FORM 10-Q

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   (Mark one)

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

                    For quarterly period ended March 31, 1998

                                       OR

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

               For the transition period from ________ to ________

                         Commission file number: 0-22340

                                [GRAPHIC OMITTED]

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

<TABLE>
<S>                                                                                  <C>

                        Delaware                                                                    04-3128178
--------------------------------------------------------------------                 ---------------------------------------
(State or other jurisdiction of incorporation or organization)                        (I.R.S.. Employer Identification No.)
</TABLE>

               45 Hartwell Avenue, Lexington, Massachusetts 02173
               --------------------------------------------------
                    (Address of principal executive offices)

                                 (781) 676-7300
                 -----------------------------------------------
                (Issuer's telephone number, including area code)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X   No
                                                                       --

         As of April 30, 1998, 64,732,561 shares of Common Stock, $.01 par value
per share, were outstanding.

         Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                              --

                                                                    Page 1 of 17
<PAGE>

               PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                      INDEX

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

         ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         Consolidated Condensed Balance Sheets - December 31, 1997 and March 31, 1998            P.  3

         Consolidated Statements of Operations - For the Three Months Ended
                  March 31, 1997 and 1998                                                        P.  4

         Consolidated Statement of Stockholders' Deficit - For the Three Months Ended
                  March 31, 1998                                                                 P.  5

         Consolidated Statements of Cash Flows - For the Three Months Ended
                  March 31, 1997 and 1998                                                        P.  6

         Notes to Consolidated Financial Statements                                              P.  7

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                P. 12

PART II - OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                                              P. 15

         ITEM 2.  CHANGES IN SECURITIES                                                          P. 16

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                P. 16

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                    OF SECURITY HOLDERS                                                          P. 16

         ITEM 5.  OTHER INFORMATION                                                              P. 16

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                               P. 16

SIGNATURES                                                                                       P. 17
</TABLE>

                                       2
<PAGE>
                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<S>                                                                             <C>                           <C>

                                                                                December 31,                    March 31,
                                                                                    1997                          1998

                                                                                --------------------          --------------------
ASSETS

CURRENT ASSETS:

        Cash and cash equivalents                                                        $3,003,300                    $3,858,028
        Marketable securities                                                             1,449,326                     1,644,791
        Accounts receivable, net                                                          2,248,680                     3,922,829
        Inventories                                                                       4,711,474                     2,074,209
        Other current assets                                                              2,153,941                     2,333,777
                                                                                --------------------          --------------------
              Total current assets                                                       13,566,721                    13,833,634
                                                                                --------------------          --------------------

NET ASSETS OF DISCONTINUED OPERATIONS (NOTE 9)                                            5,825,602                     4,510,529
                                                                                --------------------          --------------------

PROPERTY AND EQUIPMENT, AT COST, NET                                                      6,455,586                     4,233,404
                                                                                --------------------          --------------------

OTHER ASSETS:

        Cost in excess of net assets acquired, net                                        2,302,348                     2,151,757
        Deferred financing costs                                                            591,609                       287,985
        Other noncurrent assets                                                             225,706                       227,464
                                                                                --------------------          --------------------
              Total other assets                                                          3,119,663                     2,667,206
                                                                                --------------------          --------------------

                                                                                        $28,967,572                   $25,244,773
                                                                                ====================          ====================

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

        Current portion of long-term debt                                                $1,640,465                    $4,424,611
        Accounts payable                                                                  4,150,982                     3,483,358
        Accrued liabilities                                                              13,759,854                    12,502,124
        Current portion of deferred revenue                                               1,284,395                     1,416,583
                                                                                --------------------          --------------------
              Total current liabilities                                                  20,835,696                    21,826,676
                                                                                --------------------          --------------------

LONG-TERM DEBT, NET OF CURRENT PORTION                                                   12,445,563                     6,821,792
                                                                                --------------------          --------------------

DEFERRED REVENUE, NET OF CURRENT PORTION                                                  1,870,000                     1,620,000
                                                                                --------------------          --------------------

STOCKHOLDERS' DEFICIT:

        Preferred stock, $.01 par value-                                                        164                           101
              Authorized - 5,000,000 shares
              Issued and outstanding -
              16,397 shares and 10,089 shares

              at December 31, 1997 and March 31, 1998, respectively

        Common stock, $.01 par value-                                                       457,926                       614,749
              Authorized -  100,000,000  shares  
              Issued - 45,792,585  shares and 61,474,947 shares
              at December 31, 1997 and March 31, 1998, respectively

        Additional paid-in capital                                                      147,356,579                   155,943,314
        Accumulated deficit                                                            (152,359,497)                 (159,943,000)
        Less: Treasury stock - (345,000 shares at cost)                                  (1,638,859)                   (1,638,859)
                                                                                --------------------          --------------------
              Total stockholders' deficit                                                (6,183,687)                   (5,023,695)
                                                                                --------------------          --------------------

                                                                                        $28,967,572                   $25,244,773
                                                                                ====================          ====================
</TABLE>

                                       3
<PAGE>

                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<S>                                                          <C>                  <C>    <C>    <C>    <C>    <C>

                                                               Three Months Ended March 31,
                                                                  1997               1998
                                                             -------------        ------------
REVENUES                                                       $2,732,460          $7,067,405

COST OF REVENUES                                                3,015,716           6,336,245
                                                             -------------        ------------

        Gross Margin                                             (283,256)            731,160
                                                             -------------        ------------

OPERATING EXPENSES

        Research and development                                2,180,817           2,165,000
        Sales and marketing                                       970,979           2,503,115
        General and administrative                              4,213,777           2,843,859
        Settlement costs                                        2,799,000                  --
                                                             -------------        ------------

               Total operating expenses                        10,164,573           7,511,974
                                                             -------------        ------------

               Loss from operations                           (10,447,829)         (6,780,814)

INTEREST EXPENSE                                               (1,179,007)           (421,312)

INTEREST INCOME                                                   140,637              28,479

NET GAIN ON TRADING SECURITIES                                  1,079,917             332,965

OTHER INCOME                                                      112,769               2,000
                                                             -------------        ------------
               NET LOSS FROM CONTINUING OPERATIONS            (10,293,513)         (6,838,682)

LOSS FROM DISCONTINUED OPERATIONS (NOTE 9)                     (5,071,632)                 --
                                                             -------------        ------------
               NET LOSS                                      $(15,365,145)        $(6,838,682)
                                                             =============        ============

BASIC AND DILUTED NET LOSS PER COMMON SHARE:

        Continuing operations                                      $(0.34)             $(0.15)
        Discontinued operations                                     (0.16)                 --
                                                             -------------        ------------
               TOTAL LOSS PER COMMON SHARE                         $(0.50)             $(0.15)
                                                             =============        ============

WEIGHTED AVERAGE NUMBER OF
    COMMON SHARES OUTSTANDING                                  31,037,426          51,893,210
                                                             =============        ============

</TABLE>

                                       4
<PAGE>

                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<S>     <C>                                                                    <C>          <C>            <C>             <C>
                                                                                   Preferred Stock        Common Stock
                                                                               -----------------------------------------------------
                                                                                 Number        0.01          Number           0.01
                                                                               of Shares    Par Value      of Shares       Par Value
                                                                               -----------------------------------------------------

Balance, December 31, 1997                                                     $16,397         $164        $45,792,585     $457,926

        Sale of common stock pursuant to Employee Stock Purchase Plan               --           --             18,609          186
        Conversion of preferred stock                                           (4,108)         (41)         4,387,157       43,872
        Conversion of convertible debentures                                        --           --          3,809,922       38,099
        Redemption of preferred stock                                           (2,200)         (22)                --           --
        Issuance of common stock net of investment banking fees                     --           --          7,200,000       72,000
        Value ascribed to warrants issued to investor                               --           --                 --           --
        Issuance of common stock for 1997 employer 401(k) matching contribution     --           --            166,674        1,666
        Common stock issued for advisory services                                   --           --            100,000        1,000
        Preferred stock dividends and interest penalties                            --           --                 --           --
        Net loss                                                                    --           --                 --           --
                                                                               -----------------------------------------------------
Balance, March 31, 1998                                                        $10,089         $101        $61,474,947      $614,749
                                                                               =====================================================
</TABLE>

<TABLE>
<S>     <C>                                                       <C>        <C>          <C>           <C>            <C>

                                                                     Treasury Stock
                                                                   -----------------      Additional                       Total
                                                                    Number                  Paid-in      Accumulated   Stockholders'
                                                                   of Shares    Cost        Capital        Deficit         Deficit
                                                                  ------------------------------------------------------------------

Balance, December 31, 1997                                        (345,000)  $(1,638,859) $147,356,579  $(152,359,497)  $(6,183,687)

        Sale of common stock pursuant to Employee 
               Stock Purchase Plan                                      --            --        18,423             --        18,609
        Conversion of preferred stock                                   --            --       346,231             --       390,062
        Conversion of convertible debentures                            --            --     3,219,052             --     3,257,151
        Redemption of preferred stock                                   --            --    (2,199,978)            --    (2,200,000)
        Issuance of common stock net of investment banking fees         --            --     6,768,000             --     6,840,000
        Value ascribed to warrants issued to investor                   --            --       171,000             --       171,000
        Issuance of common stock for 1997 employer 401(k) 
               matching contribution                                    --            --       165,007             --       166,673
        Common stock issued for advisory services                       --            --        99,000             --       100,000
        Preferred stock dividends and interest penalties                --            --            --       (744,821)     (744,821)
        Net loss                                                        --            --            --     (6,838,682)   (6,838,682)
                                                                  ------------------------------------------------------------------
Balance, March 31, 1998                                           (345,000)  $(1,638,859) $155,943,314  $(159,943,000)  $(5,023,695)
                                                                  ==================================================================
</TABLE>

                                       5
<PAGE>

                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<S>                                                                                     <C>            <C>

                                                                                        Three Months Ended March 31,
                                                                                            1997            1998
                                                                                        ------------   -------------

CASH FLOWS FROM OPERATING ACTIVITIES
    Net Loss                                                                            $(15,365,145)  $(6,838,682)
       Less: Net Loss from discontinued operations                                        (5,071,632)           --
                                                                                        -------------  -------------
    Net Loss from continuing operations                                                  (10,293,513)   (6,838,682)
                                                                                        -------------  -------------
    Adjustments to reconcile net loss from continuing operations to net cash
       used in operating activities-
       Depreciation and amortization                                                          553,964      672,352
       Settlement and litigation costs                                                      2,149,000           --
       Write-off of deferred financing costs associated with
          redemption of convertible debentures                                                 27,554           --
       Valuation allowances for notes and investments                                         250,000           --
       Foreign currency exchange gain                                                        (548,552)          --
       Noncash interest expense related to debt                                             1,025,865           --
       Noncash compensation related to common stock and warrants                              204,614           --
       Unrealized gain loss on marketable securities                                       (1,079,886)    (332,965)
       Changes in assets and liabilities,
          Net (purchase) sale of marketable trading securities                               (146,294)     485,479
          Accounts receivable                                                                 756,325     (675,176)
          Inventories                                                                      (3,166,282)   2,478,141
          Other current assets                                                                642,386     (119,145)
          Accounts payable                                                                     34,554     (367,120)
          Accrued expenses                                                                   (618,121)   1,210,185
                                                                                        -------------  -------------
                Net cash used in operating activities                                     (10,208,386)  (3,486,931)

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                                    (1,863,142)    (180,656)
    Decrease (increase) in other assets                                                       194,194     (492,227)
    (Increase) in notes receivable                                                           (750,000)     (86,818)
    Investment in nonmarketable securities                                                 (1,764,431)          --
                                                                                        -------------  -------------
                Net cash used in investing activities                                      (4,183,379)    (759,701)
                                                                                        -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of convertible debentures                                       10,225,169            --
    Redemption of convertible debentures                                                     (196,000)    (2,196,667)
    Net proceeds from the issuance of notes payable                                           351,510      1,798,195
    Proceeds from issuance of common stock                                                    601,177      6,858,609
    Issuance of preferred stock                                                             5,700,000             --
    Redemption of preferred stock including accrued dividends of $437,850                          --     (2,673,850)
                                                                                        -------------  -------------
                Net cash provided by financing activities                                  16,681,856    3,786,287
                                                                                        -------------  -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        2,290,091     (460,345)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS                                                  911,056    1,315,073
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                             12,292,406    3,003,300
                                                                                        -------------  -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                  $15,493,553   $3,858,028
                                                                                        =============  =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid for interest                                                                    $56,843     $687,894
                                                                                        =============  =============

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
    Conversion of convertible debentures and related accrued
       interest, net of financing fees                                                     $1,507,663   $3,257,151
                                                                                        =============  =============

    Conversion of preferred stock                                                            $186,492     $390,062
                                                                                        =============  =============

    Issuance of common stock for 1996 and 1997 employer 401(k)
       matching contribution                                                                 $269,262     $166,674
                                                                                        =============  =============
</TABLE>

                                       6
<PAGE>

                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
information.  Accordingly,  they  do not  include  all of  the  information  and
footnotes  required by generally  accepted  accounting  principles  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.
(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  generally  accepted  accounting
principles.  The accompanying  financial  statements and notes should be read in
conjunction  with the Company's Form 10-K, as of and for the year ended December
31, 1997.

         Some of the Company's  medical laser  products are in various stages of
development,  and as such,  the  success  of future  operations  is subject to a
number  of risks  similar  to those of other  companies  in  similar  stages  of
development.  Principal  among these risks are the  successful  development  and
marketing of the Company's  products,  proper regulatory  approval,  the need to
achieve profitable  operations,  competition from substitute products and larger
companies,  the need to obtain adequate  financing to fund future operations and
dependence on key individuals.

         The  Company has  incurred  significant  losses  since  inception.  The
Company  continues to seek  additional  financing from issuances of common stock
and/or other prospective sources in order to fund future operations. The Company
has financed  current  operations,  expansion  of its core  business and outside
short-term financial  investments primarily through the private sale of debt and
equity securities of the Company and its subsidiaries.  The Company  anticipates
that it will require  additional  financing  throughout  the year to continue to
fund  operations  and  growth.  The Company may from time to time be required to
raise additional funds through additional private sales of the Company's debt or
equity securities and/or the liquidation of some of its marketable and long-term
investments.  The sale by the Company of some of its marketable securities could
result in additional  losses depending on market conditions at the time of these
sales.  Securities  are sold to private  investors  at a discount  to the public
market for similar securities. It has been the Company's experience that private
investors  require  that the  Company  make its best  effort to  register  these
securities for resale to the public at some future time.

2.       INVESTMENTS

         The fair values for the  Company's  marketable  equity  securities  are
based on quoted market prices.  The amount that the Company  realizes from these
investments  may  differ   significantly   from  the  amounts  recorded  in  the
accompanying unaudited consolidated financial statements.

         The Company  accounts for  investments in accordance  with Statement of
Financial   Accounting  Standards  ("SFAS")  No.  115,  ACCOUNTING  FOR  CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES.  Under SFAS No. 115,  securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading  securities.  Realized and unrealized gains and losses
relating  to trading  securities  are  included  currently  in the  accompanying
unaudited statements of operations.
<TABLE>
<S>                                                        <C>           <C>           <C>            <C>

                                                                              March 31, 1998
                                                           -------------------------------------------------------
                                                                            Gross         Gross
                                                                         Unrealized    Unrealized        Fair
                                                              Cost          Gain          Loss           Value
                                                           ------------  ------------  ------------   ------------
             Marketable Securities:
                    Investments in publicly
                    traded companies                          $832,649      $812,142      $---         $1,644,791
                                                           ============  ============  ============   ============
</TABLE>

                                       7
<PAGE>

3.       INVENTORIES

         Inventories  are  stated  at lower  of cost  (first-in,  first-out)  or
market.  Work in process and  finished  goods  inventories  consist of material,
labor and manufacturing overhead and consist of the following:

<TABLE>
<S>                        <C>                                     <C>                 <C>

                                                                    December 31,          March 31,
                                                                        1997                1998

                                                                   ----------------    ----------------
                           Raw materials                                $2,928,350            $892,901
                           Work in process and finished goods            1,783,124           1,181,308
                                                                   ----------------    ----------------
                                                                        $4,711,474          $2,074,209
                                                                   ================    ================
</TABLE>

4.       PROPERTY AND EQUIPMENT

         Property and Equipment consist of the following:
<TABLE>
<S>                                                                <C>                 <C>

                                                                    December 31,         March 31,
                                                                        1997                1998

                                                                   ----------------    ---------------
                            Machinery and equipment                     $6,328,442         $4,688,817
                            Furniture and fixtures                       1,018,931            943,998
                            Leasehold improvements                         480,453            426,837
                                                                   ----------------    ---------------
                                                                         7,827,826          6,059,652
                            Less:  Accumulated depreciation
                                       and amortization                  1,372,240          1,826,248
                                                                   ----------------    ---------------
                                                                        $6,455,586         $4,233,404
                                                                   ================    ===============
</TABLE>

5.       ACCRUED LIABILITIES

         Accrued Liabilities consist of the following:
<TABLE>
<S>                                                                <C>                 <C>

                                                                    December 31,         March 31,
                                                                        1997                1998

                                                                   ----------------    ---------------
                            Payroll and consulting costs                $1,535,013         $1,499,845
                            Royalties                                      853,808            873,141
                            Settlement costs                             1,457,020          1,457,020
                            Warranty                                     2,583,677          2,239,635
                            Restructuring                                1,981,907          1,296,633
                            Interest and preferred stock dividends       1,659,709          1,481,122
                            Other                                        3,688,720          3,654,728
                                                                   ================    ===============
                                Total                                  $13,759,854        $12,502,124
                                                                   ================    ===============
</TABLE>

                                       8
<PAGE>

6.       NET LOSS PER COMMON SHARE

         In March 1997, the Financial  Accounting  Standards Board (FASB) issued
SFAS No. 128,  EARNINGS PER SHARE.  This  statement  establishes  standards  for
computing  and  presenting  earnings  per share and  applies  to  entities  with
publicly  traded  common  stock or potential  common  stock.  This  statement is
effective  for fiscal years ending after  December 15, 1997.  Basic net loss per
share was  determined by dividing net income by the weighted  average  shares of
common stock  outstanding  during the period.  Diluted net loss per share is the
same as basic net loss per share  because  the  Company's  potentially  dilutive
securities,  primarily stock options,  warrants,  redeemable preferred stock and
convertible  debentures,  are  antidilutive.  The  Company's net loss per common
share from  continuing  operations for the three months ended March 31, 1997 and
1998 is as follows:
<TABLE>
<S>                                              <C>                   <C>
          
                                                          Three Months Ended
                                                              March 31,
                                                       1997                 1998
                                                 -----------------     ---------------
          Net loss from continuing operations       $(10,293,513)        $(6,838,682)
          Preferred stock dividends                     (294,996)           (744,821)
                                                 -----------------     ---------------
          Adjusted net loss                         $(10,588,509)        $(7,583,503)
                                                 =================     ===============

          Basic net loss per common share from
                       Continuing operations               $(.34)              $(.15)
                                                 =================     ===============

          Weighted average number of
                     Common shares outstanding         31,037,426          51,893,210
                                                 =================     ===============
</TABLE>

7.       NOTES PAYABLE

         Notes payable consist of the following:
<TABLE>
<S>                                                                                        <C>              <C>

                                                                                            December 31,      March 31,
                                                                                                1997             1998

                                                                                           ---------------- ---------------
Convertible debentures                                                                         $10,683,440      $5,340,000
Short term note payable                                                                          ---             1,829,000
Note payable in connection with guarantee on behalf of discontinued subsidiary                   3,233,000       3,098,292
Advance from distributor                                                                         ---               955,638
Other notes payable                                                                                169,588          23,473
                                                                                           ---------------- ---------------
                                                                                                14,086,028      11,246,403

Less - current maturities                                                                      (1,640,465)     (4,424,611)
                                                                                           ---------------- ---------------
                                                                                               $12,445,563      $6,821,792
                                                                                           ================ ===============
</TABLE>

(a)      CONVERTIBLE DEBENTURES

         On February 17, 1998, the Company  converted the remaining  $100,000 of
its 4.5% convertible  debentures due October 21, 1999, 2000 and 2001 into 60,809
shares of the  Company's  common stock.  During the first  quarter of 1998,  the
Company converted the remaining $3,084,344 of its 5% convertible  debentures due
December 31, 2001,  January 13, 2002 and March 10, 2002 into 3,646,092 shares of
the Company's common stock. On February 13, 1998, the Company converted $160,000
of its 6%, 7% and 8% convertible  debentures due September 30, 2002 into 103,021
shares of the Company's  common stock.  Accrued interest  totaling  $158,685 was
included in the above  conversions.  The Company  amortized  deferred  financing
costs  totaling  $245,878  to  additional   paid-in  capital  related  to  these
conversions.

         On January 23, 1998, the Company redeemed  $2,000,000 of its 6%, 7% and
8% convertible  debentures due September 30, 2002 including interest and premium
for $2,196,667. Deferred financing cost totaling $95,000 was charged to interest
expense upon redemption.

                                       9
<PAGE>

(b)      SHORT TERM NOTES PAYABLE

         On March 27, 1998, the Company borrowed  $2,000,000 from an individual.
The note is due the  earlier of May 26,  1998 or one day  following  the sale of
Dynaco or any other Palomar assets outside the normal course of business or upon
raising  additional  capital  where the use of  proceeds to pay back debt is not
prohibited.  If the note is not repaid by the  maturity  date,  the note becomes
convertible at market value at the option of the debentureholder, as defined. If
the note is not paid by the  maturity  date and/or June 23,  1998  penalties  of
$100,000 and $125,000, respectively, payable in the Company's common stock, will
become  due.  Interest  on this  note is in the form of a  warrant  to  purchase
125,000 shares of common stock for $.01 per share  exercisable  over five years.
This warrant is valued at $171,000 using the Black-Scholes option pricing model.
The Company has  accounted  for this  warrant as a discount to the note  through
additional  paid-in  capital and will amortize the discount to interest  expense
over the expected life of the note.

(c)      ADVANCE FROM DISTRIBUTOR

         On January 20, 1998, the Company's  worldwide laser distributor made an
advance of funds to the Company of  approximately  $2,211,000.  This  advance is
collateralized by the Company's  accounts  receivable from end users for product
sold  by  the  distributor.  Payments  against  this  advance  are  made  as the
distributor  collects  receivables from the end user of the Company's  products.
During  the  first  quarter,  amounts  totaling  approximately  $1,255,000  were
collected against this advance.

8.       STOCKHOLDERS' DEFICIT

(a)      ISSUANCE OF COMMON STOCK

         In February 1998, the Company sold 7,200,000  shares of common stock to
a group of investors for $7,200,000. In addition, the Company issued warrants to
the investors to purchase  7,200,000 shares of common stock at an exercise price
of $3.00 per share. The Company paid a 5% commission of $360,000 related to this
issuance  which has been netted  against  the  proceeds  through a reduction  in
additional paid-in capital.

(b)      CONVERTIBLE PREFERRED STOCK

         During the first quarter of 1998,  the Company  converted 268 shares of
its Series G  Preferred  Stock and accrued  dividends  of $28,140  into  283,507
shares of the Company's  common stock.  Also,  during the first quarter of 1998,
the Company  converted  3,840 shares of its Series H Preferred Stock and accrued
dividends of $359,807 into 4,103,650 shares of the Company's common stock.

         During the first quarter of 1998, the Company  redeemed 2,200 shares of
Series H Preferred  Stock including  related accrued  dividends and premiums for
$2,673,850.

(c)      OPTIONS TO PURCHASE COMMON STOCK

         During the three  months  ended March 31,  1998 the  Company  cancelled
options to purchase 75,000 shares of common stock at $2.50 per share. No options
were issued or exercised during the three months ended March 31, 1998.

(d)      WARRANTS TO PURCHASE COMMON STOCK

         During the three  months  ended  March 31,  1998,  the  Company  issued
warrants  to  purchase  220,000  shares of common  stock at $2.00 per share to a
former employee. Also, during the three months ended March 31, 1998, the Company
cancelled the former  employee's  warrants to purchase  220,000 shares of common
stock at a price of $3.25 per share. No warrants were exercised during the three
months ended March 31, 1998.

                                       10
<PAGE>

(e)      RESERVED SHARES

         At March 31, 1998, the Company has reserved  shares of its common stock
for the following:

                                                   March 31,
                                                      1998
                                                ---------------
             Convertible debentures                 6,442,434
             Stock option plans                     3,709,504
             Warrants                               9,998,030
             Employee stock purchase plan             966,014
             Convertible preferred stock            5,829,018
                                                ---------------
                                   Total           26,945,000
                                                ===============

9.       DISCONTINUED OPERATIONS

         During the fourth  quarter of 1997,  the  Company's  Board of Directors
approved a plan to dispose of the Company's  electronics  business  segment.  On
March 31, 1998,  the Company still owned 100% of Dynaco Corp.  and  beneficially
owned approximately 30% of Nexar Technologies Inc.

         Pursuant  to  Accounting  Principles  Board  ("APB")  Opinion  No.  30,
REPORTING  THE RESULTS OF  OPERATIONS  - REPORTING  THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS  AND  EXTRAORDINARY,  UNUSUAL AND  INFREQUENTLY  OCCURRING
EVENTS AND TRANSACTIONS,  the consolidated  financial  statements of the Company
have been  reclassified to reflect the  disposition of the electronics  segment.
Accordingly,  the assets and liabilities,  revenues and expenses, and cash flows
of the  electronics  segment have been excluded from the respective  captions in
the Consolidated Condensed Balance Sheets, Consolidated Statements of Operations
and Consolidated Statements of Cash Flows. The net assets of these entities have
been reported as "Net Assets of  Discontinued  Operations"  in the  accompanying
Consolidated  Condensed  Balance  Sheets;  the net  operating  losses  of  these
entities have been reported as "Net Loss from  Discontinued  Operations"  in the
accompanying  Consolidated Statement of Operations;  the net cash flows of these
entities have been reported as "Net Cash Provided by Discontinued Operations" in
the accompanying Consolidated Statements of Cash Flows.

         Summarized financial  information for the discontinued  operations were
as follows:
<TABLE>
<S>                                                    <C>                       <C>
                                                              Three Months Ended March 31,
                                                              1997                     1998
                                                       --------------------      ------------------
           Revenues                                            $17,393,978              $3,620,170
           Net Loss from Discontinued Operations              ($5,071,632)                    $---
</TABLE>

10.      RESTRUCTURING

         In the third quarter of 1997,  the Company  recognized a  restructuring
charge of  $2,700,000  based on the  decision  to  discontinue  certain  medical
product and service business units and consolidate others. The majority of these
amounts  related  to  severance   benefits.   All  expenses   accounted  for  as
restructuring charges were in accordance with the criteria set forth in Emerging
Task Force Issue 94-3,  LIABILITY  RECOGNITION FOR CERTAIN EMPLOYEE  TERMINATION
BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY  (INCLUDING  CERTAIN COSTS INCURRED
IN A  RESTRUCTURING),  and are exclusive of the charges  related to discontinued
operations.  During the three months ended March 31, 1998,  the Company paid out
approximately  $685,000 of severance  resulting in a restructuring  liability of
approximately $1,297,000 at March 31, 1998. This restructuring liability will be
paid in the remainder of 1998.

                     [This space intentionally left blank.]


                                       11
<PAGE>

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

REVENUE AND GROSS MARGIN:  THREE MONTHS ENDED MARCH 31, 1998,  
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         For the three months ended March 31, 1998,  the Company had revenues of
$7.1  million as compared to $2.7  million for the three  months ended March 31,
1997.  The increase in the Company's  revenue of $4.3 million or 159% was mainly
due  to  additional   sales  volume   associated   with  the   EpiLaser(R)   and
LightSheer(TM)   laser   systems   combined   with  a  decrease  in  revenue  of
approximately  $700,000 in other cosmetic product revenue from the quarter ended
March 31, 1997.  The Company  obtained  FDA  clearance to market and to sell its
EpiLaser(R)  laser  system  in the  United  States  in  March  of  1997  and its
LightSheer(TM)  laser  system for hair  removal  and leg vein  treatment  in the
United  States at the end of 1997.  The  Company  believes  that  revenues  will
continue to increase due to its improved manufacturing  process,  growing market
demand for its LightSheer(TM) laser system, and an improved distribution network
as a result of the Company's exclusive distribution arrangement with Coherent.

         Gross   margin  for  the  three   months   ended  March  31,  1998  was
approximately  $731,000 (10% of revenues) versus negative $283,000 (negative 10%
of revenues)  for the three  months ended March 31, 1997.  The increase in gross
margin dollars in 1998 was mainly due to greater  revenues  associated  with the
Company's  EpiLaser(R)  laser system,  as discussed above. The increase in gross
margin  percentage was caused by the  introduction of the  LightSheer(TM)  laser
system.  The Company  believes that its gross margin dollar and percentage  will
continue  to  improve  as  the  Company   achieves   higher   revenue  from  its
LightSheer(TM)  laser system.  This new laser system has a significantly  higher
gross margin than the Company's EpiLaser(R) laser system.

OPERATING AND OTHER EXPENSES:  THREE MONTHS ENDED MARCH 31, 1998, 
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         Research and  development  costs were $2.2 million for the three months
ended March 31, 1998 and 1997. Research and development expenses as a percent of
revenue  totaled 31% for the three  months  ended March 31, 1998 and 80% for the
three  months  ended March 31,  1997.  The  consistent  spending on research and
development  reflects  the  Company's  continuing  commitment  to  research  and
development  for  medical  devices  and  delivery  systems  for  cosmetic  laser
applications  and other medical  applications  using a variety of lasers,  while
continuing  dermatology  research utilizing the Company's ruby and diode lasers.
Management  believes  that  research and  development  expenditures  will remain
constant  over the next year as the  Company  continues  clinical  trials of its
medical  products  and  develops  additional  applications  for its  lasers  and
delivery systems. However,  management anticipates that research and development
as a percentage  of net revenues  will  decrease as revenues  increase  with the
commercialization of its laser medical products.

         Selling  and  marketing  expenses  increased  to $2.5  million  (35% of
revenues) for the three months ended March 31, 1998, from approximately $971,000
(36% of revenues)  for the three  months  ended March 31, 1997.  The increase in
selling and marketing  expenses is attributable to the costs associated with its
distribution  agreement  with  Coherent.  The  Company  anticipates  selling and
marketing  expense  dollars  will  increase  in  the  future,  but  will  remain
relatively constant as a percent of revenue as the Company realizes the benefits
of its worldwide distribution network.

         General and  administrative  expenses decreased to $2.8 million (40% of
revenues) for the three months ended March 31, 1998, as compared to $4.2 million
(154% of revenues)  for the three months ended March 31, 1997.  This decrease is
attributable to the Company's  successful  restructuring  and  consolidation  of
administrative  functions in the third and fourth  quarters of 1997. In previous
years, the Company focused management time and allocated resources to developing
business  outside of the medical and cosmetic laser industry and financing those
businesses.  Beginning in the fourth  quarter of 1997,  the Company  focused its
efforts on its core business. The Company anticipates general and administrative
expense will continue to decrease in the future as the benefits of the third and
fourth quarter restructuring are realized.

         For the three months  ended March 31,  1998,  the Company did not incur
settlement expenses. Settlement costs of $2.8 million were incurred in the three
months ended March 31, 1997. These charges  consisted mainly of a $1.875 million
legal  settlement  to an  investment  bank,  which  case was  settled  on August
18,1997, and other potential claims outstanding.

                                       12
<PAGE>

         Interest  expense  decreased  to  approximately  $421,000 for the three
months ended March 31, 1998,  from $1.2 million for the three months ended March
31, 1997. This 64% decrease is primarily the result of a decrease in convertible
debenture financings and the Company's increased use of conventional  financing.
Also, operations did not require as much financing in 1998 as compared to 1997.

         Interest income decreased to approximately $28,000 for the three months
ended March 31,  1998,  from  approximately  $141,000 for the three months ended
March 31,  1997.  This  decrease  is  primarily  the result of a decrease in the
Company's average outstanding cash and cash equivalents balances.

         Net realized and unrealized trading gains were  approximately  $333,000
for the three months ended March 31, 1998, down from net realized and unrealized
trading  gains of $1.1 million for the three  months  ended March 31, 1997.  The
gains  principally  reflect market  fluctuations  associated  with the Company's
investment in The American  Materials & Technologies  Corporation  (AMTK). It is
the Company's  intention to continue to liquidate its trading investments in the
near term, which may result in additional trading gains or losses in the future.

         There were no losses  incurred  from  discontinued  operations  for the
three  months  ended March 31, 1998  compared to a loss of $5.1  million for the
three months ended March 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31,  1998,  the  Company  had $5.5  million  in cash,  cash
equivalents and trading securities.  During the three months ended March 31,1998
the Company  generated  $6.9 million and $1.8  million in net proceeds  from the
issuance of common stock and short term notes payable, respectively.

         The  Company's  net loss for the three  months  ended  March  31,  1998
included  approximately  $672,000  of  non-cash  depreciation  and  amortization
expense.

         The Company  anticipates  that capital  expenditures  for the remaining
nine months of 1998 will total  approximately  $1.8  million.  The Company  will
finance these expenditures with cash on hand and equipment leasing lines, or the
Company will seek to raise additional funds. However,  there can be no assurance
that the Company will be able to raise the funds.

         Dynaco has a three-year  revolving credit and security agreement with a
financial  institution.  The  agreement  provides  for  the  revolving  sale  of
acceptable accounts  receivable,  as defined in the agreement,  with recourse at
85% of face  value up to a maximum  commitment  of $3  million.  As of March 31,
1998,  the amount owed totaled $1.3 million.  This amount is included in the net
assets from discontinued  operations in the accompanying  Consolidated Condensed
Balance  Sheet as of March  31,  1998.  The  interest  rate on such  outstanding
amounts is the bank's prime rate plus 1.5%,  and interest is payable in arrears.
The  financing  is  collateralized  by the  purchased  accounts  receivable  and
substantially all of Dynaco's assets.  The Company  guarantees  borrowings under
this loan agreement.

         In connection  with the  disposition of Comtel,  a former  wholly-owned
subsidiary in the electronics segment, the Company guaranteed $2,500,000 under a
line of credit extended by a loan  association to Biometric  Technologies  Corp.
(BTC), the buyer of Comtel.  The stockholders of BTC have personally  guaranteed
to the Company  payment for any  amounts  borrowed  under this line of credit in
excess of  approximately  $1,500,000  in the event the Company is  obligated  to
honor this guarantee. The stockholders of BTC have collateralized this guarantee
by the Company with certain assets personally owned by the stockholders.

         The  Company's  strategic  plan is to  continue  to fund  research  and
development  for its medical  products.  This  research and  development  effort
entails extensive clinical trials. These activities are an important part of the
Company's  business plan. Due to the nature of clinical  trials and research and
development  activities,  it is not possible to predict with any  certainty  the
timetable  for  completion of these  research  activities or the total amount of
funding  required  to  commercialize  products  developed  as a  result  of such
research  and  development.  The rate of  research  and the  number of  research
projects underway are dependent to some extent upon external funding.  While the
Company is regularly  reviewing  potential  funding sources in relation to these
ongoing and  proposed  research  projects,  there can be no  assurance  that the
current  levels of funding  or  additional  funding  will be  available,  or, if
available, on terms satisfactory to the Company.

                                       13
<PAGE>

         The Company has had significant losses to date and expects these losses
to continue for the near future.  Therefore, the Company must continue to secure
additional  financing  to complete  its  research  and  development  activities,
commercialize  its current and proposed medical products and services,  and fund
ongoing operations. There can be no assurance that events in the future will not
require the Company to seek additional  financing sooner.  The Company continues
to investigate several financing alternatives, including strategic partnerships,
additional bank financing,  private debt and equity  financing,  sale of assets,
including the Company's marketable  securities consisting of Nexar and AMTK, and
other sources.  Based on its historical  ability to raise funds as necessary and
ongoing preliminary  discussions with potential  financing sources,  the Company
believes that it will be successful in obtaining  additional  financing in order
to fund current operations in the near future.  Although the Company believes it
will be successful in obtaining additional financing,  there can be no assurance
that any such financing will be available on terms  satisfactory to the Company.
The report of the Company's  independent  public  accountants in connection with
the Company's Consolidated Balance Sheets at December 31, 1997 and 1996, and the
related  Consolidated  Statements of Operations,  Stockholders' Equity (Deficit)
and Cash  Flows  for the  three  years  ended  December  31,  1997  includes  an
explanatory  paragraph  stating that the  Company's  recurring  losses,  working
capital deficiency and stockholders'  deficit raises substantial doubt about the
Company's ability to continue as a going concern.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         From time to time,  information  provided by the Company or  statements
made by its employees may contain "forward-looking" information, as that term is
defined in the Private  Securities  Litigation  Reform Act of 1995 (the  "Reform
Act").  This  report  may  also  contain   statements  that  are  deemed  to  be
forward-looking information under the Reform Act, including, without limitation,
statements relating to financial projections;  growing market demand; additional
financings;  an  improved  distribution  network;  increases  in  revenues;  and
research and development,  selling and marketing, general and administrative and
capital expenditures. 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  Company  cautions  investors  that  there can be no
assurance that actual results or business  conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors,  including but not limited to the risk factors identified in
the Company's Form 10-K for the year ended December 31, 1997,  which  cautionary
statements  are 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.

                      [This space intentionally left blank]

                                       14
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         -----------------

         On October 7, 1996 the Company filed a declaratory  judgment  action in
the United  States  District  Court for the  District of  Massachusetts  against
MEHL/Biophile  ("MEHL")  seeking (i) a declaration that MEHL is without right or
authority to threaten or maintain  suit against the Company or its customers for
alleged infringement of the patent held by MEHL's subsidiary Selvac Acquisitions
Corp.  (the  "Selvac  Patent"),  that the  Selvac  Patent is  invalid,  void and
unenforceable,  and that the Company does not infringe the Selvac patent; (ii) a
preliminary and permanent injunction enjoining MEHL from threatening the Company
or its customers  with  infringement  litigation or  infringement;  and (iii) an
award to the Company of damages  suffered in connection with MEHL's conduct.  On
March 7, 1997,  Selvac filed a complaint for  injunctive  relief and damages for
patent  infringement  and for unfair  competition in the United States  District
Court  for  the  District  of  New  Jersey  against  the  Company,  two  of  its
subsidiaries and a New Jersey dermatologist. Selvac's complaint alleges that the
Company's  EpiLaser(R)  laser system  infringes  the Selvac  Patent and that the
Company  unfairly  competed by promoting the  EpiLaser(R)  laser system for hair
removal before it had received FDA approval for that specific  application.  The
Company  and  Selvac  agreed to dismiss  the  Massachusetts  litigation  without
prejudice.  The Company has brought in the New Jersey action its claims that the
Selvac patent is invalid,  that the Company has not infringed the Selvac patent,
that  MEHL  should  be  enjoined  from  making  further  assertions   concerning
infringement  and unfair  competition,  and that the  Company  should be awarded
attorney fees and other appropriate  relief.  Thus both the Company's and MEHL's
claims will be presented on the merits in New Jersey.  The court has granted the
Company's motion to dismiss Selvac's federal unfair  competition claim so far as
it depends on the Company's supposed violations of FDA rules. The court has also
granted the  Company's  motion to amend its  complaint  to allege that  Selvac's
patent was obtained by  inequitable  conduct.  The Company has moved for summary
judgment on the ground that the Selvac patent is invalid.  Discovery in the case
has been stayed by court  order  pending a ruling on the  Company's  dispositive
motion. The Company believes that MEHL's claims are without merit.

         On October 16, 1997, the Company brought a declaratory  judgment action
in United States  District Court for the District of  Massachusetts  against the
holders and the indenture trustee of the Company's 4.5% Subordinated Convertible
Debentures due 2003, denominated in Swiss francs (the "Swiss Franc Debentures").
The  defendants  in this  action are  Banque SCS  Alliance  SA,  Arbuthnot  Fund
Managers,  Ltd.,  Banca  Commerciale  Lugano,  Privatinvest  Bank AG (these four
defendants  being  referred to  collectively  as the "Asserting  Holders"),  CUF
Finance S.A., Fibi Bank (Schweiz) AG, Teawood Nominees, Ltd., JS Gadd & CIE, SA,
Swedbank  (Luxembourg)  SA,  Christiana Bank Luxembourg SA, (now known as Credit
Agricole Indosuez),  Landatina Financiera SA and American Stock Transfer & Trust
Co., as trustee ("Trustee").  Just prior to this suit, the Asserting Holders had
alleged that the Company is in breach of certain protective  covenants under the
indenture.  The Company  believes that it is not in default under any protective
covenants,  and the Company's  action seeks a declaration from the Court to that
effect.  All payments on the Swiss Franc  Debentures were current to the time of
suit. On October 22, 1997, the Asserting Holders sued the Company and all of its
principal  subsidiaries  in the same court;  the October  16th and October  22nd
cases  have  been  assigned  to the same  judge,  and the  dispute  between  the
Asserting  Holders and the Company is  proceeding  under the October  22nd case.
(The Company has moved to dismiss  without  prejudice the October 16, 1997 case;
the court has not yet acted on that  motion.) The  Asserting  Holders claim that
the Company has breached  certain  protective  indenture  covenants and that the
Asserting Holders are entitled to immediate payment of their  indebtedness under
the Swiss  Franc  Debentures  (which  amounts  to about  US$5,000,000  at recent
exchange  rates).  The Asserting  Holders sought a temporary  restraining  order
attaching bank accounts and barring the Company from  transferring  any interest
in  securities  of its  subsidiaries.  The Court  denied  this  motion,  and the
Asserting   Holders  withdrew  a  preliminary   injunction   motion   concerning
essentially the same issues.  As of November 13, 1997,  acting under  applicable
provisions of the indenture, the Company notified the holders of the Swiss Franc
Debentures  that  it is  causing  the  conversion  of  all of  the  Swiss  Franc
Debentures  into an aggregate of 914,028  shares of the Company's  common stock.
The court  thereafter  denied without  prejudice the Company's motion to dismiss
the complaint on the ground the Asserting  Holders had failed to proceed through
the Trustee, as required,  and denied without prejudice the Company's motion for
summary  judgment  as to its  conversion.  The court  scheduled  a  time-limited
evidentiary hearing, further to clarify the legal and factual issues. After that
hearing,  the court denied the Asserting  Holders' motion for summary  judgment,
and  concluded  that  there  remain  disputed  issues and the case must be tried
before a factfinder.  The Company believes that its position in these matters is
correct and intends to contest the claims of the Asserting Holders vigorously.

         On August 27, 1997,  Pamela Siegman,  as Trustee for the Pamela Siegman
Trust,  filed an action in the Court of Chancery of the State of Delaware in and
for New Castle County against the Company and each of its 



                                       15
<PAGE>

current  directors and two former directors.  Siegman,  purportedly on behalf of
similarly situated shareholders,  claimed disclosure errors and omissions in the
Company's  annual  meeting proxy  statement,  and sought a declaration  that the
Company's  preferred  stock is void  because of a  purported  deficiency  in the
Company's Certificate of Incorporation.  On March 9, 1998, the Court of Chancery
ruled against Siegman on all of her claims (she had abandoned some of her claims
prior to the Court's  ruling).  The Company does not know  whether  Siegman will
appeal the ruling, as the court's final order has not of this date been entered.
Siegman has filed a request for attorney fees, which the Company has opposed.

ITEM 2. CHANGES IN SECURITIES
        ---------------------

         Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
        -------------------------------

         Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        ---------------------------------------------------

         Not applicable.

ITEM 5. OTHER INFORMATION
        -----------------

         Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

(a)      EXHIBITS

27.1     Financial Data Statement, Restated, for the period ended March 31, 1997

27.2     Financial Data Statement, for the period ended March 31, 1998

(a)      REPORTS ON FORM 8-K.

         None.


                                       16
<PAGE>

                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1934,  the
Registrant  certifies  that it has caused this Report to be signed on its behalf
by the undersigned,  thereunto duly authorized,  in the Town of Lexington in the
Commonwealth of Massachusetts on May 13, 1998.

                                              PALOMAR MEDICAL TECHNOLOGIES, INC.
                                                          (Registrant)

DATE:  May 13, 1998                           By:      /S/ LOUIS P. VALENTE
                                                   -----------------------------
                                                   Louis P. Valente
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)



DATE:  May 13, 1998                                    /S/ JOSEPH P. CARUSO
                                                   -----------------------------
                                                   Joseph P. Caruso 
                                                   Chief Financial Officer and 
                                                   Treasurer
                                                   (Principal Financial Officer
                                                   and Principal Accounting 
                                                   Officer)



                                       17