<PAGE>
 
  ____________________________________________________________________________

  ____________________________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            _______________________
                                   FORM 10-Q


   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
   For the quarter ended December 28, 1996.

                         Commission file number 0-14742
                              CANDELA CORPORATION
             (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

                            _______________________

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes     X      No
   ----------    ----------



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

               Class                             Outstanding at February 5, 1997
          ---------------                        -------------------------------
   Common Stock, $.01 par value                              5,402,189

  ____________________________________________________________________________

  ____________________________________________________________________________
<PAGE>
 
                              CANDELA CORPORATION
                                     INDEX



                                                                    Page(s)
                                                                    -------

<TABLE>
<CAPTION>
Part I.  Financial Information: 
<S>                                     <C>
     Item 1.  Consolidated Balance Sheets                             2
 
              Consolidated Statements of Operations                   3
 
              Consolidated Statements of Cash Flows                   4
 
              Notes to Consolidated Financial
                  Statements                                          5-6
 

     Item 2.  Management's Discussion and
               Analysis of Financial Condition
               and Results of Operations                              7-11
 
 
Part II. Other Information:
 
     Item 4.  Submission of Matters to a Vote of Security Holders     12
 
     Item 6.  Exhibits and Reports on Form 8-K                        12
 
              Exhibit 27.1       Financial Data Schedule              14
</TABLE>

                                       1
<PAGE>
 
<TABLE>
<CAPTION>
 
                              CANDELA CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)
 
 
 
                                                    December 28      June 29,
                                                        1996           1996
ASSETS                                              (unaudited)
----------------------------------------------------------------------------
Current assets:
<S>                                             <C>             <C>
   Cash and equivalents                              $ 3,148         $ 3,041
   Accounts receivable                                 8,131           6,444
   Notes receivable                                      835           1,956
   Inventory                                           5,177           5,627
   Other current assets                                  712             352
----------------------------------------------------------------------------
          Total current assets                        18,003          17,420
----------------------------------------------------------------------------
Property and equipment, net                            1,866           1,183
Other assets                                           1,196             731
----------------------------------------------------------------------------
                                                     $21,065         $19,334
============================================================================
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------
Current liabilities:
   Current portion of long-term debt                 $   553         $   708
   Deferred income                                     1,780           1,943
   Accounts payable                                    4,002           3,162
   Accrued payroll and related expenses                  721             748
   Accrued warranty costs                              1,071             897
   Income taxes payable                                  797             350
   Other accrued liabilities                             597           1,004
----------------------------------------------------------------------------
          Total current liabilities                    9,521           8,812
----------------------------------------------------------------------------
Long-term debt                                           401             557
----------------------------------------------------------------------------
Stockholders' equity:
   Common stock                                           53              53
   Additional paid-in capital                         17,154          17,069
   Retained deficit                                   (5,878)         (7,123)
   Accumulated translation adjustment                   (186)            (34)
----------------------------------------------------------------------------
          Total stockholders equity                   11,143           9,965
                            
----------------------------------------------------------------------------
                                                     $21,065         $19,334
============================================================================
 
 The accompanying notes are an integral part of the consolidated financial
 statements.
</TABLE>

                                       2
<PAGE>
 
                              CANDELA CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
<TABLE>
<CAPTION>
 
                                              For the three months ended:           For the six months ended:
                                              December 28,   December 30,          December 28,    December 30,
                                                 1996           1995                 1996              1995
                                                                                  (unaudited)       (unaudited)
--------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>              <C>                    <C>  
Revenue                                         $ 9,406        $ 7,885          $17,045                $13,869
Cost of sales                                     4,750          4,262            8,635                  7,852
--------------------------------------------------------------------------------------------------------------
Gross profit                                      4,656          3,623            8,410                  6,017

Operating expenses:
   Research and development                         555            373            1,127                    747
   Selling, general and administrative            3,031          2,526            5,537                  4,549
--------------------------------------------------------------------------------------------------------------
          Total operating expenses                3,586          2,899            6,664                  5,296
--------------------------------------------------------------------------------------------------------------
Income from operations                            1,070            724            1,746                    721
 
Other income (expense):
   Interest income                                   16             21               31                     49
   Interest expense                                 (15)            (9)             (31)                   (20)
   Other                                            (20)           (25)              33                   (144)
--------------------------------------------------------------------------------------------------------------
          Total other income (expense)              (19)           (13)              33                   (115)
--------------------------------------------------------------------------------------------------------------
Income before income taxes                        1,051            711            1,779                    606
Provision for income taxes                          315            250              534                    250
--------------------------------------------------------------------------------------------------------------
Net income                                      $   736        $   461          $ 1,245                $   356
==============================================================================================================
Net income per share                            $  0.13        $  0.08          $  0.22                $  0.06
==============================================================================================================
   Weighted average number of common              5,658          5,503            5,669                  5,503
    and common equivalent shares
    outstanding
==============================================================================================================

</TABLE> 
                                               
The accompanying notes are an integral part of the consolidated financial 
statements.

                                       3
<PAGE>
 
                              CANDELA CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
<TABLE> 
<CAPTION> 
 
                                                                For the six months ended:
                                                                  Dec 28,       Dec 30,
                                                                   1996           1995
                                                                       (unaudited)
---------------------------------------------------------------------------------------
<S>                                                          <C>           <C>
 Cash flows from operating activities:
    Net income                                                   $ 1,245        $   356
    Adjustments to reconcile net income to net
      cash provided by (used for) operating activities :
      Depreciation and amortization                                  235            235
      Change in assets and liabilities:
         Accounts receivable                                      (1,687)        (1,134)
         Notes receivable                                          1,121            801
         Inventory                                                   450            659
         Other current assets                                       (360)            (6)
         Other assets                                               (465)            83
         Accounts payable                                            840            218
         Accrued payroll and related expenses                        (27)            18
         Deferred income                                            (163)           256
         Accrued warranty costs                                      174           (151)
         Income taxes payable                                        447           (257)
         Other accrued liabilities                                  (407)            71
---------------------------------------------------------------------------------------
               Total adjustments                                     158            793
---------------------------------------------------------------------------------------
Net cash provided by operating activities                          1,403          1,149
---------------------------------------------------------------------------------------

Cash flows from investing activities:
    Proceeds from sale of equipment                                   45              0
    Payment for additions to property and equipment                 (889)          (302)
---------------------------------------------------------------------------------------                             
Net cash used for investing activities                              (844)          (302)
---------------------------------------------------------------------------------------
 
Cash flows from financing activities:
    Payments of capital lease obligations                            (51)             0
    Payment of long-term debt                                       (334)          (330)
    Proceeds from the issuance of common stock                        85             12
---------------------------------------------------------------------------------------                             
Net cash used for financing activities                              (300)          (318)
---------------------------------------------------------------------------------------
 
Accumulated translation adjustment                                  (152)          (477)
---------------------------------------------------------------------------------------
 
Net decrease in cash and equivalents                                 107             52
Cash and equivalents at beginning of period                        3,041          2,565
---------------------------------------------------------------------------------------
Cash and equivalents at end of period                            $ 3,148        $ 2,617
=======================================================================================
</TABLE>  
The accompanying notes are an integral part of the consolidated financial 
statements.

                                       4
<PAGE>
 
                              CANDELA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

  The accompanying financial statements and notes do not include all of the
  disclosures made in the Company's Annual Report on Form 10-K for fiscal 1996,
  which should be read in conjunction with these statements.  The financial
  information included herein, with the exception of the consolidated balance
  sheet at June 29, 1996, has not been audited.  However, in the opinion of
  Management, the statements include all adjustments necessary for a fair
  presentation of the quarterly results.  All adjustments made to these
  financial statements were considered to be of a normal and recurring nature.
  The results for the three and six month periods ended December 28, 1996 are
  not necessarily indicative of the results to be expected for the full year.
  All prior period historical consolidated financial data presented herein have
  been restated to include the financial position, results of operations, and
  cash flows of Spa Management, Inc. (renamed Candela Skin Care Center of
  Boston, Inc.) acquired through a pooling of interests on June 27, 1996.

2. INVENTORY

  Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
 
                                December 28, 1996   June 29, 1996
                               ------------------  --------------
                                   (unaudited)             (1)
     <S>                     <C>                 <C>
 
     Raw materials                     $2,992          $3,534
     Work in process                      931             531
     Finished goods                     1,254           1,562
                                       ------          ------
                                       $5,177          $5,627
                                       ======          ======
 
</TABLE>
3. PROPERTY AND EQUIPMENT

  Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
 
                                  December 28, 1996   June 29, 1996
                                  ------------------  --------------
                                     (unaudited)              (1)
 <S>                           <C>                 <C>
     Leasehold improvements            $  682          $  361
     Office furniture & equipment       1,113             724
     Laser systems                        483             543
     Equipment                          3,504           3,296
                                       ------          ------
     Total                             $5,782          $4,924
 
     Less accumulated depreciation
     and amortization                   3,916           3,741
                                       ------          ------
 
                                       $1,866          $1,183
                                       ======          ======
 
</TABLE>
(1)  Derived from audited financial statements

                                       5
<PAGE>
 
                              CANDELA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

   Net income per share is computed by dividing net income by the weighted
   average number of shares of common stock and, if dilutive, common stock
   equivalents outstanding.  Common stock equivalents include shares issuable
   upon the exercise of stock options or warrants, net of shares assumed to have
   been purchased with the proceeds.

                                       6
<PAGE>
 
                              CANDELA CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS
---------------------

   Revenue for the three and six months ended December 28, 1996 was $9,406,000
and $17,045,000 respectively. For the three-month period ended December 28, 1996
revenue increased 19% versus the same period a year earlier. For the six-month
period ended December 28, 1996 revenue increased 23% versus the same period last
year. The increase for the six months year-to-date reflects the increased
shipments, over the same period in the prior year, of the Sclerolaser, the
Company's new leg vein device, the AlexLAZR, used for treatment of vascular and
pigmented lesions, and the MDL 3000 LaserTripter device which fragments urinary
and biliary stones.

   Gross margins were 49% for both the three and six month periods ending
December 28, 1996. Gross margins were 46% and 43% for the three and six month
periods a year earlier.  The current gross margin level reflects the shipment of
the new devices referred to above.

   Research and development spending has increased to $555,000 and $1,127,000
for the three and six months ended December 28, 1996, respectively. These
amounts reflect increases of 49% and 51% for the same three and six month
periods the year before. Such increases are the result of the Company's R&D
efforts on a number of new projects that will enhance the laser  product lines
and can be commercialized  quickly and efficiently.

   Selling, general and administrative spending for the three and six month
periods ending December 28, 1996 was $3,031,000 and $5,537,000, respectively.
For the three-month period ended December 28, 1996 spending increased 20% versus
the same period a year earlier. For the six-month period ended December 28, 1996
spending increased 22% versus the same six-month period a year earlier. The
increases in this area are principally the result of the Company's entry into
the skin care clinic market.

   Net interest income and expense for the three-month and six-month period
ended December 28, 1996 is essentially unchanged.  For the three-month period
ended December 30, 1996, other expenses in the amount of $20,000 were $25,000
for the same period one year earlier.  For the six-month period ended December
28, 1996, other income was $33,000 and other expenses were $144,000 for the same
period one year earlier. This change is primarily the result of foreign currency
transactions.

   Profit from operations was $1,070,000 and $1,746,000, respectively, for the
three and six months ended December 28, 1996.  For the same periods one year
earlier profit from operations was $724,000 and $721,000, respectively.

   The provision for income taxes results from a combination of activities of 
both the domestic and foreign subsidiaries of the Company. Provision for income 
taxes for the three and six months ended December 28, 1996 reflects the 
utilization of a portion of the Company's domestic net operating loss 
carryforwards and tax provided in Japan at a rate in excess of the U.S. 
statutory tax rate, yielding an effective tax rate of 30%.

                                       7
<PAGE>
 
                              CANDELA CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

   Cash and equivalents at December 28, 1996 increased to $3,148,000 from
$3,041,000 at June 29, 1996.

   The Company is in the process of opening health spa/laser cosmetic skin care
centers in Boston, MA and Scottsdale, AZ.  Equipment leasing will provide a
portion of the funds used by the Company for the initial investment costs and
on-going operating expenses of the laser treatment centers.  In support of the
continued growth of these and other laser treatment centers, the Company may
acquire additional capital through similar equipment financing arrangements or
other means.

                                       8
<PAGE>
 
                              CANDELA CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

 CAUTIONARY STATEMENTS

   In addition to the other information in this Quarterly Report on Form 10-Q,
 the following cautionary statements should be considered carefully in
 evaluating the Company and its business.  Statements contained in this
 Form 10-Q that are not historical facts (including, without limitation,
 statements concerning anticipated operational and capital expense levels and
 such expense levels relative to the Company's total revenues) and other
 information provided by the Company and its employees from time to time may
 contain certain "forward-looking" information, as that term is defined by (i)
 the Private Securities Litigation Reform Act of 1995 (the "Act") and, (ii) in
 releases made by the Securities and Exchange Commission (the "SEC"). The
 factors identified in the cautionary statements below, among other factors,
 could cause actual results to differ materially from those suggested in such
 forward-looking statements. The cautionary statements below are being made
 pursuant to the provisions of the Act and with the intention of obtaining the
 benefits of the "safe harbor" provisions of the Act.

   VARIABILITY OF QUARTERLY OPERATING RESULTS.  The Company's quarterly
 operating results may vary significantly from quarter to quarter, depending
 upon factors such as the timing of product sales, the timing of expenditures in
 anticipation of future product orders, the introduction and market acceptance
 of new products, effectiveness in managing manufacturing processes, changes in
 cost and availability of labor and product components, order cancellations, the
 budgetary cycles of its customers, and the timing of regulatory approvals.  The
 Company's ability to accurately forecast future revenues and income for any
 period is necessarily limited, and any forward-looking information provided
 from time to time by the Company represents only management's then-best current
 estimate of future results or trends, and actual results may differ materially
 from those contained in the Company's estimates.

   POTENTIAL VOLATILITY OF STOCK PRICE.  There has been significant volatility
 in the market price of securities of companies in the medical device industry.
 Factors such as announcements of new products by the Company or its
 competitors, quarterly fluctuations in the financial results of the Company or
 its competitors, shortfalls in the Company's actual financial results compared
 to results previously forecast by stock market analysts, conditions in the
 medical device industry and the financial markets and the economy generally
 could cause the market price of the Company's securities to fluctuate
 substantially and may adversely affect the price of the Company's securities.

                                       9
<PAGE>
 
                              CANDELA CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

   RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A significant portion of the
 Company's revenues are attributable to international operations and revenues
 from international operations are likely to continue to be significant in
 future periods. The Company's international business and financial performance
 may be adversely affected by a number of factors, including without limitations
 to fluctuations in exchange rates, tariffs and other trade barriers, adverse
 tax regulation, and adverse political and economic conditions. Adverse effect
 on the Company's international operations may have materially adverse effects
 on the Company's overall financial condition and operating results.

   NEW BUSINESS STRATEGIC DEVELOPMENT.  While the Company continues to expand
 and diversify its core cosmetic and surgical laser equipment business, the
 Company has embarked on a new business strategy of opening combined spa and
 laser cosmetic skin care centers.  Combined spa/skin care facilities in Boston,
 Massachusetts and Scottsdale, Arizona are being added to the Company's one
 existing skin care treatment center in Framingham, Massachusetts.  The surgical
 skin care treatments performed in each location are administered by board-
 certified physicians under contract with the Company's wholly-owned subsidiary,
 Candela Skin Care Centers, Inc.  While the target audience for the Company's
 core laser equipment tends to be medical practice groups and other health care
 providers, its target audience for its spa and skin care centers are
 individuals who are typically reached through entirely different marketing
 efforts.  The cost structures, new client accretion methods and demand
 associated with the Company's new facilities are largely untested, and the
 Company could incur significant losses in connection with its spa and skin care
 centers.

   GOVERNMENTAL REGULATION.  Medical devices are subject to United States Food
 and Drug Administration ("FDA") approval before they can be utilized for
 clinical studies or sold commercially.  In addition, the Company's activities
 in connection with its CSCC business may subject the Company to additional
 regulation under state and federal laws.  The process for obtaining the
 necessary approvals and compliance with applicable regulations can be costly
 and time consuming.  Many foreign countries in which the Company markets or may
 market its products have similar regulatory bodies and restrictions.  There is
 no assurance the Company will be able to obtain any such government approvals
 or successfully comply with any such regulations in a timely and cost-effective
 manner, if at all, and failure to do so may have an adverse effect on the
 Company's financial condition and results of operations.

                                       10
<PAGE>
 
                              CANDELA CORPORATION
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

   RISKS ASSOCIATED WITH PRODUCT LIABILITY.  The administration of medical and
 cosmetic treatments using laser products is subject to various risks of
 physical injury to the patient which may result in product liability or other
 claims against the Company.  The costs and resources involved in defending or
 settling any such claims, or the payment of any award in connection therewith,
 may adversely affect the Company's financial condition and operating results.
 The Company maintains product liability insurance, but there is no assurance
 that its policy will provide sufficient coverage for any claim or claims that
 may arise, or that the Company will be able to maintain such insurance coverage
 on favorable economic terms.

   RAPID TECHNOLOGICAL CHANGE; COMPETITION.  The medical laser industry is
 subject to rapid and substantial technological development and product
 innovations.  The Company, to be successful, must be responsive to new
 developments in laser technology and applications of existing technology, and
 the Company's financial condition and operating results may be adversely
 affected by the failure of new or existing products to compete favorably in
 response to such technological developments.  In addition, the Company competes
 against numerous other companies offering products similar to the Company's
 and/or alternative products and technologies, some of which have greater
 financial, marketing and technical resources than the Company.  There can be no
 assurance the Company will be able to compete successfully.

   RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES.  The Company's success
 will depend in large part on its ability to attract and retain highly-qualified
 scientific, technical, managerial, sales and marketing, management and other
 personnel.  Competition for such personnel is intense and any decline in the
 Company's ability to attract and retain such personnel may have adverse effects
 on its financial condition and operating results.

                                       11
<PAGE>
 
                              CANDELA CORPORATION
                          PART II   OTHER INFORMATION

Item 4 Submission of Matters to a Vote of Security Holders

       On November 21, 1996, the Company held its Annual Shareholder meeting.
       At the meeting, the Shareholders acted upon the following proposals: 
       (i) election of directors; and (ii) ratification of the firm of Coopers &
       Lybrand, L.L.P. as independent auditors for the fiscal year ending June
       28, 1997. All of the above matters were approved by the Shareholders.

       Votes "For" represent affirmative votes and do not include abstentions
       or broker non-votes.  In cases where a signed proxy was submitted without
       direction, the shares represented by the proxy were voted "For" each
       proposal in the manner disclosed in the Proxy Statement and Proxy.
<TABLE>
<CAPTION>
 
       Voting Results were as follows:
                                                                              Broker
       Matter                            For     Against  Withheld  Abstain  Non-Votes
       ------                            ---     -------  --------  -------  ---------
   <S>                               <C>        <C>        <C>       <C>      <C>
       I.  Election of Directors:
           ----------------------
           Gerard E. Puorro            4,993,273  21,940     N/A       N/A      -0-
           Theodore G. Johnson         4,993,673  21,540     N/A       N/A      -0-
           Kenneth D. Roberts          4,993,573  21,540     N/A       N/A      -0-
           Douglas W. Scott            4,993,248  21,965     N/A       N/A      -0-
           Richard J. Cleveland, MD    4,993,573  21,640     N/A       N/A      -0-
           Robert E. Dornbush          4,993,348  21,865     N/A       N/A      -0-
</TABLE>
<TABLE> 
<CAPTION> 
       I.  Ratification of Independent Auditors:
           -------------------------------------
<S>                                 <C>         <C>       <C>     <C>         <C>
                                       4,994,538  10,570     N/A    10,105      -0-

</TABLE> 
Item 6 Exhibits and Reports on Form 8-K

       (a) Exhibits

           Exhibit 27.1, Financial Data Schedule, page 14.

       (b) Reports on Form 8-K

       No reports on Form 8-K were filed during the quarter ended December 28,
       1996.

                                       12
<PAGE>
 
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                  CANDELA CORPORATION
                                  Registrant



Date:  February 11, 1997          /s/ Gerard E. Puorro
      ------------------          ------------------------------------
                                  Gerard E. Puorro
                                  (President , Chief Executive Officer)



Date:  February 11, 1997          /s/ F. Paul Broyer
      ------------------          ------------------------------------
                                  F. Paul Broyer
                                  (Vice President, Treasurer and Chief Financial
                                  Officer)

                                       13