<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 September 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 November 7, 1996
          ---------------                 ------------------------------- 
   Common Stock, $.01 par value                    5,388,809

  ____________________________________________________________________________

  ____________________________________________________________________________
<PAGE>
 
                              CANDELA CORPORATION
                                     INDEX


<TABLE> 
<CAPTION> 
                                                                  Page(s)
                                                                  -------
<S>                                                                 <C>
 Part I. Financial Information:
 
 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                                  7-10


Part II.  Other Information:

       Item 1. through Item 5.                                        11

             Not applicable

       Item 6.  Exhibits and Reports on Form 8-K                      11
</TABLE> 

                                       1
<PAGE>
 
<TABLE>
<CAPTION>
 
                                   CANDELA CORPORATION
                          CONDENSED CONSOLIDATED BALANCE SHEETS
                                      (in thousands)
 
 

                                                                      September 28         June 29,
                                                                         1996                1996
ASSETS                                                                (unaudited)             (1)
----------------------------------------------------------------------------------------------------
<S>                                                                     <C>                  <C>  
Current assets:
     Cash and equivalents                                               $ 3,019              $ 3,041
     Accounts receivable                                                  6,585                6,444
     Notes receivable                                                       949                1,956
     Inventory                                                            5,715                5,627
     Other current assets                                                   467                  352
----------------------------------------------------------------------------------------------------
           Total current assets                                          16,735               17,420
----------------------------------------------------------------------------------------------------
Property and equipment, net                                               1,164                1,183
Other assets                                                                830                  731
----------------------------------------------------------------------------------------------------
                           Total Assets                                 $18,729              $19,334
====================================================================================================
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------
Current liabilities:
     Current portion of long-term debt                                  $   562              $   708
     Deferred income                                                      1,716                1,943
     Accounts payable                                                     2,422                3,162
     Accrued payroll and related expenses                                   722                  748
     Accrued warranty costs                                               1,061                  897
     Income taxes payable                                                   483                  350
     Other accrued liabilities                                              817                1,004
----------------------------------------------------------------------------------------------------
           Total current liabilities                                      7,783                8,812
----------------------------------------------------------------------------------------------------
Long-term debt                                                              520                  557
----------------------------------------------------------------------------------------------------
Stockholders' equity:
     Common stock                                                            53                   53
     Additional paid-in capital                                          17,103               17,069
     Retained deficit                                                    (6,614)              (7,123)
     Accumulated translation adjustment                                   (116)                 (34)
----------------------------------------------------------------------------------------------------
           Total stockholders' equity                                    10,426                9,965
----------------------------------------------------------------------------------------------------
                           Total Liabilities and Stockholders' Equity   $18,729              $19,334
====================================================================================================
</TABLE>
 
      (1)  Derived from audited financial statements
 
 
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.

                                       2
<PAGE>
 
                              CANDELA CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
 
 
 
<TABLE> 
<CAPTION> 
                                                                           For the three months ended:
                                                                        September 28          September 30,
                                                                            1996                 1995
                                                                                    (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                    <C> 
Revenue                                                                   $7,639                 $5,984
Cost of sales                                                              3,885                  3,590
----------------------------------------------------------------------------------------------------------------------------------
Gross profit                                                               3,754                  2,394
 
Operating expenses:
    Research and development                                                 573                    374
    Selling, general and administrative                                   2,505                  2,023
------------------------------------------------------------------------------------------------------------------------------------

               Total operating expenses                                    3,078                  2,397
------------------------------------------------------------------------------------------------------------------------------------

Income (loss) from operations                                                676                     (3)
 
Other income (expense):
  Interest income                                                            15                     27
  Interest expense                                                           (17)                   (10)
  Other                                                                       54                   (119)
----------------------------------------------------------------------------------------------------------------------------------
    Total other income (expense)                                              52                   (102)
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                            728                   (105)
Provision for income taxes                                                  218                    ---
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                         $  510                 $ (105)
==================================================================================================================================
 
Net income (loss) per share                                                $0.09                 $(0.02)
==================================================================================================================================
 
Weighted average number of common
and common equivalent shares
outstanding                                                                5,655                  5,299
==================================================================================================================================
</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 three months ended:
                                                                                                 September 28,       September 30,
                                                                                                    1996                1995
                                                                                                           (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                <C> 
 Cash flows from operating activities:
    Net income (loss)                                                                              $  510             $ (104)
    Adjustments to reconcile net income (loss) to net
      cash provided by (used for) operating activities:
      Depreciation and amortization                                                                   107                117
      Change in assets and liabilities:
         Accounts receivable                                                                         (142)               442
      Notes receivable                                                                              1,007              1,085
      Inventory                                                                                       (88)               119
      Other current assets                                                                           (115)               (59)
      Other assets                                                                                    (99)                43
      Accounts payable                                                                               (740)               502
      Accrued payroll and related expenses                                                            (26)                26
      Deferred income                                                                                (227)              (257)
      Accrued warranty costs                                                                          164               (152)
      Income taxes  payable                                                                           133               (507)
      Other accrued liabilities                                                                      (187)              (114)
----------------------------------------------------------------------------------------------------------------------------------
         Total adjustments                                                                           (213)             1,245
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                                                  297              1,141
----------------------------------------------------------------------------------------------------------------------------------
 
Cash flows from investing activities:
      Proceeds from sale of equipment                                                                  45                  0
      Payment for additions to property and equipment                                                (134)               (68)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                                                (89)               (68)
----------------------------------------------------------------------------------------------------------------------------------
 
Cash flows from financing activities:
      Payments of capital lease obligations                                                           (39)                 0
      Issuance (payment) of long-term debt                                                           (143)              (210)
      Proceeds from the issuance of common stock                                                       34                  0
----------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities                                                               (148)              (210)
----------------------------------------------------------------------------------------------------------------------------------
 
Accumulated translation adjustment                                                                    (82)              (365)
----------------------------------------------------------------------------------------------------------------------------------
 
Net decrease in cash and equivalents                                                                  (22)               498
----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period                                                         3,041              2,565
----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end  of period                                                             $3,019             $3,063
==================================================================================================================================
</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 month period ended September 28, 1996 are not
   necessarily indicative of the results to be expected for the full year.
 
   In August 1995, the Company incorporated a wholly-owned subsidiary, Candela
   Skin Care Centers, Inc. (CSCC).  CSCC supports services to its customers,
   through cosmetic laser facilities, integrating laser cosmetic procedures with
   spa, salon, health and fitness services.  In June 1996, the Company acquired
   all of the outstanding capital stock of Spa Management, Inc., which was
   accounted for using the pooling of interests method of accounting.  (See Note
   2).

2. POOLING OF INTERESTS

   On June 27, 1996, the Company acquired all of the outstanding shares of
   capital stock of Spa Management, Inc.  The acquisition was accomplished
   through an exchange of 60,317 shares of the Company's common stock for all of
   the outstanding shares of capital stock of Spa Management, Inc.  This
   transaction has been accounted for using the pooling of interests method of
   accounting.  Spa Management, Inc., d/b/a Le Pli at the Heritage(Le Pli) was
   formed in May 1994, and is a Boston-based health spa with approximately 60
   employees at the time of acquisition and specializes in personal care and
   health and beauty services.  Le Pli currently operates as a wholly-owned
   subsidiary of CSCC.
 
   All prior period historical consolidated financial data presented herein have
   been restated to include the financial position, results of operations, and
   cash flows of Le Pli.

3. INVENTORY

   Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
 
                               September 28, 1996   June 29, 1996
                               -------------------  --------------
                                   (unaudited)            (1)
     <S>                       <C>                  <C>
         Raw materials           $3,550                   $3,534
         Work in process            845                      531
         Finished goods           1,320                    1,562
                                 ------                   ------
                                 $5,715                   $5,627
                                 ======                   ======
 
</TABLE>

                                       5
<PAGE>
 
4. PROPERTY AND EQUIPMENT

  Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
 
                                      September 28, 1996   June 29, 1996
                                      -------------------  --------------
                                            (unaudited)          (1)
<S>                                   <C>                  <C>
     Leasehold improvements                  $  357             $  361
     Office furniture & equipment               772                724
     Laser systems                              483                543
     Equipment                                3,372              3,296
                                             ------             ------
     Total                                   $4,984             $4,924
 
     Less accumulated depreciation
     and amortization                         3,820              3,741
                                             ------             ------
                                                               
                                             $1,164             $1,183
                                             ======             ======
 
</TABLE>
(1)  Derived from audited financial statements

5. 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.  The 1995 income per share data also
   reflects the assumed issuance, at the beginning of the period, of 60,317
   shares of common stock in connection with the acquisition of Spa Management,
   Inc.

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


 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 forecasted 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.

                                       7
<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.

   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.

   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.

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

   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.


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

   Revenue for the three months ended September 28, 1996 was $7,639,000, an
increase of 28% versus the same period a year earlier. The increase for the
three month period reflects an increase in shipments of the Company's new leg
vein device, the Sclerolaser, and the shipments of the AlexLAZR used for
treatment of vascular and pigmented lesions.

   Gross margins were 49% for the three month period ending September 28, 1996,
versus 40% for the three month period a year earlier. The gross margins of 49%
for the period ending September 28, 1996 were significantly impacted by the
increased shipments of the Sclerolaser and AlexLAZR.

   Research and development spending has increased to $573,000 for the three
months ended September 28, 1996 from $374,000 in the three month period a year
earlier.  This represents an increase of 53% and results from the Company's R&D
efforts to expand in a number of areas which can be commercialized  quickly and
efficiently.

   Selling, general and administrative spending for the three month period
ending September 28, 1996 was $2,505,000. This was an increase of $482,000 over
the same period a year earlier, representing additional spending related to the
Company's entry into the cosmetic laser center market and repositioning for
growth in certain sales, marketing and administrative areas, offset by spending
reductions in other areas of the company.

   Other interest income and expense for the three month period ended September
28, 1996 reflects an increase in income of $154,000.  For the three month period
ended September 28, 1996, interest income was $15,000 and interest expense was
$17,000 versus interest income of $27,000 and interest expense of $10,000 for
the same period one year earlier.  Exchange rate translation resulted in other
income of $54,000 compared to a $119,000 loss for the same period one year
earlier.

   Profit from operations of $676,000 for the three months ended September 28,
1996 include losses from the Company's cosmetic laser center operations of
$183,000 for the three month period.

   Provision for income taxes for the three months ended September 28, 1996
reflects an effective tax rate of 30%.  The provision for income taxes is a
combination of both the domestic and foreign activities of the Company.


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

   Cash and equivalents at September 28, 1996 decreased to $3,019,000 from
$3,041,000 at June 29, 1996.

   In October 1995, the Company opened its first laser cosmetic skin care
center.  The funds used by the Company for the initial investment costs and on-
going operating expenses of the laser center were partially offset by cash
received under equipment financing arrangements.  In support of the continued
growth of this and other laser centers, the Company may acquire additional
capital through similar equipment financing arrangements or other means.

   The Company is in negotiation with various banks to establish a credit line
should additional capital be needed for on-going operations.


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

                                       10
<PAGE>
 
                              CANDELA CORPORATION
                          PART II   OTHER INFORMATION

Item 1-5 Not Applicable

Item 6   Exhibits and Reports on Form 8-K

         (a) Exhibits

         None.

         (b) Reports on Form 8-K

         None.

                                       11
<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:  November 7, 1996                 /s/ Gerard E. Puorro
      -----------------                 --------------------------------------
                                        Gerard E. Puorro
                                        (President , Chief Executive Officer)


Date:  November 7, 1996                 /s/ F. Paul Broyer
      -----------------                 --------------------------------------
                                        F. Paul Broyer
                                        (Vice President, Treasurer and Chief
                                        Financial Officer)

                                       12