881695--3/6/2006--PALOMAR_MEDICAL_TECHNOLOGIES

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{product, liability, claim}

{customer, product, revenue}

{property, intellectual, protect}

{system, service, information}

{stock, price, share}

{product, market, service}

{acquisition, growth, future}

{operation, international, foreign}

{cost, contract, operation}

{control, financial, internal}

{provision, law, control}

{personnel, key, retain}

{stock, price, operating}

{regulation, government, change}

If we do not continue to develop and commercialize new products and identify new markets for our products and technology, we may not remain competitive, and our revenues and operating results could suffer. Our products are subject to numerous medical device regulations. Compliance is expensive and time-consuming. Without necessary clearances, we may be unable to sell products and compete effectively. Medical devices may be marketed only for the indications for which they are approved or cleared. The FDA may not approve or clear indications that are necessary or desirable for successful commercialization. Indeed, the FDA may refuse our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to existing products. Our clearances can be revoked if safety or effectiveness problems develop. After clearance or approval of our products, we are subject to continuing regulation by the FDA, and if we fail to comply with FDA regulations, our business could suffer. We have modified some of our products and sold them under prior 510(k) clearances. The FDA could retroactively decide the modifications required new 510(k) clearances and require us to cease marketing and/or recall the modified products. Federal regulatory reforms may adversely affect our ability to sell our products profitably. We may also be subject to state regulations. State regulations, and changes to state regulations, may prevent sales to particular end users which may decrease revenues or prevent growth of revenues. Because we do not require training for all users of our products, and sell our products to non-physicians, there exists an increased potential for misuse of our products, which could harm our reputation and our business. Achieving complete compliance with FDA regulations is difficult, and if we fail to comply, we could be subject to FDA enforcement action or our business could suffer. Failure to manage our relationships with third party researchers effectively may limit our access to new technology, increase the cost of licensing new technology, and divert management attention from our core business. If our new products do not gain market acceptance, our revenues and operating results could suffer. If demand for our aesthetic treatment systems by non-traditional physician customers and spas does not develop as we expect, our revenues will suffer and our business will be harmed. If there is not sufficient demand for the procedures performed with our products, practitioner demand for our products could decline, which would adversely affect our operating results. Our business and operations are experiencing rapid growth. If we fail to effectively manage our growth, our business and operating results could be harmed. Failure to receive shipments of critical components could reduce revenues and reduced reliability of critical components could increase expenses. Our proprietary technology has only limited protections which may not prevent competitors from copying our new developments. This may impair our ability to compete effectively, and we may expend significant resources enforcing our intellectual property rights to prevent such copying. Claims by others that our products infringe their patents or other intellectual property rights could prevent us from manufacturing and selling some of our products or require us to pay royalties or incur substantial costs from litigation or development of non-infringing technology. We may not be able to successfully collect licensing royalties. Disappointing quarterly revenue or operating results could cause the price of our common stock to fall. Managing our relationship with Gillette effectively may divert the attention of key technical personnel and management from the core business. If Gillette ends the relationship our stock price could fall, and we may be unable to bring a home use hair removal device for women to the market. Managing our contract with the United States Department of the Army effectively may divert the attention of key technical personnel and management from the core business. We may be unable to complete the project within the time period which may impact our ability to receive future government contracts. Managing our relationship with Johnson Johnson Consumer Companies, Inc. effectively may divert the attention of key technical personnel and management from the core business. If Johnson Johnson Consumer Companies, Inc. ends the relationship our stock price could fall, and we may be unable to bring to market home-use, light based devices for (i) reducing or reshaping body fat including cellulite; (ii) reducing appearance of skin aging; and (iii) reducing or preventing acne. Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results and stock price We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock. The expense and potential unavailability of liability insurance coverage for our customers could adversely affect our ability to sell our products and our financial condition. We may be unable to attract and retain key executives and research and development personnel that we need to succeed. We face a risk of financial exposure to product liability claims in the event that the use of our products results in personal injury. We face risks associated with product warranties. Because we derive a significant amount of our revenue from international sales, we are susceptible to currency fluctuations, long payment cycles, credit risks and other risks associated with conducting business overseas. We rely on third party distributors to market and sell a large portion of our products. If these distributors do not commit the necessary resources to effectively market and sell our products or if our relationships with these distributors are disrupted, our business and operating results may be harmed. We may need to secure additional financing and without such additional financing we may be unable to fund ongoing operations or grow the business. Our common stock could be further diluted by the conversion of outstanding options and warrants. Our charter documents and Delaware law may discourage potential takeover attempts.

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881695--3/6/2006--PALOMAR_MEDICAL_TECHNOLOGIES_INC