UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---------------------------------------------------------------------------------------
|For the quarterly period ended September 29, 2007                                      

Commission File No. 000-14742

CANDELA CORPORATION(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934).

Large
Accelerated Filer o                Accelerated Filer ý                Non-Accelerated
Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o No ý

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

|Class                                  |  | Outstanding at November 7, 2007
|-------------------------------------- |  | -------------------------------
|Common Stock, $.01 par value per share |  | 23,138,771                     



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CANDELA CORPORATION  Index

|         |                        |                                                                                                                                        |    | Page 
|-------- | ---------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | -- | -----
|Part I.  | Financial Information: |                                                                                                                                        |   
|         | Item 1.                | Unaudited Financial Statements                                                                                                         |    |      
|         |                        | Consolidated Balance Sheets as of September 29, 2007 and June 30, 2007                                                                 |    | 3    
|         |                        | Consolidated Statements of Income and Comprehensive Income for the three-month periods ended September 29, 2007 and September 30, 2006 |    | 4    
|         |                        | Condensed Consolidated Statements of Cash Flows for the three-month periods ended September 29, 2007 and September 30, 2006            |    | 5    
|         |                        | Notes to Consolidated Financial Statements (Unaudited)                                                                                 |    | 616 
|         | Item 2.                | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                  |    | 1722
|         | Item 3.                | Quantitative and Qualitative Disclosure about Market Risk                                                                              |    | 23   
|         | Item 4.                | Controls and Procedures                                                                                                                |    | 23   
|Part II. | Other Information:     |                                                                                                                                        |   
|         | Item 1.                | Legal proceedings                                                                                                                      |    | 2425
|         | Item 6.                | Exhibits                                                                                                                               |    | 26   
|         | Signatures             |                                                                                                                                        | 27
|         | Index to Exhibits      |                                                                                                                                        | 28

2

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Part I. Financial Information

Item 1Financial Statements

CANDELA CORPORATION        Consolidated Balance Sheets        (in thousands, except per-share data)        (unaudited)

|                                     |                                                                                                                                        | September 29,
2007                         |        | June 30,
2007 |        
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------- | -------
|Assets                               |                                                                                                                                        |                                            |        |               |        
|Current assets:                      |                                                                                                                                        |                                            |        |               |        
|                                     | Cash and cash equivalents                                                                                                              |                                            | $      | 20,805        |        
|                                     | Restricted cash                                                                                                                        |                                            |        | 46            |        
|                                     | Marketable securities                                                                                                                  |                                            |        | 14,952        |        
|                                     | Accounts receivable, net of allowance for doubtful accounts of $1,789 and $1,412 at September 29 and June 30, respectively             |                                            |        | 39,783        |        
|                                     | Notes receivable                                                                                                                       |                                            |        | 683           |        
|                                     | Inventories, net                                                                                                                       |                                            |        | 22,462        |        
|                                     | Other current assets                                                                                                                   |                                            |        | 9,969         |        
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total current assets                       |        |               | 108,700
|Property and equipment, net          |                                                                                                                                        |                                            | 3,982  |               |        
|Deferred tax assets                  |                                                                                                                                        |                                            | 5,991  |               |        
|Goodwill                             |                                                                                                                                        |                                            | 10,997 |               |        
|Acquired Intangible assets, net      |                                                                                                                                        |                                            | 7,832  |               |        
|Marketable securities, long-term     |                                                                                                                                        |                                            | 9,422  |               |        
|Other assets                         |                                                                                                                                        |                                            | 2,539  |               |        
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total assets                               |        | $             | 149,463
|                                     |                                                                                                                                        |                                            |        |               |        
|Liabilities and Stockholders' Equity |                                                                                                                                        |                                            |        |               |        
|Current liabilities:                 |                                                                                                                                        |                                            |        |               |        
|                                     | Accounts payable                                                                                                                       |                                            | $      | 9,623         |        
|                                     | Accrued payroll and related expenses                                                                                                   |                                            |        | 4,796         |        
|                                     | Accrued warranty costs, current                                                                                                        |                                            |        | 5,152         |        
|                                     | Sales tax payable                                                                                                                      |                                            |        | 1,268         |        
|                                     | Royalties payable                                                                                                                      |                                            |        | 664           |        
|                                     | Other accrued liabilities                                                                                                              |                                            |        | 6,414         |        
|                                     | Deferred revenue, current                                                                                                              |                                            |        | 10,806        |        
|                                     | Current liabilities of discontinued operations                                                                                         |                                            |        | 1,257         |        
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total current liabilities                  |        |               | 39,980 
|Deferred tax liability, long-term    |                                                                                                                                        |                                            | 2,660  |               |        
|Income taxes payable, long-term      |                                                                                                                                        |                                            | 414    |               |        
|Accrued warranty costs, long-term    |                                                                                                                                        |                                            | 1,603  |               |        
|Deferred revenue, long-term          |                                                                                                                                        |                                            | 3,925  |               |        
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total liabilities                          |        |               | 48,582 
|                                     |                                                                                                                                        |                                            |        |               |        
|Stockholders' equity:                |                                                                                                                                        |                                            |        |               |        
|                                     | Common stock, $.01 par value, 60,000,000 shares authorized; 26,102,000 and 26,082,000 issued at September 29 and June 30, respectively |                                            |        | 261           |        
|                                     | Treasury stock, 3,450,000 and 3,125,000 common shares at September 29 and June 30, respectively, at cost                               |                                            |        | (24,858       | )      
|                                     | Additional paid-in capital                                                                                                             |                                            |        | 70,416        |        
|                                     | Accumulated earnings                                                                                                                   |                                            |        | 54,847        |        
|                                     | Accumulated other comprehensive income (loss)                                                                                          |                                            |        | 215           |        
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total stockholders' equity                 |        |               | 100,881
|                                     |                                                                                                                                        |                                            |        |               |        
|                                     |                                                                                                                                        | Total liabilities and stockholders' equity |        | $             | 149,463
|                                     |                                                                                                                                        |                                            |        |               |        

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

3

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CANDELA CORPORATION        Consolidated Statements of Income and Comprehensive Income        (in thousands, except per-share data)

|                                               |                                                                      | For the three-months ended: |       
|---------------------------------------------- | -------------------------------------------------------------------- | --------------------------- | ------
|
|
|Revenue                                        |                                                                      |                             |       
|                                               | Lasers and other products                                            |                             | $     
|                                               | Product-related service                                              |                             |       
|                                               |                                                                      |                             |       
|                                               |                                                                      | Total revenue               |       
|Cost of sales                                  |                                                                      |                             |       
|                                               | Lasers and other products                                            |                             |       
|                                               | Product-related service                                              |                             |       
|                                               |                                                                      |                             |       
|                                               |                                                                      | Total cost of sales         |       
|                                               |                                                                      |                             |       
|Gross profit                                   |                                                                      |                             | 17,276
|Operating expenses:                            |                                                                      |                             |       
|                                               | Selling, general and administrative                                  |                             |       
|                                               | Research and development                                             |                             |       
|                                               |                                                                      |                             |       
|                                               |                                                                      | Total operating expenses    |       
|                                               |                                                                      |                             |       
|(Loss) income from operations                  |                                                                      |                             | (748  
|Other income:                                  |                                                                      |                             |       
|                                               | Interest income                                                      |                             |       
|                                               | Other income, net                                                    |                             |       
|                                               |                                                                      |                             |       
|                                               |                                                                      | Total other income          |       
|                                               |                                                                      |                             |       
|Income before income taxes                     |                                                                      |                             | 456   
|Provision for income taxes                     |                                                                      |                             | 269   
|                                               |                                                                      |                             |       
|Net income                                     |                                                                      | $                           | 187   
|                                               |                                                                      |                             |       
|Net income per share of common stock           |                                                                      |                             |       
|                                               | Basic                                                                |                             | $     
|                                               |                                                                      |                             |       
|                                               | Diluted                                                              |                             | $     
|                                               |                                                                      |                             |       
|Weighted average shares outstanding            |                                                                      |                             |       
|                                               | Basic                                                                |                             |       
|                                               | Diluted                                                              |                             |       
|Net income                                     |                                                                      | $                           | 187   
|Other comprehensive income (loss), net of tax: |                                                                      |                             |       
|                                               | Foreign currency translation adjustment                              |                             |       
|                                               | Unrealized (loss) gain on available-for-sales securities, net of tax |                             |       
|                                               |                                                                      |                             |       
|Comprehensive income                           |                                                                      | $                           | 697   
|                                               |                                                                      |                             |       

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

4

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CANDELA CORPORATION        Condensed Consolidated Statements of Cash Flows        (in thousands)        (unaudited)

|                                                      |            | For the three-months ended:                                                   |                                     
|----------------------------------------------------- | ---------- | ----------------------------------------------------------------------------- | ------------------------------------
|
|Cash flows from operating activities:                 |            |                                                                               |                                     
|                                                      | Net income |                                                                               | $                                   
|                                                      |            | Adjustments to reconcile net income to net cash used by operating activities: |                                     
|                                                      |            | Gain on exchange of stock                                                     |                                     
|                                                      |            | Share-based compensation expense                                              |                                     
|                                                      |            | Depreciation and amortization                                                 |                                     
|                                                      |            | Provision for bad debts                                                       |                                     
|                                                      |            | Other non-cash items                                                          |                                     
|                                                      |            | Changes in operating assets and liabilities                                   |                                     
|                                                      |            |                                                                               | Accounts receivable                 
|                                                      |            |                                                                               | Notes receivable                    
|                                                      |            |                                                                               | Inventories                         
|                                                      |            |                                                                               | Other current assets                
|                                                      |            |                                                                               | Other assets                        
|                                                      |            |                                                                               | Accounts payable                    
|                                                      |            |                                                                               | Accrued payroll and related expenses
|                                                      |            |                                                                               | Deferred revenue                    
|                                                      |            |                                                                               | Accrued warranty costs              
|                                                      |            |                                                                               | Income taxes payable                
|                                                      |            |                                                                               | Other accrued liabilities           
|                                                      |            |                                                                               | Restricted cash                     
|                                                      |            |                                                                               |                                     
|Net cash used by operating activities                 |            |                                                                               | (1,115                              
|                                                      |            |                                                                               |                                     
|Cash flows from investing activities:                 |            |                                                                               |                                     
|                                                      |            | Purchases of property and equipment                                           |                                     
|                                                      |            | Maturities of held-to-maturity marketable securities                          |                                     
|                                                      |            | Cash proceeds from exchange of stock                                          |                                     
|                                                      |            | Purchases of held-to-maturity marketable securities                           |                                     
|                                                      |            | Acquisition of intangible assets                                              |                                     
|                                                      |            |                                                                               |                                     
|Net cash (used by) provided by investing activities   |            |                                                                               | (3,697                              
|                                                      |            |                                                                               |                                     
|Cash flows from financing activities:                 |            |                                                                               |                                     
|                                                      |            | Proceeds from the issuance of common stock                                    |                                     
|                                                      |            | Purchase of treasury stock                                                    |                                     
|                                                      |            |                                                                               |                                     
|Net cash used by financing activities                 |            |                                                                               | (2,307                              
|                                                      |            |                                                                               |                                     
|Effect of exchange rates on cash and cash equivalents |            |                                                                               | 772                                 
|                                                      |            |                                                                               |                                     
|Net decrease in cash and cash equivalents             |            |                                                                               | (6,347                              
|Cash and cash equivalents at beginning of period      |            |                                                                               | 27,152                              
|                                                      |            |                                                                               |                                     
|Cash and cash equivalents at end of period            |            | $                                                                             | 20,805                              
|                                                      |            |                                                                               |                                     

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

5

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CANDELA CORPORATION        Notes to Consolidated Financial Statements (unaudited)        (amounts are in thousands except per share data)

1. Basis of Presentation and Consolidation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end consolidated balance
sheet is derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of
management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, considered necessary for a fair presentation of
our financial position, results of operations and cash flows at the dates and for the periods indicated. Actual results may differ from these estimates.

The
results for the three months ended September 29, 2007 are not necessarily indicative of results to be expected for the remainder of the fiscal year. The information contained
in the interim financial statements should be read in conjunction with Management's Discussion and Analysis and the financial statements and notes thereto included in the Candela Corporation 2007
Form 10-K filed with the Securities and Exchange Commission ("SEC"). Certain prior period amounts have been reclassified to conform to the current period presentation. There was no
impact on operating income.

Basis of Consolidation

The financial statements include the accounts of Candela Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.
Investments in which we are not able to exercise significant influence over the investee are accounted for under the cost method.

Significant Accounting Policies

On July 1, 2007, we adopted Financial Accounting Standards Board, ("FASB") Interpretation No. 48, ("FIN 48"),Accounting for
Uncertainty in Income Taxes, as discussed more fully below. Other than this change, there have been no significant changes in our significant accounting policies during the
three months ended September 29, 2007 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June 30,
2007.

We
adopted the provisions of FIN 48 effective July 1, 2007. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition.

FIN
48 prescribes a two-step process to determine the amount of tax benefit to be recognized. The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective
to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on
factors including, but not limited to, changes in facts

6

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or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an
additional charge to the tax provision in the period.

2. Recent Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159,The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115. SFAS No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value and requires unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. We are currently in the process of evaluating the impact of SFAS No. 159 on our consolidated financial statements.

In
March 2006, the FASB issued Emerging Issues Task Force ("EITF") Issue 06-03,How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement("EITF 06-03"). Pursuant to this issue we elected to present taxes collected from customers and remitted to
governmental authorities net in our financial statements. This treatment is consistent with our historical presentation. EITF 06-03 is effective for interim and annual reporting periods
beginning after December 15, 2006, with earlier application permitted. The adoption of EITF 06-03 did not have any measurable impact on our consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements,which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for our fiscal year 2009. We are
currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements; the impact is not expected to be material.

3. Discontinued Operations

On September 27, 2003 management initiated a plan to close its only remaining skin care center. The closure was accounted for as a discontinued operation
in accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS 146
"Accounting for Costs Associated with Exit or Disposal Activities". In determining the amount of the facilities closure accrual, we are required to
estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. These estimates are reviewed quarterly and may result in revisions to established facility
reserves.

7

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Current
liabilities of discontinued operations consist of the following:

(in thousands)

September 29,
2007

June 30,
2007Facility closure and other costs

$
418

$
418Deferred revenue, gift certificates


839


839$
1,257

$
1,257


4. Stock-based Compensation

Effective July 3, 2005, the Company implemented the fair value recognition provisions of SFAS No. 123 revised ("SFAS No. 123R") and Staff
Accounting Bulletin 107 ("SAB 107") for all share-based compensation that was not vested as of July 2, 2005. The Company adopted SFAS No. 123R using a modified prospective application,
as permitted under SFAS No. 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted
after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award.

The
application of SFAS No. 123R and SAB 107 during the three-month periods ended September 29, 2007 and September 30, 2006 resulted in the recognition of
share-based compensation expense of approximately $0.9 million for each period, respectively. These expenses were divided between cost of sales and operating expense cost centers based upon the
functional responsibilities of the individuals holding the respective options.

As
of September 29, 2007, there was approximately $6.1 million of total unrecognized compensation cost related to non-vested stock options/Stock Appreciation
Rights ("SARs") granted under the Company's incentive plans. This cost is expected to be recognized over a weighted-average period of 1.5 years. As of September 30, 2006, there was
approximately $3.4 million of total unrecognized compensation cost related to nonvested stock options granted under the Company's incentive plans.

The
amount of cash received from the exercise of stock options for the three-month period ended September 29, 2007 was approximately $0.1 million.



The 1990 Employee Stock Purchase Plan (the "Purchase Plan") provides for the sale of up to 1.5 million shares of common stock to eligible employees. The
shares are issued at 85% of the market price on the last day of semi-annual periods. Substantially all full-time employees are eligible to participate in the Purchase Plan. At
September 29, 2007 there were approximately 661 thousand shares available for sale. Compensation expense for the purchase plan is recognized over the vesting period.

8

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Effective October 5, 2005, the Second Amended and Restated 1998 Stock Plan (the "1998 Stock Plan") was amended to clarify the granting of incentive stock
options, non-qualified stock options, and SARs.

Stock
options provide the holder with the right to purchase common stock. The exercise price per share of "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, granted under the 1998 Stock Plan may not be less than the fair market value per share of common stock on the date of grant. In the case of an incentive
stock option granted to an employee possessing more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price per share may not be less than 110% of the
fair market value per share of common stock on the date of grant.

SARs
provide the holder the right to receive an amount, payable in stock, cash or in any combination of these, as specified by a Committee established by the Board of Directors, equal to
the excess of the market value of our common shares on the date of exercise over the grant price at the time of the grant. The grant price of a SAR may not be less than the fair market value per share
of common stock on the date of grant, provided that the grant price of SARs granted in tandem with stock options shall equal the exercise price of the related stock option.

Options
and rights granted under the 1998 Stock Plan become exercisable on the date of grant or in installments, as specified by a Committee established by the Board of Directors, and
expire ten years from the date of the grant. The maximum number of shares for which options and rights may be granted under the 1998 Stock Plan was increased by 2.5 million shares to
7.8 million by affirmative vote at the Company's Annual Meeting of Shareholders held December 12, 2006. Upon exercise of a SAR, only the net number of shares of common stock issued in
connection with such exercise shall be deemed "issued" for this purpose. The Company may satisfy the awards upon exercise with either newly-issued or treasury shares.

There
were approximately 233 thousand stock based SARs granted during the three-month period ended September 29, 2007. The SARs granted to employees become exercisable
ratably over one to four years, while the SARs granted to directors become exercisable over two years.

There
were approximately 3.0 million outstanding options/SARs at September 29, 2007 with a weighted-average exercise price of $11.14 per share, an aggregate intrinsic value
of approximately $1.9 million, and a weighted-average remaining contractual term of 7.81 years.

There
were approximately 1.5 million of exercisable options/SARs at September 29, 2007 with a weighted-average exercise price of $10.16 per share, an aggregate intrinsic
value of approximately $1.7 million, and a weighted-average remaining contractual term of 6.48 years.

There
were approximately 1.7 million options/SARs available to grant at September 29, 2007.

The
total intrinsic value of options exercised during the three-month period ended September 29, 2007 was approximately $0.2 million.

9

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5. Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period and, if there are
dilutive securities, diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. 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, using the treasury stock method.

For the three months ended:(in thousands, except per share data)

September 29,
2007

September 30,
2006Shares used in the calculation of Basic earnings per share


22,905


23,530Effect of dilutive securities: Stock options/SAR's


200


514Diluted shares used in the calculation of earnings per share


23,105


24,044Per share effect of dilutive securities on net income

$


$
0.01


During
the three-month periods ended September 29, 2007 and September 30, 2006, options/SARs to purchase approximately 2.4 million and 1.1 million shares of
common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.

6. Acquisitions

On March 6, 2007, we acquired Inolase (2002) Ltd. ("Inolase") a non-public company engaged in the development and manufacture of
proprietary devices for the aesthetic light-based treatment industry as well as the development of intellectual property related to medical devices and light sources. The aggregate purchase price was
approximately $16.8 million in cash, including $0.3 million of acquisition-related transaction costs. No Candela common stock was issued in the acquisition. This acquisition was
accounted for as a business combination.

The
purchase-price allocation is preliminary pending the final determination of the fair value of the assets and liabilities acquired. The preliminary purchase-price allocation was
recorded in the third quarter of 2007 and resulted in approximately $11.0 million of goodwill and $7.4 million of other acquired intangible assets, primarily comprised of patents and
patent applications, which are being amortized over an estimated weighted average of 6 years. Values assigned to these acquired intangible assets are not deductible for tax purposes.

10

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Based
upon the preliminary purchase price allocation, the total purchase price was allocated as follows:

(in thousands)Goodwill

$
10,997Identifiable intangible assets


7,433Inventory


214Accounts receivable & other assets


195Accounts payable and accrued expenses


(248
)Deferred tax liability


(1,581
)Other liabilities


(201
)Total preliminary purchase price allocation

$
16,809


The
excess of the purchase price of Inolase over the estimated fair values of tangible and intangible assets and liabilities totaling approximately $11.0 million was allocated to
goodwill. We believe that such excess in purchase price for accounting purposes was warranted by certain factors, including: 1) the potential to facilitate up-sell and
cross-sell opportunities for our products with that of Inolase; 2) the potential to exploit reduced pain applications across our existing and future products; and 3) the
potential to leverage Inolase intellectual property into home use applications.

7. Marketable Securities

The Company accounts for marketable securities in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities. SFAS 115 establishes the accounting and reporting requirements for all debt securities and for investments in equity securities that have readily
determinable fair values. All marketable securities must be classified as one of the following: held-to-maturity, available-for-sale, or trading. The
Company classifies its marketable debt securities as held-to-maturity as the Company has the intent and ability to hold them to maturity. The Company has classified its equity
investments as available-for-sale securities. Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a
separate component of shareholders' equity. Held-to-maturity debt securities are reported at amortized cost which approximates fair value. Current marketable securities include
debt investments with original maturities that are expected to mature in more than three months and up to twelve months and equity investments. Long-term marketable securities include debt
securities that have remaining maturities of one to three years. Unrealized losses related to the held-to-maturity securities are not considered a permanent decline in the
market value of such securities.

11

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Marketable
securities consist of the following:

|                                        |                              | September 29, 2007 |        | June 30, 2007 |  
|--------------------------------------- | ---------------------------- | ------------------ | ------ | ------------- | -
|
|Short-term (Held-to-maturity):          |                              |                    |        |               |  
|                                        | Government-backed securities |                    | $      | 9,999         |  
|                                        | Certificates of deposit      |                    |        | 4,197         |  
|                                        |                              |                    |        |               |  
|                                        |                              |                    | 14,196 |               |  
|Short-term (Available-for-sale):        |                              |                    |        |               |  
|                                        | Equity investments           |                    |        | 756           |  
|                                        |                              |                    |        |               |  
|Total marketable securities, short-term |                              | $                  | 14,952 |               | $
|                                        |                              |                    |        |               |  
|Long-term (Held-to-maturity):           |                              |                    |        |               |  
|                                        | Government-backed securities |                    | $      | 7,995         |  
|                                        | Certificates of deposit      |                    |        | 1,427         |  
|                                        |                              |                    |        |               |  
|Total marketable securities, long-term  |                              | $                  | 9,422  |               | $
|                                        |                              |                    |        |               |  

There were no material realized gains or losses for the three months ended September 29, 2007.

8. Inventories

Inventories consist of the following:

(in thousands)

September 29,
2007

June 30,
2007Raw materials

$
7,473

$
8,377Work in process


1,922


2,657Finished goods


13,067


10,334$
22,462

$
21,368


9. Property and Equipment

Property and equipment consists of the following:

(in thousands)

September 29,
2007

June 30,
2007Leasehold improvements

$
1,014

$
1,014Office furniture


661


662Computers, software, and other equipment


10,821


10,044$
12,496

$
11,720Less: accumulated depreciation


(8,514
)

(8,241
)Property and equipment, net

$
3,982

$
3,479


Depreciation
expense was approximately $0.3 million and $0.2 million for the three-month periods ended September 29, 2007 and September 30, 2006,
respectively.

12

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10.   Goodwill and Acquired Intangible Assets



(in thousands)

September 29,
2007

June 30,
2007Goodwill

$
10,997

$
10,997Intangible assets with finite lives:Patents

$
2,879

$
2,804Developed technology


6,009


6,0098,888


8,813Less: accumulated amortization


(1,056
)

(662
)$
7,832

$
8,151


11.   Derivative Instruments and Hedging Activity



12.   Warranty Reserve



(in thousands)

September 29,
2007

September 30,
2006Beginning balance

$
7,613

$
9,630Incremental accruals on current sales


1,173


1,828Amortization of prior-period accruals


(2,031
)

(1,966
)Ending balance

$
6,755

$
9,492


13

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13.   Deferred Revenue



(in thousands)

September 29,
2007

September 30,
2006Beginning balance

$
13,751

$
10,329Deferral of new sales


5,189


2,316Recognition of previously deferred revenue


(4,209
)

(2,541
)Ending balance

$
14,731

$
10,104


14.   Common Stock Buyback



15.   Commitments and Contingencies



16.   Income Taxes



14

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17.   Legal Proceedings



15

---







18.   Other Income



16

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CANDELA CORPORATION

Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates and judgments 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 on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments under different assumptions or
conditions. A discussion of our critical accounting policies and the related estimates and judgments affecting the preparation of our consolidated financial statements is included in our Annual Report
on Form 10-K for fiscal year 2007.

On
July 1, 2007, we adopted Financial Accounting Standards Board, ("FASB") Interpretation No. 48, ("FIN 48"),Accounting for Uncertainty in
Income Taxes, as discussed more fully below. Other than this change, there have been no significant changes in our significant accounting policies during the three months ended
September 29, 2007 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

We
adopted the provisions of FIN 48 effective July 1, 2007. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition.

FIN 48
prescribes a two-step process to determine the amount of tax benefit to be recognized. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes,
if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult
and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This
evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such

17

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a
change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159,The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115. SFAS No. 159 permits companies to choose to measure certain financial
instruments and certain
other items at fair value and requires unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. We are currently in the process of evaluating the impact of SFAS No. 159 on our consolidated financial statements.

In
March 2006, the FASB issued Emerging Issues Task Force ("EITF") Issue 06-03,How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement("EITF 06-03"). Pursuant to this issue we elected to present taxes collected from customers and remitted to
governmental authorities net in our financial statements. This treatment is consistent with our historical presentation. EITF 06-03 is effective for interim and annual reporting periods
beginning after December 15, 2006, with earlier application permitted. The adoption of EITF 06-03 did not have any measurable impact on our consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements,which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for our fiscal year 2009. We are
currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements; the impact is not expected to be material.

Results of Operations

Revenue

Revenue source by geographic region is reflected in the following table:

For the three months ended:(in thousands)

September 29,
2007

September 30,
2006

Increase (Decrease)U.S.

$
16,730

47
%
$
15,845

47
%
$
885

6
%All other countries


18,743

53
%

17,629

53
%

1,114

6
%Total worldwide revenue

$
35,473

100
%
$
33,474

100
%
$
1,999

6
%


Consolidated
revenue was $35.5 million for the three-month period ended September 29, 2007 compared to $33.5 million for the three-month period ended
September 30, 2006. The increase of $2.0 million was due primarily to the increase in demand for our products and related service in the US and Europe, coupled with the sales of the new
products recently introduced.

U.S.
revenue increased to $16.7 million for the three-month period ended September 29, 2007 from $15.8 million for the three-month period ended September 30,
2006. This increase was spread throughout all regions of the country and was generated primarily by the new products that have been recently introduced.

Foreign
revenue accounted for approximately 53% of the consolidated revenue for the three-month period ended September 29, 2007. The increase of 6% to $18.7 million for the
three-month

18

---



period
ended September 29, 2007, as compared to the three-month period ended September 30, 2006, was comprised of a $3.0 million increase in Europe combined with a
$0.6 million increase in Asia, offset by a $2.7 million decrease in Latin America. The increase in Europe was due to the continued strong growth in the region across all product lines.
The decrease in Latin America was primarily attributable to delays in customer orders related to the pending World Congress trade show that was held in Buenos Aires. We believe that many customers
delayed their buying decisions until this significant regional trade show was held subsequent to the close of our first fiscal quarter.

Revenue
source by type is reflected in the following table:

For the three months ended:(in thousands)

September 29,
2007

September 30,
2006

Increase (Decrease)Lasers and other products

$
26,824

76
%
$
25,889

77
%
$
935

4
%Product-related services


8,649

24
%

7,585

23
%

1,065

14
%Total revenue

$
35,473

100
%
$
33,474

100
%
$
2,000

6
%


The
increase in revenue from lasers and other products for the three-month period ended September 29, 2007, compared to the three-month period ended September 30, 2006,
resulted primarily from the introduction of the new products offset by decreases in the legacy products.

Product-related
services increased approximately $1.1 million or 14% in the three-month period ended September 29, 2007 as compared to the same period ended
September 30, 2006. The increase is primarily related to the increase in the number of service-related contracts sold in addition to an increase in the number of consumables and accessories
sold to support our installed base.

Gross Profit.Gross profit was approximately $17.3 million or 49% for the three-month period
ended September 29, 2007 compared to $17.4 million or 52% for the three-month period ended September 30, 2006. The changes in gross profit for the three-month period ended
September 29, 2007 as compared to the same period in the previous fiscal year is principally related to overall sales volume and product mix.

Selling, General and Administrative Expense.Selling, general and administrative expenses increased
to approximately $15.0 million for the three-month period ended September 29, 2007 from approximately $11.1 million for the three-month period ended September 30, 2006. As
a percentage of revenue, selling, general and administrative expenses increased to 42% from 33% of revenues from the comparative prior year period. The increase was primarily due to legal fees related
to the Palomar litigation and to increased personnel-related expenses.

Research and Development Expense.Research and development spending decreased to $3.0 million
for the three-month period ended September 29, 2007, from $3.6 million for the comparative period due primarily to the recently-completed new product introduction plan. These expenses
are expected to increase in future periods, however, as the Company transitions to new projects.

Other Income/Expense.Other income decreased to $1.2 million for the three-months ended
September 29, 2007, from $4.3 million for the three-months ended September 30, 2006. This decrease is primarily due to the recognition of a non-recurring gain on the
exchange of an investment in common stock in the first quarter of fiscal 2007 combined with a decrease in interest income earned during the first quarter of fiscal 2008.

During
the three-month period ended September 30, 2006, the Company recognized a $3.5 million gain on the initial exchange of common stock of Solx Inc. for cash and
common stock of OccuLogix, Inc. During the three-month period ended September 29, 2007, the Company recognized a

19

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gain
of approximately $0.6 million on the actual receipt of additional contingent cash consideration from OccuLogix, Inc. related to its merger agreement with Solx, Inc.

The
above-referenced gains were the result of the acquisition of Solx Inc., a privately-held company, by OccuLogix, Inc., a publicly traded company. Candela
held 19.99% of the outstanding common stock of Solx Inc. prior to the merger, on an as-converted basis, with an associated book value of $0.

The
decrease in interest income earned during the three-month period ended September 29, 2007, as compared to the same period in the prior fiscal year, is primarily related to a
decrease in cash and cash equivalents. During the trailing twelve-month period ended September 29, 2007, the Company used its cash to repurchase approximately $3.6 million of its own
stock and to acquire Inolase (Note 6) for approximately $16.8 million.

Income Taxes.The provision for income taxes results from a combination of activities of the Company
and its domestic and foreign subsidiaries. We recorded effective tax rates of approximately 34% and 37% for each of the three-month periods ended September 29, 2007 and September 30,
2006, respectively. The Company also recorded a discrete tax expense item of approximately $0.1 million during the three-month period ended September 29, 2007 resulting from a change in
the statutory tax rate in Germany. The affect of the change in the German statutory rate on current earnings is fully reflected in our effective tax rate indicated above.

Liquidity and Capital Resources

Our cash and cash equivalents and our investment in short and long-term marketable securities at September 29, 2007 totaled approximately
$45.2 million compared with approximately $51.2 million at June 30, 2007. We continue to have no long-term debt. We believe that the combination of existing cash and
cash equivalents, and marketable securities on hand, along with cash to be generated by future operations and amounts available under our line of credit, will be sufficient to meet our ongoing
operating and capital expenditure requirements for the foreseeable future. However, we cannot be sure that we will not require additional capital beyond the amounts currently forecasted by us, or that
any such required additional capital will be available on reasonable terms, if at all, as it becomes required.

Cash
used by operating activities amounted to approximately $1.1 million for the three-month period ended September 29, 2007 as compared to approximately
$5.4 million for the same period in the prior year. The decrease in cash used by operating activities is attributable to changes in operating asset and liability accounts in the normal course
of business and is not attributable to any single or identifiable event.

Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements consist of non-cancelable operating leases entered into in the ordinary course of business and the
license agreement with the Regents. The table below in the next section titled "Contractual Obligations" shows the amounts of our operating lease commitments and purchase commitments payable by year.

20

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Contractual Obligations

Outstanding contractual obligations of the Company are reflected in the following table:

(in thousands)

Total

Less than
1 year

1-3 years

3-5 years

After
5 yearsRoyalty commitments

$
4,250

$
1,000

$
2,000

$
500

$
750Operating leases


3,007


1,604


1,257


146


Total contractual obligations

$
7,257

$
2,604

$
3,257

$
646

$
750


Cautionary Statements

Certain statements contained herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995
("Reform Act"). We may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In
addition, our representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects," and similar
expressions, may identify such forward-looking statements. Such forward-looking statements include but are not limited to: that we have the necessary infrastructure in place to capitalize on
expansion; the affordability of our products will allow for expansion; that we can lower production costs; or that the market will expand beyond baby boomers. We assume no obligation to update or
revise any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties that may affect forward-looking statements and/or our business
include, among others, those discussed in "Cautionary Statements" in our Annual Report filed on Form 10-K for the fiscal year ended June 30, 2007, as well as other risks and
uncertainties referenced in this Quarterly Report on Form 10-Q, and the following:



21

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We
caution readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

22

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Item 3Quantitative and Qualitative Disclosures about Market Risk

We have cash equivalents and marketable securities that consist of money market mutual funds, certificates of deposit, US government securities, fixed income
corporate securities and equity investments. The majority of these investments have maturities within one to three years. We believe that our exposure to interest rate risk is minimal due to the term
and type of our investments and
those fluctuations in interest rates would not have a material adverse effect on our results of operations.

We
have international subsidiaries that transact business in both local and 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. 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. Unrealized gains and losses on open contracts at the end of each period, resulting from changes in the fair value of these contracts, are recognized in other comprehensive income in the
same period as exchange gains and losses on the underlying foreign denominated receivables. We do not engage in foreign currency speculation.

We
had two forward exchange contracts outstanding serving as hedges of our Euro-denominated intercompany receivables at September 29, 2007. These contracts serve as
hedges of a substantial portion of our foreign currency denominated intercompany balances. Any gains and losses on the fair value of the derivative contract would be largely offset by losses and gains
on the underlying transaction.

Item 4Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Principal Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of
September 29, 2007, the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer
have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective in gathering, analyzing and disclosing information needed to
satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting that occurred during the quarter ended September 29, 2007 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

23

---





CANDELA CORPORATION

Part II. Other Information

Item 1Legal Proceedings

The Company is currently involved in three litigation matters with Palomar Medical Technologies, Inc. ("Palomar").



24

---





While
the Company intends to vigorously contest Palomar's allegations, and to pursue its own claims against Palomar, each lawsuit is inherently uncertain and unpredictable as to its
ultimate outcome. An adverse outcome in Palomar's suit against the Company would materially hurt the Company's business, financial condition, results of operations and cash flows. In contrast, an
adverse outcome in either of the two lawsuits which the Company has initiated against Palomar would not likely have a material adverse effect on the business or financial condition of the Company.

From
time to time, the Company is party to various legal proceedings incidental to its business. The Company believes that none of the legal proceedings, other than the lawsuit initiated
by Palomar, that are presently pending, if adversely decided against us, will have a material adverse effect upon the Company's financial position, results of operations, or liquidity.

25

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Item 6Exhibits

|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

26

---





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                                                                                
|---------------------- | ---------------------------------------------------------------------------------------------------
|Date: November 7, 2007 | /s/ROBERT E. QUINNRobert E. Quinn (Treasurer, Corporate Controller and
Principal Financial Officer)

27

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Candela Corporation

INDEX TO EXHIBITS

|Exhibit No.  |  | Description                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|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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