|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 March 31, 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). Yes oNoý


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 (Unaudited)                                                         
|                            |             
|                            |              | Condensed
        Consolidated Balance Sheets for the periods endingDecember 31, 2002 and March 31, 2003              
|                            |             
|                            |              | Condensed
      Consolidated Statements of Operations for the periods ending         March 31, 2002 and March 31, 2003
|                            |              |                                                                                                                       
|                            |              | Condensed Consolidated
      Statement of Stockholders Equity                                                        
|                            |              |                                                                                                                       
|                            |              | Condensed Consolidated
      Statements of Cash Flows                                                                 
|                            |              |                                                                                                                       
|                            |              | Notes
      to Condensed Consolidated Financial Statements                                                            
|                            |              |                                                                                                                       
|                            | Item
      2 | Managements
      Discussion and Analysis of Financial Condition and theResults of Operations                        
|                            |              |                                                                                                                       
|                            |              | Cautionary
      Statements                                                                                           
|                            |              |                                                                                                                       
|                            | Item
      3 | Quantitative
      and Qualitative Disclosures About Market Risk                                                      
|                            |              |                                                                                                                       
|                            | Item
      4 | Controls
      and Procedures                                                                                         
|                            |             
|PART II - Other Information |             
|                            |              |                                                                                                                       
|                            | Item
      1 | Legal
      Proceedings                                                                                               
|                            |              |                                                                                                                       
|                            | Item
      2 | Changes
      in Securities                                                                                           
|                            |              |                                                                                                                       
|                            | Item
      3 | Defaults
      Upon Senior Securities                                                                                 
|                            |              |                                                                                                                       
|                            | Item
      4 | Submission
      of Matters to a Vote of Security Holders                                                             
|                            |              |                                                                                                                       
|                            | Item
      5 | Other
      Information                                                                                               
|                            |              |                                                                                                                       
|                            | Item
      6 | Exhibits
      and Reports on Form 8-K                                                                                
|                            |              |                                                                                                                       
|                            |              |                                                                                                                       
|SIGNATURES                  |              |                                                                                                                       
|                            |              |                                                                                                                       
|CERTIFICATIONS              |              |                                                                                                                       

|i
|-

|Palomar Medical
Technologies, Inc. and Subsidiaries

      
      Condensed Consolidated
         Balance Sheets
|----------------------------------------------------------------------------------------------------------------

|                                                                     | December
      31,
      2002 | March
      31,
      2003
|-------------------------------------------------------------------- | ----------------------------- | --------------------------
|                                                                     |                               |                           
|                                                                     |                               |                           
|Assets                                                               |                               |                           
|Current
      assets:                                                |                              
|Cash
      and cash equivalents                                      |                               | $ 4,450,076               
|Accounts
      receivable, net                                       |                               | 4,047,277                 
|Inventories                                                          |                               | 3,847,493                 
|Other
      current assets                                           |                               | 269,940                   
|                                                                     |                               |                           
|Total
      current assets                                           |                               | 12,614,786                
|                                                                     |                               |                           
|                                                                    
|Property
      and equipment, net                                    |                               | 485,286                   
|                                                                     |                               |                           
|Other
      assets                                                   |                               | 298,268                   
|                                                                     |                               |                           
|                                                                     |                               | $ 13,398,340              
|                                                                     |                               |                           
|                                                                    
|Liabilities
      and Stockholders Equity                           |                               |                           
|Current
      liabilities:                                           |                              
|Note
      payable to related party                                  |                               | 1,000,000                 
|Accounts
      payable                                               |                               | 1,320,202                 
|Accrued
      liabilities                                            |                               | 4,619,303                 
|Deferred
      income taxes                                          |                               | 1,400,000                 
|Deferred
      revenue                                               |                               | 341,084                   
|                                                                     |                               |                           
|Total
      current liabilities                                      |                               | 8,680,589                 
|                                                                     |                               |                           
|                                                                    
|Stockholders
      equity:                                          |                               |                           
|Common
      stock, $.01 par value-                                  |                              
|Authorized
      - 45,000,000 shares                                 |                              
|Issued
      - 11,538,706 and 13,226,452 shares at December 31, 2002 |                              
|and
      March 31, 2003, respectively                               |                               | 115,387                   
|Additional
      paid-in capital                                     |                               | 162,021,265               
|Accumulated
      deficit                                            |                               | (157,418,901              
|                                                                     |                               |                           
|Total
      stockholders equity                                     |                               | 4,717,751                 
|                                                                     |                               |                           
|                                                                     |                               | $  13,398,340             
|                                                                     |                               |                           

|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
      March 31,
|---------------------------------------------------- | ----------------------------------------
|
|Revenues:                                            |                                         
|Product
      revenues                               | $                                       
|Royalty
      revenues                               |                                         
|Funded
      product development revenues            |                                         
|                                                     |                                         
|Total
      revenues                                 |                                         
|                                                     |                                         
|Costs
      and expenses:                            |                                         
|Cost
      of product revenues                       |                                         
|Cost
      of royalty revenues                       |                                         
|Research
      and development                       |                                         
|Selling
      and marketing                          |                                         
|General
      and administrative                     |                                         
|                                                     |                                         
|Total
      costs and expenses                       |                                         
|                                                     |                                         
|                                                    
|Income
      (loss) from operations                  |                                         
|Interest income                                      |                                         
|Interest
      expense                               |                                         
|Other
      income                                   |                                         
|                                                     |                                         
|Net
      income (loss)                              | $                                       
|                                                     |                                         
|Basic
      net income (loss) per share              | $                                       
|                                                     |                                         
|Diluted
      net income (loss) per share            | $                                       
|                                                     |                                         
|Weighted
      average number of shares outstanding: |                                         
|Basic                                                |                                         
|                                                     |                                         
|Diluted                                              |                                         
|                                                     |                                         

|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
      Paid-in 
      Capital | Accumulated
      
      Deficit | Total
      Stockholders 
      Equity
|-------------------------------------------------------------------------------------- | ------------------ | --------------------------------------- | -------------------------------- | ---------------------------------------
|
|Balance,
      December 31, 2002                                                       |                    | 11,538,706                              |                                  | $115,387                               
|                                                                                       |                    |                                         |                                  |                                        
|Net
      income                                                                       |                    |                                        |                                  |                                       
|Issuance
      of common stock for employee stock purchase plan                        |                    | 6,277                                   |                                  | 63                                     
|Issuance
      of common stock for 2002 employer 401(k) matching          contribution |                    | 184,109                                 |                                  | 1,841                                  
|Costs
      incurred related to the issuance of common stock                           |                    |                                        |                                  |                                       
|Exercise
      of stock options                                                        |                    | 204,105                                 |                                  | 2,041                                  
|Exchange
      of note payable for common stock                                        |                    | 293,255                                 |                                  | 2,933                                  
|Sale
      of common stock                                                             |                    | 1,000,000                               |                                  | 10,000                                 
|                                                                                       |                    |                                         |                                  |                                        
|Balance,
      March 31, 2003                                                          |                    | 13,226,452                              |                                  | $132,265                               
|                                                                                       |                    |                                         |                                  |                                        

|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)
|---------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                           | Three
      Months Ended March 31,
|------------------------------------------------------------------------------------------ | ----------------------------------
|
|Cash
      flows from operating activities:                                                |                                   
|Net
      income (loss)                                                                    | $                                 
|                                                                                           |                                   
|Adjustments
      to reconcile net income (loss) from operations to net cash               |                                   
|used
      in operating activities:                                                        |                                   
|Depreciation
      and amortization                                                        |                                   
|Inventory write-off                                                                        |                                   
|Changes
      in assets and liabilities,                                                   |                                   
|Accounts
      receivable                                                                  |                                   
|Inventories                                                                                |                                   
|Other
      current assets                                                                 |                                   
|Accounts
      payable                                                                     |                                   
|Accrued
      liabilities                                                                  |                                   
|Deferred
      revenue                                                                     |                                   
|                                                                                           |                                   
|Net
      cash 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 |                                   
|Costs
      incurred related to issuance of common stock                                   |                                   
|Proceeds
      from the sale of common stock                                               |                                   
|                                                                                           |                                   
|Net
      cash (used in) provided by 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 stock                                                   | $                                 
|                                                                                           |                                   

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


      -4-
|---------------------------------------------------------------------------------------------------

|Palomar
        Medical Technologies, Inc. and Subsidiaries Notes to 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 the market price of the underlying stock on the date of grant, no
      compensation expense is required. In accordance with 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, which is generally the
      period of service.
      
      The
following tables illustrate the assumptions used and 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 ended March 31, 2002 and 2003, 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 
      March 31,
|------------------------------------------------------------- | -----------------------------------------
|
|Net
      income (loss), as reported                          | $                                        
|Less:
      Preferred stock dividends                         |                                          
|Less:
      Total stock-based employee compensation expense   |                                          
|determined
      under fair value based method for all awards |                                          
|                                                              |                                          
|Pro
      forma loss                                          | $                                        
|                                                              |                                          
|                                                             
|Basic
      and diluted net income (loss) per share:          |                                          
|As
      reported                                             | $                                        
|Pro
      forma                                               | $                                        

|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 Condensed Consolidated Financial Statements
|----------------------------------------------------------------------------------------------------------------

|4. | Inventories
|-- | -----------

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

| | December
      31,   | March 31,
| | -------------------- | ---------
| |                      |          
| | Raw
      materials  |          
| | Work-in-process      |          
| | Finished
      goods |          
| |                      |          
| |                      |          
| |                      |          

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

|5. | Property
      and equipment
|-- | ----------------------------

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

| | December
      31,             | March
      31,
| | ------------------------------ | ---------------
| |                                |                
| | Machinery and equipment        |                
| | Furniture and fixtures         |                
| | Leasehold improvements         |                
| |                                |                
| |                                |                
| | Less: accumulated depreciation |                
| | and
      amortization         |                
| |                                |                
| |                                |                
| |                                |                

|6. | Segment
      information
|-- | -------------------------

|Product
revenue from international sources were $1.4 million and $3.2 million for the three
months ended March 31, 2002 and 2003, respectively. The following table represents the
percentage of product revenue by geographic region from customers for the three months
ended March 31, 2002 and 2003:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Three
      Months Ended
      March 31,
| | ----------------------------------------
|
|
| |                                         
| | United
      States                     
| | Japan                                   
| | Australia                               
| | Europe                                  
| | Canada                                  
| | Asia/Pacific                            
| | Middle
      East                       
| |                                         
| | Total                                   
| |                                         

|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 Condensed Consolidated Financial Statements



The
following table reflects the changes in the Companys accrued warranty during the three
months ended March 31, 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 March 31, 2003     
| |                                                 

|8. | Stockholders
      equity
|-- | --------------------------

|Options
        to purchase common stock. During the three months ended March 31,
        2003, the Company granted options to purchase 25,000 shares of the Companys
        common stock at an exercise price of $1.51 per share. During the three
        months ended March 31, 2003, 204,105 shares of the Companys common
        stock were exercised at exercise prices from $0.90 to $1.42 per share.
        During the three months ended March 31, 2003, options to purchase 37,739
        shares of the Companys common stock were cancelled.


      Warrants
        to purchase common stock. During the three months ended March 31,
        2003, no warrants were granted, exercised or cancelled.


      Exchange
        of note payable for common stock. On March 14, 2003, a director exchanged
        the $1 million principal balance of a Promissory Note into 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 $3.41 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 three
        months ended March 31, 2003, employees purchased 6,277 shares of the Companys
        common stock for $5,603 pursuant to the purchase plan.


      Issuance
        of stock for 401(k) match. The Company issued 195,711 shares of its
        common stock to the401(k) Plan in satisfaction of the Companys
        employer match for 2002 employee contributions during the three months
        ended March 31, 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 net income (loss) per share for the three months ended March 31, 2002 and 2003
is as follows:



7
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                                  | Three Months Ended
      March 31, |           
| | ------------------------------------------------ | ---------------------------------- | ----------
|
| | Net income (loss)                                | $                                  | (736,614  
| | Preferred stock dividends                        |                                    | (89,836   
| |                                                  |                                    |           
| | Net income (loss) attributable to
      common   |                                    |           
| | stockholders                                     | $                                  | (826,450  
| |                                                  |                                    |           
|
| | Basic net income (loss) per common
      share   | $                                  | (0.08     
| |                                                  |                                    |           
|
| | Diluted net income (loss) per common
      share | $                                  | (0.08     
| |                                                  |                                    |           
|
| | Basic weighted average number of shares          |                                   
| | outstanding                                      |                                    | 10,944,217
| | Potential common shares pursuant to:             |                                    |           
| | Stock
      options and warrants                 |                                    |          
| |                                                  |                                    |           
|
| | Diluted weighted average number of
      shares  |                                    |           
| | outstanding                                      |                                    | 10,944,217
| |                                                  |                                    |           

|For
the three-months ended March 31, 2002 and 2003, potential common shares of 6,052,244 and
4,815,568, respectively, 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
|--- | ----------------------------------------------

|On
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 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.


The
Company accounts for funded product development revenue under the Gillette agreement as
received because the funding must be made so long as the Company is not in breach of the
agreement.


8
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item | 2.
            Managements Discussion and Analysis of Financial Condition and
            Results of Operations
|---- | ----------------------------------------------------------------------------------------------------------------

Overview

|We
are a researcher and developer of proprietary light (both lasers and lamp) 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, EsteLux lamp based system, the Palomar Q-Yag 5
        Q-Switched ND: Yag laser system and the Palomar SLP1000® diode 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 a 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.
        The Palomar Q-Yag 5 is a laser system for tattoo and pigmented lesion
        removal and the Palomar SLP1000 is the first diode laser system
        in the marketplace cleared for use on all skin types and has different
        hand pieces to be used in a variety of cosmetic applications including
        hair and vascular lesion removal. The Company has traditionally spent
        a significant amount of its resources in developing new technologies and
        products and believes 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.


9
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|Results of Operations

      Product
        revenues. Product revenues increased to $6.1 million from $3.4 million
        during the quarter ended March 31, 2003 in comparison to the same period
        in 2002. During the first quarter of 2003, the leading contributor to
        this increase of $2.7 million or 80% in product revenues was the EsteLux
        and additional handpieces. During the first quarter of 2003, the sale
        of additional EsteLux handpiece revenue increased substantially as there
        were no additional EsteLux handpieces sold during the same period in 2002.


      Royalty
        revenues. Royalty revenues decreased to $236,000 from $856,000 for
        the three-months ended March 31, 2003 and 2002, respectively. This decrease
        of $620,000 in comparison to the same period in 2002 is attributed to
        Lumenis Inc.s (NASDAQ; LUME) (Lumenis) failure to make its royalty payment.


      Funded
        product development revenues. For the three months ended March 31,
        2003, funded product development revenue of $500,000 was for work performed
        in connection with the initial payment made from 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.


      Cost
        of product revenues. Cost of product revenues increased to $2.7 million
        from $2.2 million for the three months ended March 31, 2003 in comparison
        to the same period in 2002. Cost of product revenues, as a percentage
        of product revenues, decreased to 43% for the three months ended March
        31, 2003 from 65% 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 revenue
        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 the Company writing off $250,000 of clinical and demonstration units
        related to the SLP 1000 product line during the first quarter of 2003.


      Cost
        of royalty revenues. Cost of royalty revenues decreased in dollars
        to $94,000 from $342,000 and as a percentage of royalty revenues was consistent
        at 40%. The decrease in royalty revenues is attributed to Lumeniss
        failure to make its royalty payment resulting in a reduced cost of royalty
        due to General.


      Research
        and development expenses. Research and development expenses increased
        to $1.3 million (18% of total revenues) from $1.1 million (25% of total
        revenues) for the three-months ended March 31, 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 decreased during the three months
        ended March 31, 2003 as compared to the same period in 2002, due to increased
        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
|--

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



      Selling
        and marketing expenses. Selling and marketing expenses increased to
        $1.5 million (23% of total revenues) from $789,000 (19% of total revenues)
        for the three-months ended March 31, 2003 as compared to 2002. This increase
        is associated with direct sales force and international commissions, which
        is correlated with increased revenues and additional marketing expenses
        associated with the Companys product lines.


      General
        and administrative expenses. General and administrative expenses increased
        to $981,000 (14% of total revenues) from $619,000 (15% of total revenues)
        for the three-months ended March 31, 2003 as compared to 2002. The increase
        in general and administrative dollars of $362,000 is primarily related
        to additional legal expenses incurred as a result of enforcing the Companys
        patent position against infringers.


      Interest
        income. Interest income decreased to $15,000 from $20,000 for the
        three-months ended March 31, 2003 and 2002, respectively. This decrease
        is primarily due to a decrease in interest rates in 2003 as compared to
        the same period in 2002.


      Interest
        expense. Interest expense decreased to $24,000 from $31,000 for the
        three-months ended March 31, 2003 as compared to 2002. This decrease is
        attributable to the Company paying off all of its debt. On March 14, 2003,
        a director exchanged the $1 million principal balance of a Promissory
        Note into 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 remained consistent at $58,000 for the three-months
        ended March 31, 2003 as compared to 2002. Other income is attributable
        to payments received from a previously written-off equity investment.


      Income
        Taxes. The Company has not recorded a provision for income taxes,
        as the Company believes that a tax provision or benefit will not be required
        for the fiscal year ending December 31, 2003.


Liquidity and Capital
Resources

      
      As of March 31, 2003, the Company had $6.9 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.  However, the Company cannot be sure that they will not require additional capital beyond
        the amounts currently forecasted by the Company, or that any such required additional capital will be available on reasonable terms,
        if at all, when such capital becomes required.


      
      The Condensed Consolidated Statements of Cash Flows reflect events
        in the first three months of 2003 and 2002 as they affect the Companys
        liquidity. A net use of cash from operating activities was $1.1 million
        in the 2003 period as compared to $1.8 million in 2002. Positively affecting
        cash flows for the 2003 period were net income, depreciation and amortization, inventory write-off,
        and other current assets. Negatively impacting
        operating cash flows in 2003 were increases in accounts receivable and inventories and
        decreases in accounts payable, accrued liabilities and deferred revenue.
        Positively affecting cash flows for the 2002 period were depreciation
        and amortization, decreases in inventories, other current assets and an
        increase in deferred revenue. Negatively impacting operating cash flows
        in 2002 were the net loss, increase in accounts receivable and decreases
        in accounts payable and accrued liabilities.


11
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|Net cash
        from investing activities used cash of $3,000 in the 2003 period as compared
        to $77,000 in 2002. Negatively affecting cash flows from investing activities
        for 2003 and 2002 were purchases of property and equipment. Positively
        affecting cash flows from investing activities for 2002 was a decrease
        in other assets.


      Net cash
        from financing activities provided cash of $3.6 million in 2003 and used
        cash of $50,000 in 2002. Positively affecting cash flows from financing
        activities for 2003 were the proceeds from the exercise of stock options
        and employee stock purchase plan and proceeds from the sale of common
        stock. Positively affecting cash flows from financing activities for 2002
        were the proceeds from the exercise of stock options and employee stock
        purchase plan. Negatively affecting cash flows from financing activities
        for the 2003 and 2002 were costs incurred related to the issuance of common
        stock.


      The Company
        anticipates that capital expenditures for 2003 will total $400,000, consisting
        primarily of machinery, equipment, computers and peripherals. The Company
        expects to finance these expenditures with cash on hand.


      Lumenis failed
        to make the royalty payments due October 30, 2002 and January 30, 2003,
        for sales of their Lightsheer diode laser system for the quarter ended
        September 30, 2002 and December 31, 2002, respectively. On February 14,
        2003, the Company terminated its license agreement with Lumenis (see part
        II, item 1, Legal Proceedings for more details). 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.


      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 exchanged the $1 million principal balance of a Promissory
        Note into 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.


      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 $3.41 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, ability to maintain the NASDAQ minimum continued listing
requirements 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.


12
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|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.


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 we do.
Some of our competitors are able to sell light based hair removal devices at prices
significantly below the prices at which we sell our products. 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.


13
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|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 could be delisted
from NASDAQ.


For
continued listing on The NASDAQ SmallCap Market, a company must maintain a minimum bid
price of $1.00 per share. A company must also maintain a minimum requirement of net
tangible assets of $2.5 million or market capitalization of $35 million or net income (in
latest fiscal year or 2 of the last 3 fiscal years) of $500,000. We are currently in
compliance with all of NASDAQs requirements for continued listing on The NASDAQ SmallCap
Market. However, there can be no assurance that we will remain in compliance with
NASDAQs criteria for continued listing or that we will remain listed on NASDAQ. The
delisting of our common stock would likely reduce the liquidity of our common stock and
our ability to raise capital. If our common stock is delisted from The NASDAQ SmallCap
Market, it will likely be quoted on the pink sheets maintained by the National
Quotation Bureau, Inc. or NASDAQs OTC Bulletin Board. These listings can make trading
more difficult for stockholders.


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 modifications 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.


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 substantially 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 substantially 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 highly
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.


14
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|Our common stock could
be further diluted as the result of outstanding warrants and options.


In
the past, we have issued and still have outstanding convertible securities in the form of
warrants in order to raise money and for payment of certain consulting agreements. We
have and may continue to issue options and warrants as compensation for services and
incentive compensation for our employees and directors. 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.



15
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|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 October 30, 2002 and January 30, 2003, for sales
of their Lightsheer diode laser system for the quarter ended September 30, 2002 and
December 31, 2002, respectively. On February 14, 2003, the Company terminated its license
agreement with Lumenis (see part II, item 1, Legal Proceedings for more details). 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.


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.


16
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|We may not be able to
retain our key executives and research and development personnel.


As
a small company with less than 100 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.


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 more than half of our products and services internationally.


We
sell more than 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.


17
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 the Companys former engagement partner and audit manager have left Arthur Andersen
and in light of the announced cessation of Arthur Andersens SEC practice, 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.


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.


18
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 March 31, 2003 due to their short-term nature. All of the
Companys investments are considered cash equivalent money market accounts and debt
securities which 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.


An
evaluation was performed under the supervision and with the participation of members of
our management, including our Chief Executive Officer and our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a
date (the Evaluation Date) within 90 days before the filing date of this quarterly
report. Based on that evaluation, members of our management, including our Chief
Executive Officer and our Chief Financial Officer, have concluded that as of the
Evaluation Date, our disclosure controls and procedures were effective in enabling us to
record, process, summarize and report the information required to be included in this
quarterly report within the required time period.

      
      (b)   Changes
        in internal controls.


There
have been no significant changes in our internal controls or, to our knowledge, in other
factors that could significantly affect our disclosure controls and procedures subsequent
to the Evaluation Date.


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. 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, 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. A Markman hearing on claim construction has been set for June 12, 2003.
A trial date has not yet been set.

      
      
Item 2.    Changes in
Securities


On
March 14, 2003, a director exchanged the $1 million principal balance of a Promissory
Note into 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.


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 $3.41 million. The price was calculated at 110% of the
Companys Common Stock trailing ten-day average closing price of $3.10 per share.

      
      
Item 3.  Defaults upon
Senior Securities
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Not  applicable.
| | ----------------

|Item 4.  Submission of
Matters to a Vote of Security Holders
|------------------------------------------------------------

| | Not  applicable.
| | ----------------

|20
|--

|Item 5.   Other
Information.
|----------------------------

| | Not
Applicable.
| | ---------------

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

| | Exhibits furnished:
| | -------------------

|99  Certificate pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).


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:
       May 14, 2003 | By: | /s/ Joseph P. Caruso
       Joseph P. Caruso 
       President, Chief Executive Officer and Director
|------------------------- | --- | ----------------------------------------------------------------------------------------------------

|Date:
       May 14, 2003 | By: | /s/ Paul S. Weiner
       Paul S. Weiner
       Chief Financial Officer
|------------------------- | --- | -----------------------------------------------------------------------

|22
|--

|Certifications


I, Joseph P. Caruso certify that:
|--------------------------------------------------

| | 1. | I
have reviewed this quarterly report on Form 10-Q of Palomar Medical
         Technologies, Inc.;
| | -- | --------------------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this quarterly report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial          information
included in this quarterly report, fairly present in all          material respects the
financial condition, results of operations and          cash flows of the registrant as
of, and for, the period presented in          this quarterly report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for          establishing
and maintaining disclosure controls and procedures as          defined in Exchange Act
Rules 13a-14 and 15d-14 for the registrant and          have:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that          material information
relating to the registrant, including its          consolidated subsidiaries, is made
known to us by others within those          entities, particularly during the period in
which this quarterly report          is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and          procedures as of a
date within 90 days prior to the filing date of this          quarterly report (the
Evaluation Date); and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this quarterly report our conclusions about the          effectiveness of the
disclosure controls and procedures based on our          evaluation as of the Evaluation
Date;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based          on our most
recent evaluation, to the registrants auditors and the          audit committee of
registrants board of directors (or persons          performing the equivalent functions):
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of                   internal
controls which could adversely affect the                   registrants ability to
record, process, summarize and report                   financial data and have
identified for the registrants                   auditors any material weaknesses in
internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other          employees who
have a significant role in the registrants internal          controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this          quarterly
report whether there were significant changes in internal          controls or in other
factors that could significantly affect internal          controls subsequent to the date
of our most recent evaluation,          including any corrective actions with regard to
significant          deficiencies and material weaknesses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:
       May 14, 2003 | By: | /s/
      Joseph P. Caruso 
       Joseph P. Caruso 
       President, Chief Executive Officer and Director
|------------------------- | --- | -----------------------------------------------------------------------------------------------------------

|23
|--

|I, Paul S. Weiner certify that:
|-------------------------------

| | 1. | I
have reviewed this quarterly report on Form 10-Q of Palomar Medical
         Technologies, Inc.;
| | -- | --------------------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this quarterly report does not contain any          untrue statement of
a material fact or omit to state a material fact          necessary to make the
statements made, in light of the circumstances          under which such statements were
made, not misleading with respect to          the period covered by this quarterly report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial          information
included in this quarterly report, fairly present in all          material respects the
financial condition, results of operations and          cash flows of the registrant as
of, and for, the period presented in          this quarterly report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for          establishing
and maintaining disclosure controls and procedures as          defined in Exchange Act
Rules 13a-14 and 15d-14 for the registrant and          have:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that          material information
relating to the registrant, including its          consolidated subsidiaries, is made
known to us by others within those          entities, particularly during the period in
which this quarterly report          is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and          procedures as of a
date within 90 days prior to the filing date of this          quarterly report (the
Evaluation Date); and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this quarterly report our conclusions about the          effectiveness of the
disclosure controls and procedures based on our          evaluation as of the Evaluation
Date;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based          on our most
recent evaluation, to the registrants auditors and the          audit committee of
registrants board of directors (or persons          performing the equivalent functions):
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of                   internal
controls which could adversely affect the                   registrants ability to
record, process, summarize and report                   financial data and have
identified for the registrants                   auditors any material weaknesses in
internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other          employees who
have a significant role in the registrants internal          controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this          quarterly
report whether there were significant changes in internal          controls or in other
factors that could significantly affect internal          controls subsequent to the date
of our most recent evaluation,          including any corrective actions with regard to
significant          deficiencies and material weaknesses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:
       May 14, 2003 | By: | /s/
      Paul S. WeinerPaul S. Weiner
       Chief Financial Officer
|------------------------- | --- | ---------------------------------------------------------------------



|24
|--