|                       |                                                                        

|22

Index to Exhibits
|---------------------

|Number |  | Description                                                                                 
|------ |  | --------------------------------------------------------------------------------------------
|31.1   |  | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002        
|31.2   |  | CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002        
|32.1   |  | CEO and CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002

|23
|--