Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

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** **

**FORM 10-Q**

 

**o****        Quarterly reportpursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**For the quarterly period ended September 26, 2009**

 

**OR**

 

**o****        Transitionreport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934**

 

**For the transition period from                      to                     **

 

**Commission file number 000-14742**

 

**CANDELACORPORATION**

(Exact name of registrant as specified in its charter)

 

 

| **Delaware**                                     | ** ** | **04-2477008**                       |
|--------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction                     |       | (I.R.S. Employer Identification No.) |
| of incorporation or organization)                |       |                                 |
|                                             |       |                                 |
| **530 Boston Post Road, Wayland, Massachusetts** | ** ** | **01778**                            |
| (Address of principal executive offices)         |       | (Zip code)                           |

 

Registrant’s telephone number, including area code:  **(508)358-7400**

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large Accelerated Filer o |   | Accelerated Filer o         |
|--------------------------------|--------|----------------------------------|
|                           |   |                             |
| Non-Accelerated Filer o   |   | Smaller Reporting Company x |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule12b-2 of the Exchange Act)  Yes  o  No x

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                              | ** ** | **Outstanding  at November 9, 2009** |
|----------------------------------------|------------|-------------------------------------------|
| Common Stock, $.01 par value per share |       | 22,922,543                                |

 

 

 

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Table ofContents

 

**CANDELACORPORATION**

**Table ofContents**

** **
| ** **    | ** **              | ** **                                                                                                                                                              | **Page** |
|---------------|-------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Part I.  | Financial  Information: |                                                                                                                                                                    |
|          |                    |                                                                                                                                                                    |
|          | Item 1.                 | Unaudited Financial  Statements                                                                                                                                         |     |
|          |                    |                                                                                                                                                                    |     |
|          |                    | Condensed Consolidated Balance Sheets as of  September 26, 2009 and June 27, 2009                                                                             | 3        |
|          |                    |                                                                                                                                                                    |     |
|          |                    | Condensed Consolidated Statements of Operations and  Comprehensive Income (Loss) for the three-month periods ended  September 26, 2009 and September 27, 2008 | 4        |
|          |                    |                                                                                                                                                                    |     |
|          |                    | Condensed Consolidated Statements of Cash Flows for  the three-month periods ended September 26, 2009 and September 27,  2008                                 | 5        |
|          |                    |                                                                                                                                                                    |     |
|          |                    | Notes to Condensed Consolidated Financial Statements  (Unaudited)                                                                                                       | 6 - 14   |
|          |                    |                                                                                                                                                                    |     |
|          | Item 2.                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                             | 15 - 18  |
|          |                    |                                                                                                                                                                    |     |
|          | Item 3.                 | Quantitative  and Qualitative Disclosure about Market Risk                                                                                                              | 19       |
|          |                    |                                                                                                                                                                    |     |
|          | Item 4.                 | Controls and  Procedures                                                                                                                                                | 19       |
|          |                    |                                                                                                                                                                    |     |
| Part II. | Other Information:      |                                                                                                                                                                    |
|          |                    |                                                                                                                                                                    |
|          | Item 1.                 | Legal proceedings                                                                                                                                                       | 20 - 21  |
|          |                    |                                                                                                                                                                    |     |
|          | Item 1A.                | Risk Factors                                                                                                                                                            | 22       |
|          |                    |                                                                                                                                                                    |     |
|          | Item 6.                 | Exhibits                                                                                                                                                                | 23       |
|          |                    |                                                                                                                                                                    |     |
|          | Signatures              |                                                                                                                                                                    | 24       |
|          |                    |                                                                                                                                                                    |     |
|          | Index  to Exhibits      | 25                                                                                                                                                                      |

 

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**Part I.  Financial Information**

 

**Item 1 - Financial Statements**

 

**CANDELACORPORATION**

**Condensed Consolidated Balance Sheets**

(in thousands,except per-share data)

 
| ** **                                                                                                                                         | ** ** | **September 26,** | ** ** | **June 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                                                                                                         | ** ** | **2009**               | ** ** | **2009**          | ** ** |
| **Assets**                                                                                                                                         | ** ** | ** **             | ** ** | ** **        | ** ** |
| Current assets:                                                                                                                                    |       |                   |       |              |       |
| Cash and cash equivalents                                                                                                                          |       | $                      | 22,119     |              | $          | 24,694 |   |
| Restricted cash                                                                                                                                    |       | 1,013                  |       | 1,013             |       |
| Marketable securities                                                                                                                              |       | 2,510                  |       | 3,100             |       |
| Accounts receivable, net of allowance for doubtful  accounts of $3,223 and $2,828 at September 26 and June 27,  respectively             |       | 30,920                 |       | 31,936            |       |
| Inventories, net                                                                                                                                   |       | 26,563                 |       | 27,572            |       |
| Other current assets                                                                                                                               |       | 10,485                 |       | 9,097             |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total current assets                                                                                                                               |       | 93,610                 |       | 97,412            |       |
| Property and equipment, net                                                                                                                        |       | 3,362                  |       | 3,469             |       |
| Deferred tax assets                                                                                                                                |       | 22,071                 |       | 20,565            |       |
| Acquired Intangible assets, net                                                                                                                    |       | 174                    |       | 174               |       |
| Other assets                                                                                                                                       |       | 1,520                  |       | 1,550             |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total assets                                                                                                                                       |       | $                      | 120,737    |              | $          | 123,170 |   |
|                                                                                                                                               |       |                   |       |              |       |
| **Liabilities and Stockholders’ Equity**                                                                                                      |       |                   |       |              |       |
| Current liabilities:                                                                                                                               |       |                   |       |              |       |
| Accounts payable                                                                                                                                   |       | $                      | 10,074     |              | $          | 11,887 |   |
| Accrued payroll and related expenses                                                                                                               |       | 5,436                  |       | 4,947             |       |
| Accrued warranty costs, current                                                                                                                    |       | 4,221                  |       | 4,953             |       |
| Other accrued liabilities                                                                                                                          |       | 8,145                  |       | 6,476             |       |
| Deferred revenue, current                                                                                                                          |       | 11,692                 |       | 11,863            |       |
| Current liabilities of discontinued operations                                                                                                     |       | 812                    |       | 865               |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total current liabilities                                                                                                                          |       | 40,380                 |       | 40,991            |       |
| Accrued warranty costs, long-term                                                                                                                  |       | 424                    |       | 524               |       |
| Deferred revenue, long-term                                                                                                                        |       | 4,416                  |       | 4,211             |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total liabilities                                                                                                                                  |       | 45,220                 |       | 45,726            |       |
|                                                                                                                                               |       |                   |       |              |       |
| Stockholders’ equity:                                                                                                                         |       |                   |       |              |       |
| Common stock, $.01 par value, 60,000,000 shares  authorized; 26,200,000 and 26,175,000 issued at September 26 and  June 27, respectively |       | 262                    |       | 262               |       |
| Treasury stock, 3,450,000 common shares at  September 26 and June 27, respectively, at cost                                              |       | (24,855                | )          | (24,855           | )          |
| Additional paid-in capital                                                                                                                         |       | 76,601                 |       | 76,111            |       |
| Accumulated earnings                                                                                                                               |       | 19,679                 |       | 23,306            |       |
| Accumulated other comprehensive income                                                                                                             |       | 3,830                  |       | 2,620             |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total stockholders’ equity                                                                                                                    |       | 75,517                 |       | 77,444            |       |
|                                                                                                                                               |       |                   |       |              |       |
| Total liabilities and stockholders’ equity                                                                                                    |       | $                      | 120,737    |              | $          | 123,170 |   |

 

***The accompanying notes are an integralpart of the unaudited condensed consolidated financial statements****.*

 

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**CANDELA CORPORATION**

**Condensed Consolidated Statements ofOperations and Comprehensive Income (Loss)**

**(in thousands, except per-share data)**

 
| ** **                                                 | ** ** | **For the  three months ended:** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **September 26,  2009**     | ** ** | **September 27,  2008** | ** ** |
| ** **                                                 | ** ** | **(Unaudited)**                  | ** ** |
| **Revenue**                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Lasers  and other products                                 |       | $                                | 15,618     |   | $ | 17,102 |   |
| Product-related  service                                   |       | 10,606                           |       | 9,563 |   |
|                                                       |       |                             |       |   |   |
| Total  revenue                                             |       | 26,224                           |       | 26,665 |   |
| **Cost of sales**                                          |       |                             |       |   |   |
| Lasers  and other products                                 |       | 9,870                            |       | 8,617 |   |
| Product-related  service                                   |       | 7,306                            |       | 7,576 |   |
|                                                       |       |                             |       |   |   |
| Total  cost of sales                                       |       | 17,176                           |       | 16,193 |   |
|                                                       |       |                             |       |   |   |
| **Gross profit**                                           |       | 9,048                            |       | 10,472 |   |
| **Operating expenses:**                                    |       |                             |       |   |   |
| Selling,  general and administrative                       |       | 12,123                           |       | 14,673 |   |
| Research  and development                                  |       | 1,789                            |       | 2,330 |   |
|                                                       |       |                             |       |   |   |
| Total  operating expenses                                  |       | 13,912                           |       | 17,003 |   |
|                                                       |       |                             |       |   |   |
| **Loss from operations**                                   |       | (4,864                           | )          | (6,531 | ) |
|                                                       |       |                             |       |   |   |
| **Other income (expense):**                                |       |                             |       |   |   |
| Interest  income                                           |       | 82                               |       | 243 |   |
| Other  income (expense), net                               |       | 138                              |       | (317 | ) |
|                                                       |       |                             |       |   |   |
| Total  other income (expense)                              |       | 220                              |       | (74 | ) |
|                                                       |       |                             |       |   |   |
| **Loss from continuing operations before income taxes**    |       | (4,644                           | )          | (6,605 | ) |
|                                                       |       |                             |       |   |   |
| **Benefit from income taxes**                              |       | (1,060                           | )          | (3,086 | ) |
| ** **                                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Loss from continuing operations**                        |       | (3,584                           | )          | (3,519 | ) |
|                                                       |       |                             |       |   |   |
| **Loss from discontinued operations, net of income taxes** |       | (43                              | )          | (490 | ) |
|                                                       |       |                             |       |   |   |
| **Net Loss**                                               |       | $                                | (3,627     | ) | $ | (4,009 | ) |
|                                                       |       |                             |       |   |   |
| **Net loss per share of common stock:**                    |       |                             |       |   |   |
|                                                       |       |                             |       |   |   |
| Basic  and diluted                                         |       |                             |       |   |   |
| Loss  from continuing operations                           |       | $                                | (0.16      | ) | $ | (0.16 | ) |
| Loss  from discontinued operations                         |       | —                           |       | (0.02 | ) |
|                                                       |       |                             |       |   |   |
| Net  loss                                                  |       | $                                | (0.16      | ) | $ | (0.18 | ) |
|                                                       |       |                             |       |   |   |
| **Weighted average shares outstanding:**                   |       |                             |       |   |   |
| Basic  and diluted                                         |       | 22,742                           |       | 22,697 |   |
|                                                       |       |                             |       |   |   |
| **Net loss**                                               |       | $                                | (3,627     | ) | $ | (4,009 | ) |
| **Other comprehensive income (loss):**                     |       |                             |       |   |   |
| Foreign  currency translation adjustment                   |       | 1,210                            |       | (1,258 | ) |
|                                                       |       |                             |       |   |   |
| **Comprehensive loss**                                     |       | $                                | (2,417     | ) | $ | (5,267 | ) |

 

***The accompanyingnotes are an integral part of the unaudited condensed consolidated financialstatements****.*

 

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**CANDELACORPORATION**

**CondensedConsolidated Statements of Cash Flows**

(in thousands)

(unaudited)

 
| ** **                                                                   | ** ** | **For the three months ended:** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **September 26,  2009**    | ** ** | **September 27,  2008** | ** ** |
| **Cash  flows from operating activities:**                                   | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                               | (3,627     | ) | $ | (4,009 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |                            |       |   |   |
| Non-cash items reported  in discontinued operations                          |       | (13                             | )          | — |   |
| Share-based  compensation expense                                            |       | 477                             |       | 893 |   |
| Depreciation and  amortization                                               |       | 239                             |       | 765 |   |
| Provision for bad debts                                                      |       | 372                             |       | 604 |   |
| Other non-cash items                                                         |       | 143                             |       | (71 | ) |
| Changes in operating  assets and liabilities                                 |       |                            |       |   |   |
| Accounts receivable                                                          |       | 3,170                           |       | 8,569 |   |
| Inventories                                                                  |       | 1,560                           |       | (1,961 | ) |
| Other current assets                                                         |       | (1,232                          | )          | 262 |   |
| Other assets                                                                 |       | (22                             | )          | 1 |   |
| Accounts payable                                                             |       | (5,159                          | )          | (1,801 | ) |
| Accrued payroll and  related expenses                                        |       | 316                             |       | (205 | ) |
| Deferred revenue                                                             |       | 50                              |       | (2,689 | ) |
| Accrued warranty costs                                                       |       | (1,308                          | )          | 508 |   |
| Income taxes payable  and deferred                                           |       | 1,452                           |       | (3,230 | ) |
| Other accrued  liabilities                                                   |       | 2,035                           |       | (1,244 | ) |
| Restricted cash                                                              |       | —                          |       | 28 |   |
|                                                                         |       |                            |       |   |   |
| Net cash used by  operating activities                                       |       | (1,547                          | )          | (3,580 | ) |
|                                                                         |       |                            |       |   |   |
| **Cash  flows from investing activities:**                                   |       |                            |       |   |   |
| Purchases of property  and equipment                                         |       | (436                            | )          | (620 | ) |
| Maturities of  held-to-maturity marketable securities                        |       | 664                             |       | 3,484 |   |
|                                                                         |       |                            |       |   |   |
| Net cash provided by  investing activities                                   |       | 228                             |       | 2,864 |   |
|                                                                         |       |                            |       |   |   |
| **Cash  flows from financing activities:**                                   |       |                            |       |   |   |
| Proceeds from the issuance  of common stock                                  |       | 14                              |       | 55 |   |
|                                                                         |       |                            |       |   |   |
| Net cash provided by  financing activities                                   |       | 14                              |       | 55 |   |
|                                                                         |       |                            |       |   |   |
| Effect of exchange  rates on cash and cash equivalents                       |       | (1,270                          | )          | (1,632 | ) |
|                                                                         |       |                            |       |   |   |
| **Net  decrease in cash and cash equivalents**                               |       | (2,575                          | )          | (2,293 | ) |
|                                                                         |       |                            |       |   |   |
| **Cash  and cash equivalents at beginning of period**                        |       | 24,694                          |       | 21,030 |   |
|                                                                         |       |                            |       |   |   |
| **Cash  and cash equivalents at end of period**                              |       | $                               | 22,119     |   | $ | 18,737 |   |

 

***The accompanying notes are an integral part of the unauditedcondensed consolidated financial statements****.*

 

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**CandelaCorporation**

**Notes toCondensed Consolidated Financial Statements (unaudited)**

 

**1.****                  ****Basis of Presentation**

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States for interimfinancial information and with the instructions for Form 10-Q and Article 10of Regulation S-X. The year-end consolidated balance sheet is derived from ouraudited financial statements, but does not include all disclosures required byaccounting principles generally accepted in the United States of America. Inthe opinion of management, the accompanying unaudited condensed consolidated financialstatements contain all adjustments, consisting only of those of a normalrecurring nature, considered necessary for a fair presentation of our financialposition, results of operations and cash flows at the dates and for the periodsindicated. Actual results may differ from these estimates.

 

The results for thethree-month period ended September 26, 2009 are not necessarily indicativeof results to be expected for the remainder of the fiscal year. The informationcontained in the interim financial statements should be read in conjunctionwith Management’s Discussion and Analysis and the financial statements andnotes thereto included in the Candela Corporation 2009 Form 10-K filed on October 1,2009 with the Securities and Exchange Commission (“SEC”).

 

*Basisof Consolidation*

The financial statements include the accounts ofCandela Corporation and its subsidiaries. Inter-company transactions andbalances have been eliminated. Investments in which we are not able to exercisesignificant influence over the investee are accounted for under the costmethod.

 

*SignificantAccounting Policies*

There have been nochanges in our significant accounting policies for the three months ended September 26,2009 as compared to the significant accounting policies described in our AnnualReport on Form 10-K for the fiscal year ended June 27, 2009.

 

*MergerCosts*

We incurred approximately$2.3 million in direct costs during the three-month period ended September 26,2009 in connection with our pending merger with Syneron Medical, Ltd. Inaccordance with ASC 805, Business Combinations, which specifies thatacquisition-related costs be recognized separately from the acquisition andexpensed as incurred, we have included these costs as part of operatingexpenses in our accompanying unaudited condensed consolidated statement ofoperations and comprehensive income (loss).

 

*SubsequentEvents*

Management has reviewedand evaluated material subsequent events from the balance sheet date of September 26,2009 through the financial statements issue date of November 10, 2009. Allappropriate subsequent event disclosures, if any, have been made in these Notesto Condensed Consolidated Financial Statements.

 

**2.      RecentAccounting Pronouncements**

 

In June 2009,the Financial Accounting Standards Board (“FASB”) issued Statements ofFinancial Accounting Standards (“SFAS”) No. 168, *The FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles*. SFAS No. 168, which is incorporated inAccounting Standards Codification (“ASC”) Topic 105, *GenerallyAccepted Accounting Principles*, identifies the ASC as theauthoritative source of generally accepted accounting principles in the UnitedStates. Rules and interpretive releases of the SEC under federalsecurities laws are also sources of authoritative GAAP for SEC registrants. Weadopted SFAS No. 168 in Q1 2010 and include references to the ASC withinour consolidated financial statements.

 

In October 2009,the FASB issued Accounting Standards Update (“ASU”) 2009-13, which amends ASCTopic 605, *Revenue Recognition*, to requirecompanies to allocate revenue in multiple-element arrangements based on anelement’s estimated selling price if vendor-specific or other third-partyevidence of value is not available. ASU 2009-13 is effective for us beginningin Q1 2011. Earlier

 

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application ispermitted. We are currently evaluating both the timing and the impact of thepending adoption of the ASU on our consolidated financial statements.

 

**3.      Fair Value Measurements**

 

We measure assets andliabilities at fair value based upon exit price, representing the amount thatwould be received on the sale of an asset or paid to transfer a liability, asthe case may be, in an orderly transaction between market participants. Assuch, fair value may be based on assumptions that market participants would usein pricing an asset or liability. To increase the comparability of fair-valuemeasures, the following hierarchical levels of inputs to valuationmethodologies are used:

 

·                  Level 1 - Valuation is based upon quoted prices foridentical instruments traded in active markets. Level 1 instruments includesecurities traded on active exchange markets, such as the New York StockExchange.

 

·                  Level 2 - Valuation is based upon quoted prices forsimilar instruments in active markets, quoted prices for identical or similarinstruments in markets that are not active and model-based valuation techniquesfor which all significant assumptions are observable in the market.

 

·                  Level 3 - Valuation is generated from model-basedtechniques that use significant assumptions not observable in the market. Theseunobservable assumptions reflect our own estimates of assumptions marketparticipants would use in pricing the asset or liability.

 

The following tablesummarizes our assets measured and recorded at fair value on a recurring basis,by level, within the fair value hierarchy:

 
| ** **             | ** ** | **As of September 26, 2009** | ** ** |
|------------------------|------------|-----------------------------------|------------|
| ** **             | ** ** | **Level 1**                       | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Cash equivalents       |       | $                                 | 5,540      |   | $ | — |   | $ | — |   | $ | 5,540 |   |
| Short-term investments |       | 2,510                             |       | — |   | — |   | 2,510 |   |
|                   |       |                              |       |   |   |   |   |   |   |
|                   |       | $                                 | 8,050      |   | $ | — |   | $ | — |   | $ | 8,050 |   |

 
| ** **             | ** ** | **As of June 27, 2009** | ** ** |
|------------------------|------------|------------------------------|------------|
| ** **             | ** ** | **Level 1**                  | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Cash equivalents       |       | $                            | 6,214      |   | $ | — |   | $ | — |   | $ | 6,214 |   |
| Short-term investments |       | 1,686                        |       | — |   | — |   | 1,686 |   |
|                   |       |                         |       |   |   |   |   |   |   |
|                   |       | $                            | 7,900      |   | $ | — |   | $ | — |   | $ | 7,900 |   |

 

**4.****                  ****Discontinued Operations**

 

A summary of theoperating results of the discontinued operations are as follows:

 
| ** **                                            | ** ** | **For the  three months ended:** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** |
| **(in  thousands)**                                   | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Revenue                                               |       | $                                | —     |   | $ | 208 |   |
|                                                  |       |                             |       |   |   |
| Loss  from discontinued operations                    |       | (68                              | )          | (633 | ) |
| Benefit  from Income tax from discontinued operations |       | (25                              | )          | (143 | ) |
|                                                  |       |                             |       |   |   |
| Loss  from discontinued operations, net               |       | $                                | (43        | ) | $ | (490 | ) |

 

During the three-monthperiod ended September 26, 2009 we incurred ongoing operating expenses,and made required adjustments to income taxes in the ordinary course ofbusiness.

 

**5.****                  ****Equity Incentive Plans**

 

As of September 26,2009, there was approximately $1.5 million of total unrecognized compensationcost related to non-vested stock options and Stock Appreciation Rights (“SARs”)granted under the

 

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Company’s incentiveplans. This cost is expected to be recognized over a weighted-average period of0.9 years.

 

The amount of cashreceived from the exercise of stock options for the three-month period ended September 26,2009 and September 27, 2008, respectively, was de minimus.

 

None of the optionsor SARs outstanding at September 26, 2009 or September 27, 2008 hadcash-settlement features.

 

### **1990 Candela Corporation Employee Stock PurchasePlan**

The 1990 EmployeeStock Purchase Plan (the “Purchase Plan”) provides for the sale of up to 1.5million shares of common stock to eligible employees. The shares are issued at85% of the average high/low market price on the last day of semi-annual periodsrounded up to the nearest penny. Substantially all full-time employees areeligible to participate in the Purchase Plan. At September 26, 2009 therewere approximately 587,000 shares available for sale. Compensation expense forthe purchase plan is recognized over the vesting period.

 

1998 Candela Corporation Amended and Restated Stock Plan

There were no stock-based SARs granted during the three-month period ended September 26, 2009 as the 1998 Stock Plan expired pursuant to its term on September 18, 2008.

 

There were approximately 4.1 million outstanding options/SARs at September 26, 2009 with a weighted-average exercise price of $8.25 per share, an aggregate intrinsic value of $0.2 million, and a weighted-average remaining contractual term of 7.01 years.

 

Of the total 4.1 million outstanding options/SARs, there were approximately 2.9 million of exercisable options/SARs at September 26, 2009 with a weighted-average exercise price of $8.73 per share, an aggregate intrinsic value of $0.2 million, and a weighted-average remaining contractual term of 6.58 years.

 

The total intrinsic value of SARs exercised during the three-month period ended September 26, 2009 was approximately $14,000.

 

2008 Candela Corporation Stock Plan

There were approximately 0.3 million stock-based SARs granted under this Plan during the three-month period ended September 26, 2009. The SARs granted to employees become exercisable ratably over one to two years. No SARs were granted to directors during the three-month period ended September 26, 2009.

 

There were approximately 1.3 million outstanding SARs under this Plan at September 26, 2009 with a weighted-average exercise price of $0.68 per share, an aggregate intrinsic value of $3.2 million, and a weighted-average remaining contractual term of 9.46 years.

 

The total intrinsic value of SARs exercised during the three-month period ended September 26, 2009 was approximately $25,000.

 

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**6.****                  ****Earnings or loss per Share**

 

Basic earnings orloss per share is computed by dividing net income or loss by the weightedaverage number of shares of common stock outstanding for the period. If thereare dilutive securities, diluted earnings per share is computed by includingcommon stock equivalents outstanding for the period in the denominator. Commonstock equivalents include shares issuable upon the exercise of stock options orwarrants, net of shares assumed to have been purchased with the proceeds, usingthe treasury stock method.

 
| ** **                                                   | ** ** | **For the  three months ended:** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                   | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** |
| **(in  thousands, except per share data)**                   | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Shares  used in the calculation of Basic earnings per share  |       | 22,742                           |       | 22,697 |   |
| Effect  of dilutive securities:                              |       |                             |       |   |   |
| Stock  options/SAR’s                                    |       | —                           |       | — |   |
|                                                         |       |                             |       |   |   |
| Diluted  shares used in the calculation ofearnings per share |       | 22,742                           |       | 22,697 |   |

 

During the three-monthperiod ended September 26, 2009 and September 27, 2008, respectively,potential common shares consisting of all shares issuable upon exercise ofstock options/SARs have been excluded from the computation of diluted loss pershare as their effect would have been anti-dilutive.

 

**7.      Marketable Securities**

 

The Company classifies its marketable debt securitiesas held-to-maturity when the Company has the intent and ability to hold them tomaturity. Held-to-maturity debt securities are reported at amortized cost whichapproximates fair value. Current marketable securities include debt investmentswith original maturities that are expected to mature in more than three monthsand less than or equal to twelve months and equity investments. Long-termmarketable securities include debt securities that have remaining maturities ofone to three years. Unrealized losses related to the held-to-maturitysecurities are not considered a permanent decline in the market value of suchsecurities.

 

See Note 3 for related disclosures relative to fairvalue measurements.

 

Marketablesecurities consist of the following:

 
| ** **                               | ** ** | **September 26,  2009**  | ** ** | **June 27,  2009** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|-------------------------|------------|
| **(in  thousands)**                      | ** ** | **Net Carrying  Amount** | ** ** | **Fair  Value**         | ** ** | **Unrealized********loss** | ** ** | **Net Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Unrealized********loss** | ** ** |
| Short-term  (Held-to-maturity):          |       |                          |       |                    |       |   |   |   |   |   |   |   |   |
| Certificates  of deposit                 |       | $                             | 2,510      |                    | $          | 2,514 |   | $ | 4 |   | $ | 3,100 |   | $ | 3,108 |   | $ | 8 |   |
|                                     |       |                          |       |                    |       |   |   |   |   |   |   |   |   |
| Total  marketable securities, short-term |       | $                             | 2,510      |                    | $          | 2,514 |   | $ | 4 |   | $ | 3,100 |   | $ | 3,108 |   | $ | 8 |   |

 

Allheld-to-maturity investments at September 26, 2009 reach maturity duringthe fiscal year ended 2010.

 

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**8.****                  ****Inventories**

 

Inventoriesconsist of the following:

 
| ** **          | ** ** | **September 26,** | ** ** | **June 27,** | ** ** |
|---------------------|------------|------------------------|------------|-------------------|------------|
| **(in  thousands)** | ** ** | **2009**               | ** ** | **2009**          | ** ** |
| Raw  materials      |       | $                      | 9,095      |              | $          | 9,166 |   |
| Work  in process    |       | 383                    |       | 381               |       |
| Finished  goods     |       | 17,085                 |       | 18,025            |       |
|                |       |                   |       |              |       |
|                |       | $                      | 26,563     |              | $          | 27,572 |   |

 

**9.      Property and Equipment**

 

Property andequipment consists of the following:

 
| ** **                                | ** ** | **September 26,** | ** ** | **June 27,** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-------------------|------------|
| **(in  thousands)**                       | ** ** | **2009**               | ** ** | **2009**          | ** ** |
| Leasehold  improvements                   |       | $                      | 315        |              | $          | 388 |   |
| Office  furniture                         |       | 377                    |       | 409               |       |
| Computers,  software, and other equipment |       | 7,740                  |       | 7,467             |       |
|                                      |       |                   |       |              |       |
|                                      |       | $                      | 8,432      |              | $          | 8,264 |   |
| Less:  accumulated depreciation           |       | (5,070                 | )          | (4,795            | )          |
|                                      |       |                   |       |              |       |
| Property  and equipment, net              |       | $                      | 3,362      |              | $          | 3,469 |   |

 

Depreciation expense wasapproximately $0.2 million and $0.3 million for the three-month periods ended September 26,2009 and September 27, 2008, respectively.

 

**10.****        ****Goodwill and Acquired IntangibleAssets**

 

Goodwill andacquired intangible assets consist of the following:

 
| **(in  thousands)**                       | ** ** | **September 26,********2009** | ** ** | **June 27,********2009** | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|-------------------------------|------------|
| Intangible  assets with finite lives:     |       |                               |       |                          |       |
| Patents                                   |       | $                                  | 174        |                          | $          | 174 |   |
|                                      |       |                               |       |                          |       |
| Intangible  assets with finite lives, net |       | $                                  | 174        |                          | $          | 174 |   |

 

There was no amortizationexpense for the three-month period ended September 26, 2009 as theamortizable assets were previously fully impaired. Amortization expense wasapproximately $0.4 million for the three-month period ended September 27, 2008.

 

**11.    Derivative Instruments and Hedging Activity**

 

Foreign Currency Risk: The Company uses derivative instruments to reduceits exposure to fluctuations in foreign exchange rates by creating offsettingpositions through the use of foreign currency forward contracts. Changes to thefair value of derivative contracts that do not qualify for hedge accounting arereported in other income (expense) in the period of the change. For derivativesthat qualify for hedge accounting, the Company recognizes the instruments aseither assets or liabilities in the statement of financial position andmeasures those instruments at fair value. Changes in the fair value of thederivatives are recorded in shareholders’ equity as a component of othercomprehensive income along with an offsetting adjustment against the basis ofthe derivative instrument itself.

 

We had no derivatives that qualified for hedgeaccounting during the three-month period ended September 26, 2009.

 

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We did not enter into any other derivative or hedgecontracts for any other risks during the three-month period ended September 26,2009.

 

The Company had no foreign currency contractsoutstanding at September 26, 2009.

 

**12.    WarrantyReserve**

 

The Company’s products generally carry astandard warranty. The Company maintains a reserve based on anticipatedwarranty claims at the time product revenue is recognized. Factors that affectthe Company’s product warranty liability include the number of installed units,the anticipated cost of warranty repairs and historical and anticipated ratesof warranty claims.

 

# The following table reflects changesin the Company’s accrued warranty account during the three-month periods ended September26, 2009 and September 27, 2008, respectively:

 
| ** **                             | ** ** | **For the  three months ended:** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** |
| **(in  thousands)**                    | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Beginning  balance                     |       | $                                | 5,477      |   | $ | 6,098 |   |
| Incremental  accruals on current sales |       | 1,232                            |       | 1,964 |   |
| Amortization  of prior-period accruals |       | (2,064                           | )          | (1,649 | ) |
|                                   |       |                             |       |   |   |
| Ending  balance                        |       | $                                | 4,645      |   | $ | 6,413 |   |

 

# **13.    Deferred Revenue**

#  

# The Company offers extended servicecontracts that may be purchased for periods from one to five years. The Companyrecognizes service contract revenue ratably over the life of the contract.Actual service contract expenses incurred and charged to service costs of salesduring an interim period may be more or less than the amount of amortizedservice contract revenue recognized in that period.

 

# Revenues are recognized when a signednon-cancelable purchase order exists, the product is shipped, title and riskhave passed to the customer, the fee is fixed or determinable, and collectionis considered probable. Circumstances which generally preclude the immediaterecognition of revenue include shipping terms of FOB destination or theexistence of a customer acceptance clause in a contract based upon customerinspection of the product. In these instances, revenue is deferred untiladequate documentation is obtained to ensure that these criteria have beenfulfilled.

 

# The following table reflects changesin the Company’s deferred revenue account during the three-month periods ended September 26,2009 and September 27, 2008, respectively:

 
| ** **                                  | ** ** | **For the  three months ended:** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** |
| **(in  thousands)**                         | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Beginning  balance                          |       | $                                | 16,074     |   | $ | 18,136 |   |
| Deferral  of new sales                      |       | 3,586                            |       | 3,937 |   |
| Recognition  of previously deferred revenue |       | (3,552                           | )          | (6,908 | ) |
|                                        |       |                             |       |   |   |
| Ending  balance                             |       | $                                | 16,108     |   | $ | 15,165 |   |

 

**14.    Commitments and Contingencies**

 

TheCompany has an agreement with the Regents of the University of California (“Regents”)for exclusive license rights to the Dynamic Cooling Device (“DCD”), subject tocertain limited license rights of Cool Touch, Inc. (“Cool Touch”), in thefollowing fields of use: procedures that involve skin resurfacing andrejuvenation, vascular skin lesions, and laser hair removal. Cool Touch, asubsidiary of New Star Technology, Inc., obtained a license to the DCD ona co-exclusive basis with the Company, in certain narrower fields of use.

 

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TheCompany’s agreement with the Regents called for an annual license fee of $0.3million and a minimum annual royalty obligation of $1 million or 3%, whicheveris greater. The multi-year annual fee of $0.3 million was paid to the Regentsin a lump sum of $3.0 million and is being amortized over the remaining life ofthe patent agreement, which as of September 26, 2009 was approximately six years. The royalty and the amortization of theannual license fee payment are reflected in the Company’s consolidatedstatement of income. The unamortized portion of the license fee payment isreflected in other current assets and in other assets at September 26,2009 and June 28, 2009,respectively.

 

AtSeptember 26, 2009, approximately $0.5 million is included in othercurrent assets and approximately $1.4 million is included in other assets.

** **

**15.   ****Income Taxes**

 

The Company filesincome tax returns in the United States (“U.S.”) on a federal basis and in manyU.S. state and foreign jurisdictions. The three most significant taxjurisdictions are the U.S., Spain, and Japan. The associated tax filingsremain subject to examination by applicable tax authorities for a certainlength of time following the tax year to which those filings relate. The fiscalyears ended 2006 and later remain subject to examination by the IRS forU.S. federal tax purposes, our fiscal years ended 2005 and later remainsubject to examination by the appropriate governmental agencies for Spanish andJapanese tax purposes.

 

In connection with thepreparation of the financial statements, the Company performed an analysis toascertain if it was more likely than not that it would be able to utilize itsnet deferred tax assets of approximately $24.7 million.

 

As part of that analysis,management considered the following as positive evidence outweighing thenegative evidence of the recent pre-tax book losses:

 

·                  The net temporary differences resulting in thedeferred tax assets and in the deferred tax liabilities are expected to reversein similar time periods.

 

·                  The Company has a consistent taxpaying history.

 

·                  The non-recurring nature of significant itemscontributing to the year-to-date, in addition to the prior year, loss frooperations/

 

·                  Current projections of future taxable income, exclusiveof reversing temporary differences, indicate a return to taxable income in areasonable period of time.

 

Basedupon the aforementioned, we have concluded that the positive evidence outweighsthe negative evidence and, thus, that those deferred tax assets not otherwisesubject to a valuation allowance are realizable on a “more likely than not”basis.

 

**16.   ****Legal Proceedings**

 

The Company iscurrently involved in two litigation matters with Palomar Medical Technologies, Inc.(“Palomar”).

 

·                  Palomar asserts that it is the exclusivelicensee from The General Hospital Corporation (“Mass. General”) of U.S. PatentNo. 5,735,844 (the “‘844 Patent”) and U.S. Patent No. 5,595,568,which is related to the ‘844 Patent (the “‘568 Patent”).  On August 9, 2006, Palomar filed suitagainst the Company in the United States District Court for the District ofMassachusetts, asserting willful infringement by the Company of the ‘844Patent. Palomar seeks compensatory and treble damages, as well as attorneys’ feesand injunctive relief. In November 2006, the Company answered thecomplaint by denying Palomar’s allegations and asserting a variety ofaffirmative defenses and counterclaims against Palomar. This response includeda counterclaim by the Company against Palomar seeking a declaratory judgmentthat the ‘568 Patent is either invalid, or products manufactured by the Companydo not infringe the ‘568 Patent, or both. In November 2006, Palomar filedan answer denying the Company’s counterclaim. In February 2007, Palomarmoved to amend its Complaint to add The General

 

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Hospital Corporation as a party, to add a claim for infringementby Candela of the ‘568 Patent, and to allege that additional Candela productsinfringe the ‘844 Patent. Palomar’s motion to amend its Complaint was grantedin August 2007. In February 2007, Candela moved to amend its Answer andCounterclaims to add allegations of inequitable conduct, double-patenting andviolation of Mass. Gen. Laws Ch. 93A by Palomar. The Company’s motion to amendits Answer and Counterclaims was granted in March 2007. Palomar filed ageneral denial response to Candela’s Amended Answer and Counterclaim in March 2007.In August 2007, the parties had a Markman hearing before the U.S. DistrictCourt Judge presiding over the above-described legal proceeding. In a Markmanhearing, the Court interprets the definitions of the disputed claim terms of apatent. On October 31, 2008, the Company requested a stay of the case withthe Court, which was granted on November 17, 2008.  The Company did so based upon a third party’sre-examination request that was granted by the United States Patent andTrademark Office on August 29, 2008. The re-examination is with respect toboth the ‘568 and ‘844 Patents, including many of the Claims at issue in thiscase.  In November 2008, the Courtstayed the case until the United States Patent and Trademark Office rules onthe re-examination.  On December 9,2008, Candela filed requests for re-examination of the ‘568 and ‘844 Patentswith the United States Patent & Trademark Office asserting that allclaims currently in dispute with Palomar be held invalid.  On January 7, 2009, the United StatesPatent and Trademark Office granted the Company’s re-examination request of the‘844 Patent and the ‘568 Patent. The United States Patent and Trademark Officestated that there are substantial new questions of patentability for all claimsasserted against the Company by Palomar. On June 5, 2009, the PTO issued an office action confirming aspatentable the majority of the claims of the ‘844 patent in re-examination aspatentable.  On June 19, 2009,Palomar moved to lift the stay based on responses by the PTO in the ‘844re-examination proceeding, which the Company opposed on July 13, 2009. In July 2009,the PTO issued a notice of intent to issue a re-examination certificate for the‘844 patent. In August 2009, the PTO issued a notice of intent to issue are-examination certificate for the ‘568 patent, confirming the patentability ofthe claims in re-examination.  The Courthas yet to rule on the motion to lift the stay.

 

·                  On August 10, 2006, the Company filed suitagainst Palomar in the United States District Court for the District ofMassachusetts, asserting willful infringement by Palomar of U.S. Patent Nos.6,659,999, 5,312,395 (the “395 Patent”), and 6,743,222 (the “‘222 Patent”). TheCompany seeks compensatory and treble damages for the patent infringement, aswell as attorneys’ fees and an injunction against Palomar to prevent Palomar’scontinuing infringement. The Company served its complaint on Palomar in August 2006.In October 2006, the Company amended the Company’s suit against Palomar byremoving from the suit allegations that Palomar infringes Patent 6,659,999. In October 2006,Palomar answered the Company’s amended complaint by denying the Company’sallegations and asserting an affirmative defense of inequitable conduct withrespect to the ‘395 Patent. In addition, Palomar filed a demand for adeclaratory judgment seeking a judicial determination that Palomar productseither do not infringe the ‘395 Patent and ‘222 Patent or that such patents areinvalid. In November 2006, the Company answered the counterclaim bydenying Palomar’s allegations. In February 2008, Palomar filed a requestfor re-examination of the Company’s ‘222 Patent with the United States Patent andTrademark Office (“PTO”). In March 2008, the PTO granted re-examination.In June 2008, the Court stayed the case until the PTO rules on there-examination.  To avoid the necessityof repeated status conferences, the Company requested administrative closure ofthe case on November 26, 2008, subject to reopening when the ‘222 Patentemerged from re-examination.  The Courtgranted this request on December 1, 2008.

 

·                  While the Company intends to vigorouslycontest Palomar’s allegations, and to pursue its ownclaims against Palomar, each lawsuit is inherently uncertain andunpredictable as to its ultimate outcome. An adverseoutcome in Palomar’s suit against the Company would materiallyhurt the Company’s business, financial condition, results of operations andcash flows.

 

After the announcement ofCandela’s proposed merger with Syneron, on September 24, 2009 and October 30,2009, two putative class action lawsuits, captioned Claude Colp v. GerardPuorro, et al., No. 09-4092 and Chelsea Colombo v. CandelaCorporation, et al., No. 09-4666, were filed in the Suffolk County BusinessLitigation Session of the Massachusetts Superior Court against Candela and themembers of Candela’s board of directors. On November 5, 2009, an amendedcomplaint was filed in the Colp action (the “Amended Complaint”). Theplaintiffs in the two actions purport to sue on behalf of a class of Candelastockholders, and allege that members of Candela’s board of directors breachedfiduciary

 

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duties owed to Candelastockholders through, among other things, the failure to maximize shareholdervalue, the use of an unfair or flawed process in connection with the proposedmerger between Candela and Syneron, and the omission of materialinformation and/or the provision of materially misleading information concerningthe merger. The complaints further allege that Candela, with others, aidedand abetted the purported breaches of fiduciary duties. One or both of thecomplaints seek, among other relief: rescission of the merger agreement; aninjunction against the merger; rescission of the transaction (or damages) ifconsummated; an order requiring disclosure of all material information relatingto the proposed merger; as well as an award of all costs and disbursements ofthe actions, including reasonable attorneys’ fees and expenses. Plaintiffs,Candela and the named individual defendants have requested that the Courtconsolidate the two actions. If consolidation is ordered, the Amended Complaintis expected to be the operative complaint for the consolidated action. Candeladenies the allegations in the complaints and intends to defend these lawsuitsvigorously.

 

On February 19, 2008, Cardiofocus, Inc. (“Cardiofocus”) filed suitagainst the Company and eight other companies in the United States DistrictCourt for the District of Massachusetts, asserting willful infringement by theCompany of U.S. Patents 6,457,780, 6,159,203 and 5,843,073. Cardiofocus seekscompensatory and treble damages, as well as attorneys’ fees and injunctiverelief. On April 21, 2008, the Company answered Cardiofocus’ complaint andasserted a variety of counterclaims against Cardiofocus. The Company intends tovigorously defend against the lawsuit. Based upon Candela’s request, on July 23,2008, the United States Patent & Trademark Office (“PTO”) agreed tore-examine the validity of the Cardiofocus patents. On October 14, 2008, theCourt agreed to stay this matter for a minimum of one year, up to a maximum oftwo years, but no later than the PTO’s decision with respect to there-examination proceedings.

 

While the Companybelieves that the likelihood of loss in each of the disclosed proceedings isreasonably possible, the possibility of loss or range of loss for each matteris not estimable, except with regard to Palomar. In accordance with ASC Topic450, *Contingencies*, as of November 10,2009, the Company estimated the range of the loss contingency associated withthe Palomar litigation claims to be in the range of $0 to $46 million. As theCompany has assessed that contingent losses related to these proceedings areonly reasonably possible, pursuant to ASC Topic 450, an accrual has not beenrecorded for any of these loss contingencies.

 

From time to time, the Company is party to various legal proceedingsincidental to its business. The Company believes that none of the legalproceedings, other than the lawsuit initiated by Palomar, that are presentlypending, if adversely decided against us, will have a material adverse effectupon the Company’s financial position, results of operations, orliquidity.  While we believe that the likelihood of loss in eachof the disclosed proceedings is reasonably possible, the possibility of loss orrange of loss for each matter is not estimable.

 

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**CandelaCorporation**

 

**Item 2 -****Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

The matters discussed inthis Form 10-Q include forward-looking statements that involve risks oruncertainties. These statements are neither promises nor guarantees, but arebased on various assumptions by management regarding future circumstances manyof which Candela has little or no control over. A number of important risks anduncertainties, including those identified under the caption “Risk Factors” inCandela’s Annual Report on Form 10-K for the year ended June 27, 2009which was filed with the SEC on October 1, 2009 (SEC File No. 000-14742)(the “Annual Report”) and subsequent filings as well as risks and uncertaintiesdiscussed elsewhere in this Form 10-Q, could cause Candela’s actualresults to differ materially from those in the forward-looking statements.Should one or more of these risks or uncertainties materialize or shouldunderlying assumptions prove incorrect, actual results may vary materially fromthose anticipated, estimated or projected. The forward-looking statements inthis Form 10-Q are made as of the date of this filing only and Candeladoes not undertake to update or supplement these statements due to changes incircumstances or otherwise, except as required by law.

 

**Overview**

 

We research, develop,manufacture, market, sell, distribute, and service lasers and light-basedproducts used to perform aesthetic and cosmetic procedures. We sell our lasersto physicians and personal care practitioners. We market our products directlyand through a network of distributors to end-users. Our traditional customerbase includes plastic and cosmetic surgeons and dermatologists. More recently,we have expanded our sales to a broader group of practitioners consisting ofgeneral practitioners and certain specialists including obstetricians,gynecologists and general and vascular surgeons. We derive our revenue from thesales of lasers, light-based devices, and other products, as well asproduct-related services.

 

**Proposed Merger with Syneron**

 

On September 8,2009, we entered into an Agreement and Plan of Merger (the “Merger Agreement”)with Syneron Medical Ltd. (“Syneron”), pursuant to which Candela andSyneron will combine their businesses through a merger of Candela and a newlyformed, wholly owned subsidiary of Syneron. Existing stockholders of Candelawill exchange each of their shares of Candela common stock for 0.2911 ordinaryshares of Syneron (the “Merger”).  Ourboard of directors and the board of directors of Syneron have each approved theMerger.

 

The completion of theMerger is subject to various closing conditions, including adoption andapproval of the Merger Agreement by Candela’s stockholders and receipt ofcertain regulatory and antitrust approvals. The Merger is intended to qualifyas a reorganization for federal income tax purposes.

 

The Merger Agreementcontains certain termination rights both for us and for Syneron. If the MergerAgreement is terminated under circumstances specified in the Merger Agreementdue to action by us, we will be required to pay Syneron a termination fee of$2.6 million.

 

Satisfaction of theclosing conditions for the Merger could take several months or longer. Therecan be no assurance that the conditions to completion of the Merger will bemet, or that the Merger will be completed. If the Merger is not consummated onor before June 1, 2010, either party may terminate the Merger Agreement.

 

In connection with the Merger, Syneron filed withthe SEC a registration statement on Form F-4, which, onceeffective, will include a proxy statement of Candela and a prospectus ofSyneron and other relevant materials in connection with the proposed Merger.Candela will file the same proxy statement/prospectus with the SEC as well asmail it to Candela stockholders. Investors and security holders are urgedto read the Form F-4, the proxy statement/prospectus and the other relevantmaterial when they become available because these materials will containimportant information about Candela, Syneron and the Merger. Candela andSyneron and their respective executive officers and directors may be deemed tobe participants in the solicitation of proxies from the security holders ofCandela in connection with the Merger.

 

Mr. Louis P.Scafuri, currently chief executive officer of Syneron, will remain chiefexecutive officer of the combined company and Mr. Gerard E. Puorro,currently chief executive officer of Candela, will join Syneron’s Board ofDirectors. Investors and security holders may obtain additional informationregarding

 

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the direct and indirectinterests of Candela and Syneron and their respective executive officers anddirectors in the Merger by reading the proxy statement/prospectus and the otherfilings and documents referred to above.

 

**CriticalAccounting Policies**

 

****This discussion and analysis of ourfinancial condition and results of operations is based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States. The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities. We evaluate our estimates andjudgments on an on-going basis, including those related to revenue recognition,allowance for doubtful accounts, inventory reserves, warranty reserves,contingencies, valuation of long-lived assets, stock-based compensation,restructurings and income taxes. We base our estimates and judgments onhistorical experience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates and judgments under different assumptions or conditions.****

 

****A discussion of our criticalaccounting policies and the related estimates and judgments affecting thepreparation of our consolidated financial statements is included in our AnnualReport on Form 10-K for fiscal year 2009. Information with respect tochanges in our Critical Accounting Policies during the three-month period endedSeptember 26, 2009 may be found in Note 1 of the Notes to CondensedConsolidated Financial Statements (unaudited) in this Form 10-Q, whichinformation is incorporated herein by reference.****

 

**CriticalAccounting Estimates**

 

Therehave been no significant changes in our critical accounting estimates duringthe three months ended September 26, 2009 as compared to the criticalaccounting estimates disclosed in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations included in our Annual Report on Form 10-Kfor the fiscal year ended June 27, 2009.

 

**RecentAccounting Pronouncements**

 

Informationwith respect to Recent Accounting Pronouncements may be found in Note 2 ofNotes to Condensed Consolidated Financial Statements (unaudited) in this Form 10-Q,which information is incorporated herein by reference.

 

**Results of Operations**

 

***Revenue***

 

Revenue source bygeographic region is reflected in the following table:

 
| ** **               | ** ** | **For the  three months ended:** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in  thousands)**      | ** ** | **2009**                         | ** ** | **2008** | ** ** | **Increase  (Decrease)** | ** ** |
| U.S.                     |       | $                                | 9,122      |   | 35 | % | $ | 8,868 |   | 33 | % | $ | 254 |   | 3 | % |
| All  other countries     |       | 17,102                           |       | 65 | % | 17,797 |   | 67 | % | (695 | ) | -4 | % |
|                     |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Total  worldwide revenue |       | $                                | 26,224     |   | 100 | % | $ | 26,665 |   | 100 | % | $ | (441 | ) | -2 | % |

 

Consolidated revenue was$26.2 million for the three-month period ended September 26, 2009, ascompared to $26.7 million for the same period ended September 27, 2008.The decrease in quarterly revenue of approximately $0.4 million is comprised ofdecreased revenue from Europe and Latin America of approximately $1.9 millionoffset by increased revenue from in the U.S., Japan and Asia of approximately$1.5 million. This quarter international revenue represents approximately 65%of the total revenue as compared to 67% in the comparable prior-year period.

 

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Revenue source bytype is reflected in the following table:

 
| ** **                 | ** ** | **For the  three months ended:** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **September 26,**           | ** ** | **September 27,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in  thousands)**        | ** ** | **2009**                         | ** ** | **2008** | ** ** | **Increase  (Decrease)** | ** ** |
| Lasers  and other products |       | $                                | 15,618     |   | 60 | % | $ | 17,102 |   | 64 | % | $ | (1,484 | ) | -9 | % |
| Product-related  services  |       | 10,606                           |       | 40 | % | 9,563 |   | 36 | % | 1,043 |   | 11 | % |
|                       |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Total  revenue             |       | $                                | 26,224     |   | 100 | % | $ | 26,665 |   | 100 | % | $ | (441 | ) | -2 | % |

 

Revenuefrom lasers and other products decreased for the three-month period ended September 26,2009, as compared to the same period ended September 27, 2008. On acomparative basis unit sales from legacy products were flat. The shortfall inrevenue was primarily driven by degradation in average selling prices (ASP) ofour legacy products offset by revenues realized due to the introduction of newproducts.

 

Revenues fromproduct-related services increased approximately $1.0 million, or 11%, in thethree-month period ended September 26, 2009 as compared to the same periodended September 27, 2008. The increase is primarily related to increasedrevenues attributable to the increased sale of service contracts, due to a greaterinstall base, during the period ended September 26, 2009 as compared tothe same period in the prior fiscal year.

 

***Gross Profit. ***Grossprofit was approximately $9.0 million or 34.5% for the three-month period endedSeptember 26, 2009, as compared to $10.5 million or 39.3% for the sameperiod ended September 27, 2008. The decrease in gross profit for thethree-month period ended September 26, 2009, as compared to the sameperiod in the previous fiscal year, is primarily due to decreased average sellingprices and a greater proportion of revenues being derived from the sale ofproduct-related services in the current period which carry a lower margin thansales of lasers.

 

***Selling, General and Administrative Expense.  ***Selling,general and administrative (SG&A) expenses, including merger-related costsof $2.3 million, were approximately $10.8 million for the three-month periodended September 26, 2009, as compared to $12.1 million for the three-monthperiod ending September 27, 2008. As a percentage of revenue, SG&Aexpenses decreased to 46.2% from 55.0% of revenues in the comparativeprior-year period. The $1.3 million decrease was primarily comprised of a $2.9million reduction in legal cost and a $0.6 million reduction in marketingprograms, offset by the aforementioned merger-related costs of approximately$2.3 million.

 

***Research and Development Expense.***  Research and development (R&D) spendingdecreased to approximately $1.8 million for the three-month period ended September 26,2009, from approximately $2.3 million for the comparative prior-year period.The decrease is attributed to the completion of our efforts to implementimprovements to our products.

 

***IncomeTaxes.***** **The benefit fromincome taxes results from a combination of activities of the Company and itsdomestic and foreign subsidiaries. We recorded effective tax rates ofapproximately 25% and 45% for each of the three-month periods ended September 26,2009 and September 27, 2008, respectively.

 

The effective taxrate for the period ended September 26, 2009 differs from the statutoryrate primarily due to differences in foreign tax rates, R&D credits, statetaxes, and other permanent items.

 

The effective ratefor the period ended September 27, 2008 differs from the statutory rateprimarily due to differences in foreign tax rates, state taxes, and otherpermanent items. The foreign rate difference is due to income reported in ahigh tax-rate jurisdiction combined with losses benefited in a jurisdictionwith a lower tax rate.

 

**Liquidityand Capital Resources**

 

Our cash and cashequivalents and our investment in short and long-term marketable securities at September 26,2009 totaled approximately $25.6 million compared with approximately $29.8million at September 27, 2008. The principal components of the decreaseare the general funding of operations and the incurred costs associated withour proposed merger with Syneron Medical, Ltd. We continue to

 

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have no long-termdebt. We believe that the combination of existing cash and cash equivalents,and marketable securities on hand, along with cash to be generated by futureoperations and amounts available under our line of credit, will be sufficientto meet our ongoing operating and capital expenditure requirements for theforeseeable future. However, we cannot be sure that we will not requireadditional capital beyond the amounts currently forecasted by us, or that anysuch required additional capital will be available on reasonable terms, if atall, as it becomes required.

 

Cash used byoperating activities amounted to approximately $1.5 million for the three-monthperiod ended September 26, 2009 as compared to cash used by operatingactivities of approximately $3.6 million for the same period in the prior year.The decrease in cash used by operating activities is attributable to themonetization of assets and liabilities in the normal course of business with nosingle item or group of items representing a significant portion of theyear-over-year difference.

 

**Off-Balance Sheet Arrangements**

 

Our only off-balancesheet arrangements consist of non-cancelable operating leases entered into in theordinary course of business and the license agreement with the Regents. Thetable below in the next section titled “Contractual Obligations” shows theamounts of our operating lease commitments and purchase commitments payable byyear.

 

**ContractualObligations**

 

Outstanding contractualobligations of the Company are reflected in the following table:

 
| **(in  thousands)**            | ** ** | **Total** | ** ** | **Less  than********1 year** | ** ** | **1 - 3  years** | ** ** | **3 - 5  years** | ** ** | **After********5 years** | ** ** |
|--------------------------------|------------|-----------|------------|------------------------------|------------|------------------|------------|------------------|------------|--------------------------|------------|
| Royalty  commitments           |       | $         | 2,250      |                         | $          | 1,000            |       | $                | 500        |                     | $          | 500 |   | $ | 250 |   |
| Operating  leases              |       | 4,368     |       | 2,120                        |       | 2,033            |       | 98               |       | 117                      |       |
|                           |       |      |       |                         |       |             |       |             |       |                     |       |
| Total  contractual obligations |       | $         | 6,618      |                         | $          | 3,120            |       | $                | 2,533      |                     | $          | 598 |   | $ | 367 |   |

 

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**Item 3 -Quantitative and Qualitative Disclosures about Market Risk**

 

We have cash equivalentsand marketable securities that may consist of money market mutual funds,certificates of deposit, U.S. government securities, fixed income corporatesecurities and equity investments. The majority of these investments havematurities which fall within one to three years. We believe that our exposureto interest rate risk is minimal due to the term and type of our investmentsand those fluctuations in interest rates would not have a material adverseeffect on our results of operations.

 

We have international subsidiaries that transact business in foreign currencies and, therefore, we are exposed to foreign currency exchange risk resulting from fluctuations in foreign currencies. This risk could adversely impact our results and financial condition. For the three-month period ended September 26, 2009, approximately 35% and 26% of the Company’s cost of sales and expenses, respectively, were denominated in foreign currencies. In addition, approximately 34% and 33% of the Company’s consolidated assets were subject to foreign currency exchange fluctuations at September 26, 2009 and June 27, 2009, respectively, while approximately 50% and 53% of its consolidated liabilities were exposed to foreign currency exchange fluctuations at September 26, 2009 and June 27, 2009, respectively. From time to time, we may enter into foreign currency exchange contracts to reduce our exposure to foreign currency exchange risk and variability in operating results due to fluctuation in exchange rates underlying the value of current transactions and anticipated transactions denominated in foreign currencies. These contracts obligate us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These contracts are denominated in the same currency in which the underlying transactions are denominated and bear a contract value and maturity date that approximate the value and expected settlement date, respectively, of the underlying transactions. The principal foreign currencies applicable to our business are the Euro and the Yen.

 

Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in other income (expense) in the period of the change. For derivatives that qualify for hedge accounting, the Company recognizes the instruments as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Changes in the fair value of the derivatives are recorded in shareholders’ equity as a component of other comprehensive income along with an offsetting adjustment against the basis of the derivative instrument itself.

 

The Company had noforeign currency contracts outstanding at September 26, 2009.

#  

# **Item 4 - Controls and Procedures**

 

***Evaluation of Disclosure Controlsand Procedures***

Our Chief Executive Officer and Chief FinancialOfficer (our principal executive officer and principal financial officer,respectively) have evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934, as amended) as of September 26, 2009, theend of the period covered by this quarterly report on Form 10-Q.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Managementhas designed such controls and procedures to provide reasonable assurance ofachieving their objectives. Based on the evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that, as of the end of theperiod covered by this report, the Company’s disclosure controls and procedureswere effective to provide reasonable assurance of achieving their objective.

 

***Changes in Internal Controls overFinancial Reporting***

There have been no changes in the Company’s internalcontrols over financial reporting that occurred during the quarter ended September 26,2009 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**CandelaCorporation**

 

**Part II.  Other Information**

 

**Item 1 - Legal Proceedings**

 

The Company iscurrently involved in two litigation matters with Palomar Medical Technologies, Inc.(“Palomar”).

 

·                  Palomar asserts that it is the exclusivelicensee from The General Hospital Corporation (“Mass. General”) of U.S. PatentNo. 5,735,844 (the “‘844 Patent”) and U.S. Patent No. 5,595,568,which is related to the ‘844 Patent (the “‘568 Patent”).  On August 9, 2006, Palomar filed suitagainst the Company in the United States District Court for the District ofMassachusetts, asserting willful infringement by the Company of the ‘844Patent. Palomar seeks compensatory and treble damages, as well as attorneys’fees and injunctive relief. In November 2006, the Company answered thecomplaint by denying Palomar’s allegations and asserting a variety ofaffirmative defenses and counterclaims against Palomar. This response includeda counterclaim by the Company against Palomar seeking a declaratory judgmentthat the ‘568 Patent is either invalid, or products manufactured by the Companydo not infringe the ‘568 Patent, or both. In November 2006, Palomar filedan answer denying the Company’s counterclaim. In February 2007, Palomarmoved to amend its Complaint to add The General Hospital Corporation as aparty, to add a claim for infringement by Candela of the ‘568 Patent, and toallege that additional Candela products infringe the ‘844 Patent. Palomar’smotion to amend its Complaint was granted in August 2007. In February 2007,Candela moved to amend its Answer and Counterclaims to add allegations ofinequitable conduct, double-patenting and violation of Mass. Gen. Laws Ch. 93Aby Palomar. The Company’s motion to amend its Answer and Counterclaims wasgranted in March 2007. Palomar filed a general denial response to Candela’sAmended Answer and Counterclaim in March 2007. In August 2007, theparties had a Markman hearing before the U.S. District Court Judge presidingover the above-described legal proceeding. In a Markman hearing, the Courtinterprets the definitions of the disputed claim terms of a patent. On October 31,2008, the Company requested a stay of the case with the Court, which wasgranted on November 17, 2008.  TheCompany did so based upon a third party’s re-examination request that wasgranted by the United States Patent and Trademark Office on August 29,2008. The re-examination is with respect to both the ‘568 and ‘844 Patents,including many of the Claims at issue in this case.  In November 2008, the Court stayed thecase until the United States Patent and Trademark Office rules on there-examination.  On December 9,2008, Candela filed requests for re-examination of the ‘568 and ‘844 Patentswith the United States Patent & Trademark Office asserting that allclaims currently in dispute with Palomar be held invalid.  On January 7, 2009, the United StatesPatent and Trademark Office granted the Company’s re-examination request of the‘844 Patent and the ‘568 Patent. The United States Patent and Trademark Officestated that there are substantial new questions of patentability for all claimsasserted against the Company by Palomar. On June 5, 2009, the PTO issued an office action confirming aspatentable the majority of the claims of the ‘844 patent in re-examination aspatentable.  On June 19, 2009,Palomar moved to lift the stay based on responses by the PTO in the ‘844re-examination proceeding, which the Company opposed on July 13, 2009. In July 2009,the PTO issued a notice of intent to issue a re-examination certificate for the‘844 patent. In August 2009, the PTO issued a notice of intent to issue are-examination certificate for the ‘568 patent, confirming the patentability ofthe claims in re-examination.  The Courthas yet to rule on the motion to lift the stay.

 

·                  On August 10, 2006, the Company filed suitagainst Palomar in the United States District Court for the District ofMassachusetts, asserting willful infringement by Palomar of U.S. Patent Nos.6,659,999, 5,312,395 (the “395 Patent”), and 6,743,222 (the “‘222 Patent”). TheCompany seeks compensatory and treble damages for the patent infringement, aswell as attorneys’ fees and an injunction against Palomar to prevent Palomar’scontinuing infringement. The Company served its complaint on Palomar in August 2006.In October 2006, the Company amended the Company’s suit against Palomar byremoving from the suit allegations that Palomar infringes Patent 6,659,999. In October 2006,Palomar answered the Company’s amended complaint by denying the Company’sallegations and asserting an affirmative defense of inequitable conduct withrespect to the ‘395 Patent. In addition, Palomar filed a demand for adeclaratory judgment

 

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seeking a judicial determination that Palomar productseither do not infringe the ‘395 Patent and ‘222 Patent or that such patents areinvalid. In November 2006, the Company answered the counterclaim by denyingPalomar’s allegations. In February 2008, Palomar filed a request forre-examination of the Company’s ‘222 Patent with the United States Patent andTrademark Office (“PTO”). In March 2008, the PTO granted re-examination.In June 2008, the Court stayed the case until the PTO rules on there-examination.  To avoid the necessityof repeated status conferences, the Company requested administrative closure ofthe case on November 26, 2008, subject to reopening when the ‘222 Patentemerged from re-examination.  The Courtgranted this request on December 1, 2008.

 

·                  While the Company intends to vigorouslycontest Palomar’s allegations, and to pursue its own claims against Palomar,each lawsuit is inherently uncertain and unpredictable as to its ultimateoutcome. An adverse outcome in Palomar’s suit against the Company wouldmaterially hurt the Company’s business, financial condition, results ofoperations and cash flows.

 

After the announcement ofCandela’s proposed merger with Syneron, on September 24, 2009 and October 30,2009, two putative class action lawsuits, captioned Claude Colp v. GerardPuorro, et al., No. 09-4092 and Chelsea Colombo v. Candela Corporation, et al.,No. 09-4666, were filed in the Suffolk County Business LitigationSession of the Massachusetts Superior Court against Candela and themembers of Candela’s board of directors. On November 5, 2009, an amendedcomplaint was filed in the Colp action (the “Amended Complaint”). Theplaintiffs in the two actions purport to sue on behalf of a class of Candelastockholders, and allege that members of Candela’s board of directors breachedfiduciary duties owed to Candela stockholders through, among other things, thefailure to maximize shareholder value, the use of an unfair or flawed processin connection with the proposed merger between Candela and Syneron, and the omissionof material information and/or the provision of materially misleadinginformation concerning the merger. The complaints further allege that Candela,with others, aided and abetted the purported breaches of fiduciary duties. Oneor both of the complaints seek, among other relief: rescission of the mergeragreement; an injunction against the merger; rescission of the transaction (or damages)if consummated; an order requiring disclosure of all material informationrelating to the proposed merger; as well as an award of all costs anddisbursements of the actions, including reasonable attorneys’ fees andexpenses. Plaintiffs, Candela and the named individual defendants haverequested that the Court consolidate the two actions. If consolidation isordered, the Amended Complaint is expected to be the operative complaint forthe consolidated action. Candela denies the allegations in the complaints andintends to defend these lawsuits vigorously.

 

On February 19, 2008, Cardiofocus, Inc. (“Cardiofocus”) filed suitagainst the Company and eight other companies in the United States DistrictCourt for the District of Massachusetts, asserting willful infringement by theCompany of U.S. Patents 6,457,780, 6,159,203 and 5,843,073. Cardiofocus seekscompensatory and treble damages, as well as attorneys’ fees and injunctiverelief. On April 21, 2008, the Company answered Cardiofocus’ complaint andasserted a variety of counterclaims against Cardiofocus. The Company intends tovigorously defend against the lawsuit. Based upon Candela’s request, on July 23,2008, the United States Patent & Trademark Office (“PTO”) agreed tore-examine the validity of the Cardiofocus patents. On October 14, 2008, theCourt agreed to stay this matter for a minimum of one year, up to a maximum oftwo years, but no later than the PTO’s decision with respect to there-examination proceedings.

 

While the Companybelieves that the likelihood of loss in each of the disclosed proceedings isreasonably possible, the possibility of loss or range of loss for each matteris not estimable, except with regard to Palomar. In accordance with ASC Topic450, *Contingencies*, as of November 10,2009, the Company estimated the range of the loss contingency associated withthe Palomar litigation claims to be in the range of $0 to $46 million. As theCompany has assessed that contingent losses related to these proceedings areonly reasonably possible, pursuant to ASC Topic 450, an accrual has not been recordedfor any of these loss contingencies.

 

From time to time, the Company is party to various legal proceedingsincidental to its business. The Company believes that none of the legalproceedings, other than the lawsuit initiated by Palomar, that are presentlypending, if adversely decided against us, will have a material adverse effectupon the Company’s financial position, results of operations, orliquidity.  While we believe that the likelihood of loss in eachof the disclosed proceedings is reasonably possible, the possibility of loss orrange of loss for each matter is not estimable.

 

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**Item 1A -Risk Factors**

 

The matters discussed inthis Form 10-Q include forward-looking statements that involve risks oruncertainties. These statements are neither promises nor guarantees, but arebased on various assumptions by management regarding future circumstances manyof which Candela has little or no control over. A number of important risks anduncertainties, including those identified under the caption “Risk Factors” inCandela’s Annual Report on Form 10-K for the year ended June 27, 2009which was filed with the SEC on October 1, 2009 (SEC File No. 000-14742)(the “Annual Report”) and subsequent filings as well as risks and uncertaintiesdiscussed elsewhere in this Form 10-Q, could cause Candela’s actualresults to differ materially from those in the forward-looking statements.There have been no material changes in the Company’s risk factors from thosedisclosed in its Annual Report.

 

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# **Item 6 - Exhibits**

 

(a)                                  Exhibits

 
| Exhibit 2.1  |   | Agreement and Plan of  Merger, dated as of September 8, 2009, among Syneron Medical Ltd.,  Syneron Acquisition Sub, Inc. and Candela Corporation (filed as  Exhibit 2.1 to Candela Corporation’s Current Report on Form 8-K  (File No. 000-14742) filed on September 9, 2009 and incorporated herein  by reference) |
|-------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                                                                                                                                                                         |
| Exhibit 10.1 |   | Form of Voting  Agreement and a schedule of signatories thereto (filed as Exhibit 99.1  to Candela Corporation’s Current Report on Form 8-K (File  No. 000-14742) filed on September 9, 2009 and incorporated herein  by reference)                                                                            |
|              |   |                                                                                                                                                                                                                                                                                                                                         |
| Exhibit 31.1 |   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer                                                                                                                                                                                                                                                             |
|              |   |                                                                                                                                                                                                                                                                                                                                         |
| Exhibit 31.2 |   | Rule 13a-14(a)/15d-14(a) Certification  of the Principal Financial Officer                                                                                                                                                                                                                                                         |
|              |   |                                                                                                                                                                                                                                                                                                                                         |
| Exhibit 32.1 |   | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 |
|              |   |                                                                                                                                                                                                                                                                                                                                         |
| Exhibit 32.2 |   | Certification of the  Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                        |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |                   | CANDELA CORPORATION     |
|--------|------------------------|-------------------------|
|   |                   |                    |
|   |                   |                    |
| Date:  | November 10, 2009 |                    | /s/ Robert E. Quinn |
|   |                   | Robert E. Quinn         |
|   |                   | Chief Financial Officer |
|        |                        |                         |  |

 

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**CandelaCorporation**

 

**INDEXTO EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                        |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 2.1     |       | Agreement and Plan of  Merger, dated as of September 8, 2009, among Syneron Medical Ltd.,  Syneron Acquisition Sub, Inc. and Candela Corporation (filed as  Exhibit 2.1 to Candela Corporation’s Current Report on Form 8-K  (File No. 000-14742) filed on September 9, 2009 and incorporated  herein by reference) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 10.1    |       | Form of Voting  Agreement and a schedule of signatories thereto (filed as Exhibit 99.1  to Candela Corporation’s Current Report on Form 8-K (File  No. 000-14742) filed on September 9, 2009 and incorporated herein  by reference)                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 31.1    |       | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 31.2    |       | Rule 13a-14(a)/15d-14(a) Certification  of the Principal Financial Officer                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 32.1    |       | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                   |
| Exhibit 32.2    |       | Certification of the Principal Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                  |

 

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