##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 ________________
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from            to
 Commission File Number 000-51623
 Cynosure, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    04-3125110(State or other jurisdiction
incorporation or organization)
    
    (I.R.S. Employer of
Identification No.)5 Carlisle Road
Westford, MA(Address of principal executive offices)
    
    01886(Zip code)
 (978) 256-4200
 R £
  £ R £
 £ R
  Class
    
    Number of SharesClass A Common Stock, $0.001 par value
    
    
    6,513,641Class B Common Stock, $0.001 par value
    
    
    4,606,041




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##### Table of Contents



Cynosure, Inc.
 Table of Contents
 Page No.PART I  Financial InformationItem 1.Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Income for the Three and Six Month Periods Ended June 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.Controls and Procedures
    
    
    25PART II  Other InformationItem 1.Legal Proceedings
    
    
    25Item 1A.Risk Factors
    
    
    26Item 4.Submission of Matters to a Vote of Security Holders
    
    
    39Item 5.Other Information
    
    
    40Item 6.Exhibits
    
    
    40SIGNATURES
    
    
    41EX-10.1 Form of Nonstatutory Stock Option AgreementEX-10.2 Form of Incentive Stock Option AgreementEX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
 2




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##### Table of Contents



Cynosure, Inc.
 
 Consolidated Balance Sheets
 (Unaudited, in thousands, except per share data)
 June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,734
    
    
    $
    64,646Marketable securities
    
    
    55,664
    
    
    
    Accounts receivable, net
    
    
    15,413
    
    
    
    13,552Amounts due from related parties (Note 11)
    
    
    122
    
    
    
    72Inventories
    
    
    16,887
    
    
    
    14,140Prepaid expenses and other current assets
    
    
    1,269
    
    
    
    737Deferred income taxes
    
    
    2,366
    
    
    
    1,804Total current assets
    
    
    98,455
    
    
    
    94,951Property and equipment, net
    
    
    4,753
    
    
    
    4,424Other assets
    
    
    777
    
    
    
    793Total assets
    
    $
    103,985
    
    
    $
    100,168Liabilities and Stockholders EquityCurrent liabilities:Short-term loan
    
    $
    163
    
    
    $
    161Accounts payable
    
    
    4,467
    
    
    
    3,509Amounts due to related party (Note 11)
    
    
    1,244
    
    
    
    960Accrued expenses
    
    
    7,596
    
    
    
    7,173Deferred revenue
    
    
    2,207
    
    
    
    3,626Capital lease obligation
    
    
    376
    
    
    
    295Total current liabilities
    
    
    16,053
    
    
    
    15,724Capital lease obligation, net of current portion
    
    
    910
    
    
    
    814Deferred revenue, net of current portion
    
    
    189
    
    
    
    123Other noncurrent liability
    
    
    84
    
    
    
    42Minority interest in consolidated subsidiary
    
    
    341
    
    
    
    314Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.001 par valueAuthorized
 5,000 sharesIssued  none
    
    
    
    
    
    
    Class A and Class B common stock, $0.001 par valueAuthorized  70,000 sharesIssued  11,113 and 11,065 shares as of June 30, 2006 and December 31, 2005, respectively
    
    
    11
    
    
    
    11Additional paid-in capital
    
    
    78,731
    
    
    
    79,070Retained earnings
    
    
    8,537
    
    
    
    6,470Deferred stock-based compensation
    
    
    
    
    
    
    (1,426
    )Accumulated other comprehensive loss
    
    
    (584
    )
    
    
    (687
    )Treasury stock, 36 shares, at cost
    
    
    (287
    )
    
    
    (287
    )Total stockholders equity
    
    
    86,408
    
    
    
    83,151Total liabilities and stockholders equity
    
    $
    103,985
    
    
    $
    100,168
  3




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##### Table of Contents



Cynosure, Inc.
 
 Consolidated Statements of Income
 (Unaudited, in thousands, except per share data)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    18,131
    
    
    $
    12,971
    
    
    $
    35,270
    
    
    $
    25,080Cost of revenues (1)
    
    
    7,541
    
    
    
    6,014
    
    
    
    15,573
    
    
    
    11,632Gross profit
    
    
    10,590
    
    
    
    6,957
    
    
    
    19,697
    
    
    
    13,448Operating expenses (1):Sales and marketing
    
    
    6,149
    
    
    
    4,400
    
    
    
    11,607
    
    
    
    8,266Research and development
    
    
    1,039
    
    
    
    666
    
    
    
    2,248
    
    
    
    1,529General and administrative
    
    
    2,031
    
    
    
    1,193
    
    
    
    4,177
    
    
    
    2,385Total operating expenses
    
    
    9,219
    
    
    
    6,259
    
    
    
    18,032
    
    
    
    12,180Income from operations
    
    
    1,371
    
    
    
    698
    
    
    
    1,665
    
    
    
    1,268Interest income (expense), net
    
    
    731
    
    
    
    (34
    )
    
    
    1,383
    
    
    
    (45
    )Other income (expense), net
    
    
    276
    
    
    
    (146
    )
    
    
    406
    
    
    
    (281
    )Income before provision for income taxes and minority interest
    
    
    2,378
    
    
    
    518
    
    
    
    3,454
    
    
    
    942Provision for income taxes
    
    
    915
    
    
    
    211
    
    
    
    1,351
    
    
    
    383Minority interest in net income of subsidiary
    
    
    22
    
    
    
    16
    
    
    
    36
    
    
    
    35Net income
    
    $
    1,441
    
    
    $
    291
    
    
    $
    2,067
    
    
    $
    524Basic net income per share
    
    $
    0.13
    
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.08Diluted net income per share
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    0.17
    
    
    $
    0.07Basic weighted average common shares outstanding
    
    
    11,044
    
    
    
    6,209
    
    
    
    11,038
    
    
    
    6,226Diluted weighted average common shares outstanding
    
    
    12,138
    
    
    
    7,433
    
    
    
    12,158
    
    
    
    7,234
 
 (1)
    
    Stock-based compensation is attributable to the following categories: Cost of revenues
    
    $
    19
    
    
    $
    13
    
    
    $
    25
    
    
    $
    13Sales and marketing
    
    
    168
    
    
    
    219
    
    
    
    242
    
    
    
    219Research and development
    
    
    58
    
    
    
    5
    
    
    
    126
    
    
    
    5General and administrative
    
    
    247
    
    
    
    21
    
    
    
    397
    
    
    
    21Total stock-based compensation
    
    $
    492
    
    
    $
    258
    
    
    $
    790
    
    
    $
    258
  4




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Cynosure, Inc.
 
 Consolidated Statements of Cash Flow
 (Unaudited, in thousands)
 Six Months EndedJune 30,2006
    
    
    2005Operating activities:Net income
    
    $
    2,067
    
    
    $
    524Reconciliation of net income to net cash used in operating activities:Depreciation and amortization
    
    
    991
    
    
    
    823Stock-based compensation expense
    
    
    790
    
    
    
    258Accretion of discounts on marketable securities
    
    
    (446
    )
    
    
    Deferred income taxes
    
    
    (546
    )
    
    
    Minority interest in consolidated subsidiary
    
    
    27
    
    
    
    32Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,611
    )
    
    
    (1,674
    )Due from related party
    
    
    (50
    )
    
    
    (38
    )Inventories
    
    
    (2,516
    )
    
    
    (2,097
    )Net book value of demonstration inventory sold
    
    
    108
    
    
    
    210Prepaid expenses and other current assets
    
    
    (529
    )
    
    
    (265
    )Accounts payable
    
    
    927
    
    
    
    853Due to related party
    
    
    279
    
    
    
    743Accrued expenses
    
    
    482
    
    
    
    481Deferred revenue
    
    
    (1,404
    )
    
    
    93Other noncurrent liability
    
    
    42
    
    
    
    Net cash used in operating activities
    
    
    (1,389
    )
    
    
    (57
    )Investing activities:Purchases of property and equipment
    
    
    (1,042
    )
    
    
    (1,248
    )Proceeds from the sales and maturities of marketable securities
    
    
    66,152
    
    
    
    250Purchases of marketable securities
    
    
    (121,416
    )
    
    
    Increase in other assets
    
    
    (8
    )
    
    
    (215
    )Net cash used in investing activities
    
    
    (56,314
    )
    
    
    (1,213
    )Financing activities:Payments on short term loan and note payable to related party
    
    
    
    
    
    
    (12
    )Tax benefits related to stock options
    
    
    164
    
    
    
    Proceeds from exercise of stock options
    
    
    158
    
    
    
    Proceeds from sale of common stock
    
    
    
    
    
    
    1,485Repurchase of common stock
    
    
    
    
    
    
    (1,485
    )Payments received on stockholder notes
    
    
    
    
    
    
    3Payments of initial public offering costs
    
    
    (38
    )
    
    
    Payments on capital lease obligation
    
    
    (171
    )
    
    
    (94
    )Net cash provided by (used in) financing activities
    
    
    113
    
    
    
    (103
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (322
    )
    
    
    543Net decrease in cash and cash equivalents
    
    
    (57,912
    )
    
    
    (830
    )Cash and cash equivalents, beginning of the period
    
    
    64,646
    
    
    
    4,028Cash and cash equivalents, end of the period
    
    $
    6,734
    
    
    $
    3,198Supplemental cash flow informationCash paid for interest
    
    $
    53
    
    
    $
    38Cash paid
for income taxes
    
    $
    1,081
    
    
    $
    Supplemental noncash investing and financing activitiesAssets acquired under capital lease
    
    $
    345
    
    
    $
    455Deferred compensation associated with stock option grants to employees
    
    $
    
    
    
    $
    1,690Proceeds from the sale of investment held in escrow
    
    $
    
    
    
    $
    250
  5




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Cynosure, Inc.
 
 Notes to Consolidated Financial Statements
 Note 1  Interim Consolidated Financial Statements
  Note 2  Stock-Based Compensation
  Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
  Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006(in thousands)Cost of revenues
    
    $
    19
    
    
    $
    25Research and development
    
    
    168
    
    
    
    242Selling and marketing
    
    
    58
    
    
    
    126General and administrative
    
    
    247
    
    
    
    397$
    492
    
    
    $
    790
  6




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Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005(in thousands except per share data)Net income as reported
    
    $
    291
    
    
    $
    524Add: Stock-based employee
compensation expense included in
determination of net income, net
of related tax effects
    
    
    34
    
    
    
    34Less: Stock-based employee
compensation determined under
the fair value based method, net
of related tax effects
    
    
    (179
    )
    
    
    (268
    )Net income  pro forma
    
    $
    146
    
    
    $
    290Income per common equivalent share:Basic  as reported
    
    $
    0.05
    
    
    $
    0.08Diluted  as reported
    
    $
    0.04
    
    
    $
    0.07Basic  pro forma
    
    $
    0.02
    
    
    $
    0.05Diluted  pro forma
    
    $
    0.02
    
    
    $
    0.04
  Six Months EndedJune 30,2006Risk-free interest
rate
    
    
    5.00
    %Expected dividend yield
    
    
    Expected lives
    
    5.8 yearsExpected volatility
    
    
    82
    %
  7




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##### Table of Contents



Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Per Share
    
    
    Average
    
    
    Contractual
    
    
    Intrinsicof Shares
    
    
    Exercise Price
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at December 31, 2005
    
    
    1,821
    
    
    $
    3.00-$15.00
    
    
    $
    3.46Granted
    
    
    242
    
    
    
    15.84-17.45
    
    
    
    17.38Exercised
    
    
    (47
    )
    
    
    3.00-4.50
    
    
    
    3.29
    
    
    
    
    
    
    $
    479Forfeited
    
    
    (29
    )
    
    
    3.00-17.45
    
    
    
    6.07Outstanding at June 30, 2006
    
    
    1,987
    
    
    $
    3.00-$17.45
    
    
    $
    5.12
    
    
    
    8.5
    
    
    $
    18,967Exercisable at June 30, 2006
    
    
    763
    
    
    $
    3.00-$17.45
    
    
    $
    3.29
    
    
    
    8.2
    
    
    $
    8,412Vested and expected to vest at June 30, 2006(1)
    
    
    1,973
    
    
    $
    3.00-$15.00
    
    
    $
    5.12
    
    
    
    
    
    
    $
    18,109Available for grant at June 30, 2006
    
    
    300
 
 (1)
    
    This represents the number of vested options as of June 30, 2006 plus the number of unvested
options expected to vest as of June 30, 2006 based on the unvested outstanding options at June
30, 2006 adjusted for the estimated annual forfeiture rate of 1.0%.  Weighted-AverageOptions
    
    Remaining
    
    OptionsOutstanding
    
    Contractual Life
    
    ExercisableExercise Price$3.00
    
    
    1,337
    
    
    
    8.28
    
    
    
    623$3.25
    
    
    28
    
    
    
    3.91
    
    
    
    28$3.50
    
    
    4
    
    
    
    5.34
    
    
    
    4$4.00
    
    
    6
    
    
    
    3.33
    
    
    
    6$4.50
    
    
    351
    
    
    
    8.88
    
    
    
    98$15.00
    
    
    24
    
    
    
    9.44
    
    
    
    0$15.84
    
    
    10
    
    
    
    9.88
    
    
    
    0$17.54
    
    
    227
    
    
    
    9.86
    
    
    
    41,987
    
    
    
    8.51
    
    
    
    763
 Note 3  Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005(in thousands)Raw materials
    
    $
    1,862
    
    
    $
    2,579Work in process
    
    
    970
    
    
    
    2,259Finished goods
    
    
    14,055
    
    
    
    9,302$
    16,887
    
    
    $
    14,140
 Note 4  Marketable Securities
 Accounting for Certain
Investments in Debt and Equity Securities
 8




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Market
    
    
    Amortized
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Cost
    
    
    Gains
    
    
    LossesCorporate bonds
    
    $
    27,360
    
    
    $
    27,401
    
    
    $
    1
    
    
    $
    42State and municipal bonds
    
    
    21,250
    
    
    
    21,250
    
    
    
    
    
    
    
    Federal agency obligations
    
    
    5,503
    
    
    
    5,505
    
    
    
    
    
    
    
    2Certificates of deposit
    
    
    1,551
    
    
    
    1,555
    
    
    
    
    
    
    
    4$
    55,664
    
    
    $
    55,711
    
    
    $
    1
    
    
    $
    48
  MaturitiesTotal
    
    
    Less Than One Year
    
    
    One to Two YearsCorporate bonds
    
    $
    27,360
    
    
    $
    26,536
    
    
    $
    824State and municipal bonds
    
    
    21,250
    
    
    
    21,250
    
    
    
    Federal agency obligations
    
    
    5,503
    
    
    
    5,503
    
    
    
    Certificates of deposit
    
    
    1,551
    
    
    
    1,551
    
    
    
    $
    55,664
    
    
    $
    54,840
    
    
    $
    824
 Note 5  Warranty Costs
   June 30,2006(in thousands)Warranty accrual, beginning of period
    
    $
    2,265Charged to costs and expenses relating to new sales
    
    
    1,672Costs incurred
    
    
    (1,077
    )Warranty accrual, end of period
    
    $
    2,860
 Note 6  Segment Information
 Disclosures about
Segments of an Enterprise and Related Information
 9




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)United States
    
    $
    9,625
    
    
    $
    6,271
    
    
    $
    19,203
    
    
    $
    12,119Europe
    
    
    3,936
    
    
    
    3,353
    
    
    
    8,937
    
    
    
    6,125Asia / Pacific
    
    
    2,476
    
    
    
    1,547
    
    
    
    3,875
    
    
    
    3,118Other
    
    
    2,094
    
    
    
    1,800
    
    
    
    3,255
    
    
    
    3,718Total
    
    $
    18,131
    
    
    $
    12,971
    
    
    $
    35,270
    
    
    $
    25,080
  June 30,
    
    
    December 31,2006
    
    
    2005(in thousands)United States
    
    $
    88,500
    
    
    $
    86,323Europe
    
    
    (546
    )
    
    
    (1,812
    )Asia / Pacific
    
    
    (115
    )
    
    
    (264
    )Eliminations
    
    
    (1,431
    )
    
    
    (1,096
    )Total
    
    $
    86,408
    
    
    $
    83,151
  June 30,
    
    
    December 31,2006
    
    
    2005(in thousands)United States
    
    $
    5,869
    
    
    $
    5,488Europe
    
    
    224
    
    
    
    278Asia / Pacific
    
    
    110
    
    
    
    124Eliminations
    
    
    (673
    )
    
    
    (673
    )Total
    
    $
    5,530
    
    
    $
    5,217
  Note 7  Net Income Per Common Share
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005(in thousands)Basic weighted average number of shares outstanding
    
    
    11,044
    
    
    
    6,209
    
    
    
    11,038
    
    
    
    6,226Potential common shares pursuant to stock options
    
    
    1,094
    
    
    
    1,224
    
    
    
    1,120
    
    
    
    1,008Diluted weighted average number of shares outstanding
    
    
    12,138
    
    
    
    7,433
    
    
    
    12,158
    
    
    
    7,234
  10




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Note 8  Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Cumulative translation adjustment, net of tax
    
    $
    25
    
    
    $
    195
    
    
    $
    (95
    )
    
    $
    88Unrealized loss on marketable securities, net of tax
    
    
    (28
    )
    
    
    
    
    
    
    (32
    )
    
    
    Total other comprehensive (loss) income
    
    
    (3
    )
    
    
    195
    
    
    
    (127
    )
    
    
    88Reported net income
    
    
    1,441
    
    
    
    291
    
    
    
    2,067
    
    
    
    524Total comprehensive income
    
    $
    1,438
    
    
    $
    486
    
    
    $
    1,940
    
    
    $
    612
 Note 9  Litigation
      11




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Note 10  Sona MedSpa
    Note 11  Related Party Transactions
   12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking statements
  
    
    our ability to identify and penetrate new markets for our products and technology;
    
    our ability to innovate, develop and commercialize new products;
    
    our ability to obtain and maintain regulatory clearances;
    
    our sales and marketing capabilities and strategy in the United States and internationally;
    
    our intellectual property portfolio; and
    
    our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.
   The following discussion should be read in conjunction with, and is qualified in its entirety
by, the condensed consolidated financial statements and notes thereto included in Item 1 of this
Quarterly Report and the condensed consolidated financial statements and notes thereto and
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K filed with the SEC on March 27, 2006. Historical results and percentage
relationships among any amounts in the financial statements are not necessarily indicative of
trends in operating results for any future periods.
 Company Overview
   
    
    redesigning many of our existing products;
    
    introducing innovative new products and technologies;
 13




---



##### Table of Contents




    
    streamlining and rationalizing our manufacturing processes;
    
    reorganizing and expanding our research and development, sales and marketing and distribution capabilities; and
    
    enhancing our customer service network.
  
    
    the Apogee Elitesystem, our flagship product for hair removal, in March 2004;
    
    the Cynergysystem, our flagship product for the treatment of vascular lesions, in October 2005;
    
    the TriActive LaserDermologysystem, our flagship product for the temporary reduction of
the appearance of cellulite, in February 2004;
    
    the Affirmsystem, our flagship product for skin rejuvenation, including treatments for
wrinkles, skin texture, skin discoloration and skin tightening, in April 2006, which we
expect to begin delivery of in the third quarter of 2006; and
    
    the PhotoSilk Plussystem for skin rejuvenation through the treatment of shallow vascular
lesions and pigmented lesions which was introduced in 2005.
   CynosureSpa
 Apogee, Cynergy,
Acclaim VStar
  Financial Operations Overview
 Revenues
  14




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##### Table of Contents



Percentage of RevenuesSix Months Ended June 30,Region
    
    2006
    
    2005North America
    
    
    57
    %
    
    
    57
    %Europe
    
    
    25
    
    
    
    24Asia/Pacific
    
    
    12
    
    
    
    13Other
    
    
    6
    
    
    
    6Total
    
    
    100
    %
    
    
    100
    %
  Cost of Revenues
  Sales and Marketing Expenses
  Research and Development Expenses
  General and Administrative Expenses
  Interest Income (Expense), net
  15




---



##### Table of Contents



Provision for Income Taxes
  Results of operations
 THREE MONTHS ENDED JUNE 30, 2006 AND 2005
  Three Months EndedJune 30,2006
    
    
    2005As a % of
    
    
    
    
    
    
    As a % ofTotal
    
    
    
    
    
    
    Total
    
    
    $
    
    
    %Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Change
    
    
    ChangeRevenues
    
    $
    18,131
    
    
    
    100
    %
    
    $
    12,971
    
    
    
    100
    %
    
    $
    5,160
    
    
    
    40
    %Cost of revenues
    
    
    7,541
    
    
    
    42
    
    
    
    6,014
    
    
    
    46
    
    
    
    1,527
    
    
    
    25Gross profit
    
    
    10,590
    
    
    
    58
    
    
    
    6,957
    
    
    
    54
    
    
    
    3,633
    
    
    
    52Operating expensesSales and marketing
    
    
    6,149
    
    
    
    34
    
    
    
    4,400
    
    
    
    34
    
    
    
    1,749
    
    
    
    40Research and development
    
    
    1,039
    
    
    
    6
    
    
    
    666
    
    
    
    5
    
    
    
    373
    
    
    
    56General and administrative
    
    
    2,031
    
    
    
    11
    
    
    
    1,193
    
    
    
    9
    
    
    
    838
    
    
    
    70Total operating expenses
    
    
    9,219
    
    
    
    51
    
    
    
    6,259
    
    
    
    48
    
    
    
    2,960
    
    
    
    47Income from operations
    
    
    1,371
    
    
    
    8
    
    
    
    698
    
    
    
    5
    
    
    
    673
    
    
    
    96Interest income (expense), net
    
    
    731
    
    
    
    4
    
    
    
    (34
    )
    
    
    
    
    
    
    765
    
    
    
    2250Other income (expense), net
    
    
    276
    
    
    
    2
    
    
    
    (146
    )
    
    
    (1
    )
    
    
    422
    
    
    
    289Income before provision for income taxes and minority interest
    
    
    2,378
    
    
    
    13
    
    
    
    518
    
    
    
    4
    
    
    
    1,860
    
    
    
    359Provision for income taxes
    
    
    915
    
    
    
    5
    
    
    
    211
    
    
    
    2
    
    
    
    704
    
    
    
    334Minority interest in net income of subsidiary
    
    
    22
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    6
    
    
    
    38Net income
    
    $
    1,441
    
    
    
    8
    %
    
    $
    291
    
    
    
    2
    %
    
    $
    1,150
    
    
    
    395
    %
 Revenues
  Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeProduct sales in North America
    
    $
    9,276
    
    
    $
    6,051
    
    
    $
    3,225
    
    
    
    53
    %Product sales outside North America
    
    
    6,341
    
    
    
    4,210
    
    
    
    2,131
    
    
    
    51Original equipment manufacturer sales and revenue sharing
    
    
    301
    
    
    
    1,103
    
    
    
    (802
    )
    
    
    (73
    )Parts, accessories and service sales
    
    
    2,213
    
    
    
    1,607
    
    
    
    606
    
    
    
    38Total Revenues
    
    $
    18,131
    
    
    $
    12,971
    
    
    $
    5,160
    
    
    
    40
    %
 
    
    Revenues from the sale of products in North America increased due to an increase in the
number of product units sold, a higher average selling price due to a favorable change in
product mix and from the introduction of new products. The increase in North American
revenues resulted in part from the continued expansion of our North American sales
organization, including the hiring of 23 additional direct sales employees between December
31, 2004 and June 30, 2006.
    
    Revenues from sales of products outside of North America increased mainly attributable to
increased sales of products to distributors in the Far East of
$0.7 million, or 256%, over
the 2005 period and in the Middle East of $0.7 million, or 152%, over the 2005 period.
These increases are also a result of a favorable change in product mix and increased average
selling prices. Additionally, revenues from sales of products to Europe increased of $0.7
million, or 27%, over the 2005 period,
 16




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##### Table of Contents



resulting from a favorable change in product mix and our increased focus on direct selling,
for which we receive higher average selling prices as compared to sales through distributors.
The increase also resulted from the introduction of new products.
 
    
    Revenues from original equipment manufacturer and other relationships and our revenue
sharing arrangement decreased primarily due to a $0.8 million decrease in revenues from our
revenue sharing arrangement with Sona MedSpa which was terminated in June 2006.
    
    Revenues from the sale of parts, accessories and services increased primarily as a result
of the increase in our product sales over the past two years.
 Cost of Revenues
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeCost of revenues (in thousands)
    
    $
    7,541
    
    
    $
    6,014
    
    
    $
    1,527
    
    
    
    25
    %Cost of revenues (as a percentage of total revenues)
    
    
    42
    %
    
    
    46
    %
  Sales and Marketing
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeSales and marketing (in thousands)
    
    $
    6,149
    
    
    $
    4,400
    
    
    $
    1,749
    
    
    
    40
    %Sales and marketing (as a percentage of total revenues)
    
    
    34
    %
    
    
    34
    %
  Research and Development
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeResearch and development (in thousands)
    
    $
    1,039
    
    
    $
    666
    
    
    $
    373
    
    
    
    56
    %Research and development (as a percentage of total revenues)
    
    
    6
    %
    
    
    5
    %
 Affirm
 General and Administrative
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeGeneral and administrative (in thousands)
    
    $
    2,031
    
    
    $
    1,193
    
    
    $
    838
    
    
    
    70
    %General and administrative (as a percentage of total revenues)
    
    
    11
    %
    
    
    9
    %
  17




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##### Table of Contents



Interest Income (Expense), net and Other Income (Expense), net
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeInterest income (expense), net (in thousands)
    
    $
    731
    
    
    $
    (34
    )
    
    $
    765
    
    
    
    2250
    %Other income (expense), net (in thousands)
    
    $
    276
    
    
    $
    (146
    )
    
    $
    422
    
    
    
    289
    %
  Provision for Income Taxes
 Three Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeProvision for income taxes (in thousands)
    
    $
    915
    
    
    $
    211
    
    
    $
    704
    
    
    
    334
    %Provision as a % of income before provision
for income taxes and minority interest
    
    
    38
    %
    
    
    41
    %
  SIX MONTHS ENDED JUNE 30, 2006 AND 2005
  Six Months EndedJune 30,2006
    
    
    2005As a % of
    
    
    
    
    
    
    As a % ofTotal
    
    
    
    
    
    
    Total
    
    
    $
    
    
    %Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Change
    
    
    ChangeRevenues
    
    $
    35,270
    
    
    
    100
    %
    
    $
    25,080
    
    
    
    100
    %
    
    $
    10,190
    
    
    
    41
    %Cost of revenues
    
    
    15,573
    
    
    
    44
    
    
    
    11,632
    
    
    
    46
    
    
    
    3,941
    
    
    
    34Gross profit
    
    
    19,697
    
    
    
    56
    
    
    
    13,448
    
    
    
    54
    
    
    
    6,249
    
    
    
    46Operating expensesSales and marketing
    
    
    11,607
    
    
    
    33
    
    
    
    8,266
    
    
    
    33
    
    
    
    3,341
    
    
    
    40Research and development
    
    
    2,248
    
    
    
    6
    
    
    
    1,529
    
    
    
    6
    
    
    
    719
    
    
    
    47General and administrative
    
    
    4,177
    
    
    
    12
    
    
    
    2,385
    
    
    
    10
    
    
    
    1,792
    
    
    
    75Total operating expenses
    
    
    18,032
    
    
    
    51
    
    
    
    12,180
    
    
    
    49
    
    
    
    5,852
    
    
    
    48Income from operations
    
    
    1,665
    
    
    
    5
    
    
    
    1,268
    
    
    
    5
    
    
    
    397
    
    
    
    31Interest income (expense), net
    
    
    1,383
    
    
    
    4
    
    
    
    (45
    )
    
    
    
    
    
    
    1,428
    
    
    
    3,173Other income (expense), net
    
    
    406
    
    
    
    1
    
    
    
    (281
    )
    
    
    (1
    )
    
    
    687
    
    
    
    244Income before provision for income taxes and minority interest
    
    
    3,454
    
    
    
    10
    
    
    
    942
    
    
    
    4
    
    
    
    2,512
    
    
    
    267Provision for income taxes
    
    
    1,351
    
    
    
    4
    
    
    
    383
    
    
    
    2
    
    
    
    968
    
    
    
    253Minority interest in net income of subsidiary
    
    
    36
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    1
    
    
    
    3Net income
    
    $
    2,067
    
    
    
    6
    %
    
    $
    524
    
    
    
    2
    %
    
    $
    1,543
    
    
    
    294
    %
 Revenues
  18




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##### Table of Contents



Six Months EndedJune 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeProduct sales in North America
    
    $
    18,131
    
    
    $
    11,318
    
    
    $
    6,813
    
    
    
    60
    %Product sales outside North America
    
    
    11,928
    
    
    
    8,235
    
    
    
    3,693
    
    
    
    45Original equipment manufacturer sales and revenue sharing
    
    
    575
    
    
    
    2,110
    
    
    
    (1,535
    )
    
    
    (73
    )Parts, accessories and service sales
    
    
    4,636
    
    
    
    3,417
    
    
    
    1,219
    
    
    
    36Total Revenues
    
    $
    35,270
    
    
    $
    25,080
    
    
    $
    10,190
    
    
    
    41
    %
 
    
    Revenues from the sale of products in North America increased due to an increase in the
number of product units sold, a higher average selling price due to a favorable change in
product mix and from the introduction of new products. The increase in North American
revenues resulted in part from the continued expansion of our North American sales
organization, including the hiring of 23 additional direct sales employees between December
31, 2004 and June 30, 2006.
    
    Revenues from sales of products outside of North America increased mainly attributable to
an increase in sales in Europe of $2.6 million, or 53%, over the 2005 period, resulting from
a favorable change in product mix and our increased focus on direct selling, for which we
receive higher average selling prices as compared to sales through distributors. The
increase also resulted from the introduction of new products. This increase is also due to
an increase in sales of products to distributors in the Middle East of $0.5 million and the
Far East of $0.3 million in the 2006 period as compared to the 2005 period.
    
    Revenues from original equipment manufacturer and other relationships and our revenue
sharing arrangement decreased primarily attributable to a $1.4 million decrease in revenues
from our revenue sharing arrangement with Sona MedSpa which was terminated in June 2006.
    
    Revenues from the sale of parts, accessories and services increased primarily as a result
of the increase in our product sales over the past two years.
 Cost of Revenues
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeCost of revenues (in thousands)
    
    $
    15,573
    
    
    $
    11,632
    
    
    $
    3,941
    
    
    
    34
    %Cost of revenues (as a percentage of total revenues)
    
    
    44
    %
    
    
    46
    %
  Sales and Marketing
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeSales and marketing (in thousands)
    
    $
    11,607
    
    
    $
    8,266
    
    
    $
    3,341
    
    
    
    40
    %Sales and marketing (as a percentage of total revenues)
    
    
    33
    %
    
    
    33
    %
  Research and Development
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeResearch and development (in thousands)
    
    $
    2,248
    
    
    $
    1,529
    
    
    $
    719
    
    
    
    47
    %Research and development (as a percentage of total revenues)
    
    
    6
    %
    
    
    6
    %
 19




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##### Table of Contents



Affirm
 General and Administrative
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeGeneral and administrative (in thousands)
    
    $
    4,177
    
    
    $
    2,385
    
    
    $
    1,792
    
    
    
    75
    %General and administrative (as a percentage of total revenues)
    
    
    12
    %
    
    
    10
    %
  Interest Income (Expense), net and Other Income (Expense), net
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeInterest income (expense), net (in thousands)
    
    $
    1,383
    
    
    $
    (45
    )
    
    $
    1,428
    
    
    
    3173
    %Other income (expense), net (in thousands)
    
    $
    406
    
    
    $
    (281
    )
    
    $
    687
    
    
    
    244
    %
  Provision for Income Taxes
 Six Months EndedJune 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    ChangeProvision for income taxes (in thousands)
    
    $
    1,351
    
    
    $
    383
    
    
    $
    968
    
    
    
    253
    %Provision as a % of income before provision
for income taxes and minority interest
    
    
    39
    %
    
    
    41
    %
  Liquidity and Capital Resources
   20




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##### Table of Contents



Cash Flows
   Critical Accounting Policies and Estimates
   Revenue Recognition and Deferred Revenue
 Revenue Recognition in Financial
Statements,
 
    
    delivery has occurred;
    
    there is persuasive evidence of an agreement;
    
    the fee is fixed or determinable; and
    
    collection is reasonably assured.
 21




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##### Table of Contents



Revenue Arrangements with Multiple Deliverables
 Accounts Receivable and Concentration of Credit Risk
  Inventories and Allowance for Obsolescence
  Product Warranty Costs and Provisions
  Stock-Based Compensation
  22




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##### Table of Contents



Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
  Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006(in thousands)Cost of revenues
    
    $
    19
    
    
    $
    25Research and development
    
    
    168
    
    
    
    242Selling and marketing
    
    
    58
    
    
    
    126General and administrative
    
    
    247
    
    
    
    397$
    492
    
    
    $
    790
   Six Months EndedJune 30,2006Risk-free interest
rate
    
    
    5.00
    %Expected dividend yield
    
    
    Expected lives
    
    5.8 yearsExpected volatility
    
    
    82
    %
  23




---



##### Table of Contents



Income Taxes
 Accounting for Income Taxes
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Sensitivity.
 Foreign Currency Exchange.
 24




---



##### Table of Contents



Item 4. Controls and Procedures
   
 PART II  Other Information
 
 Item 1. Legal Proceedings
     25




---



##### Table of Contents



Item 1A. Risk Factors
  Risks Related to Our Business and Industry
 We have a history of operating losses, and we may not maintain profitability.
  If we fail to obtain Alexandrite rods or our air cooling system from our sole suppliers, our
ability to manufacture and sell our products and components would be impaired.
 Apogee SmartCool SmartCool SmartCool
 SmartCool SmartCool
 We compete against companies that have longer operating histories, more established products and
greater resources than we do, which may prevent us from achieving further market penetration or
improving operating results.
  26




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##### Table of Contents




    
    product performance and design;
    
    ability to sell products tailored to meet the applications needs of clients and patients;
    
    quality of customer support;
    
    product pricing;
    
    product safety;
    
    sales, marketing and distribution capabilities;
    
    success and timing of new product development and introductions; and
    
    intellectual property protection.
   If we do not continue to develop and commercialize new products and identify new markets for our
products and technology, we may not remain competitive, and our revenues and operating results
could suffer.
   
    
    develop or acquire new technologies that either add to or significantly improve our
current products;
    
    convince our target customers that our new products or product upgrades would be
attractive revenue-generating additions to their practices;
    
    sell our products to non-traditional customers, including primary care physicians,
gynecologists and other specialists;
    
    identify new markets and emerging technological trends in our target markets and react
effectively to technological changes; and
    
    maintain effective sales and marketing strategies.
 27




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##### Table of Contents



If our new products do not gain market acceptance, our revenues and operating results could
suffer.
   If demand for our aesthetic treatment systems by non-traditional physician customers and spas does
not develop as we expect, our revenues will suffer and our business will be harmed.
  We rely upon third party suppliers for the components and subassemblies of many of our products,
making us vulnerable to supply shortages and price fluctuations, which could harm our business.
 Apogee, Cynergy,
Acclaim VStar
 We sell our products in numerous international markets. Our operating results may suffer if we are
unable to manage our international operations effectively.
 .
  
    
    foreign certification and regulatory requirements;
    
    difficulties in staffing and managing our foreign operations;
    
    import and export controls; and
    
    political and economic instability.
 Revenue from our international sales could be adversely affected by fluctuations in currency
exchange rates, which would cause our operating results to suffer.
  28




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##### Table of Contents



We rely on third party distributors to market, sell and service a significant portion of our
products. If these distributors do not commit the necessary resources to effectively market, sell
and service our products or if our relationships with these distributors are disrupted, our
business and operating results may be harmed.
  Because we do not require training for users of our products, and sell our products to
non-physicians, there exists an increased potential for misuse of our products, which could harm
our reputation and our business.
  Product liability suits could be brought against us due to a defective design, material or
workmanship or due to misuse of our products. These lawsuits could be expensive and time consuming
and result in substantial damages to us and increases in our insurance rates.
  We may incur substantial expenses if our past practices are shown to have violated the Telephone
Consumer Protection Act.
   29




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##### Table of Contents



Our financial results may fluctuate from quarter to quarter, which makes our results difficult to
predict and could cause our results to fall short of expectations.
  
    
    continued availability of attractive equipment leasing terms for our customers, which may
be negatively influenced by interest rate increases;
    
    increases in the length of our sales cycle; and
    
    reductions in the efficiency of our manufacturing processes.
 If there is not sufficient demand for the procedures performed with our products, practitioner
demand for our products could decline, which would adversely affect our operating results.
  
    
    patient awareness of procedures and treatments;
    
    the cost, safety and effectiveness of the procedure and of alternative treatments;
    
    the success of our and our customers sales and marketing efforts to purchasers of these procedures; and
 30




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##### Table of Contents




    
    consumer confidence, which may be affected by economic and other conditions. If there is
not sufficient demand for the procedures performed with our products, practitioner demand
for our products would be reduced, which would adversely affect our operating results.
    
    If there is not sufficient demand for the procedures performed with our products,
practitioner demand for our products would be reduced, which would adversely affect our
operating results.
 Our business and operations are experiencing rapid growth. If we fail to effectively manage our
growth, our business and operating results could be harmed.
  
    
    implement appropriate operational, financial and management controls, systems and procedures;
    
    expand our manufacturing capacity and scale of production;
    
    expand our sales, marketing and distribution infrastructure and capabilities; and
    
    provide adequate training and supervision to maintain high quality standards.
 We may be unable to attract and retain management and other personnel we need to succeed.
  Any acquisitions that we make could disrupt our business and harm our financial condition.
  El.En. has substantial control over us. In addition, El.En. and our executive officers and
directors have the ability to control all matters submitted to stockholders for approval.
  31




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##### Table of Contents



Provisions in our corporate charter documents and under Delaware law may delay or prevent
attempts by our stockholders to change our management and hinder efforts to acquire a controlling
interest in us.
  
 
 
 
 
 
   Our stock price may be volatile.
  
    
    the success of competitive products or technologies;
    
    regulatory developments in the United States and foreign countries;
    
    developments or disputes concerning patents or other proprietary rights;
    
    the recruitment or departure of key personnel;
    
    variations in our financial results or those of companies that are perceived to be similar to us;
    
    market conditions in the our industry and issuance of new or changed securities analysts reports or recommendations; and
    
    general economic, industry and market conditions.
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A significant portion of our total outstanding shares are restricted from immediate
resale but may be sold into the market in the near future. This could cause the market price of our
class A common stock to drop significantly, even if our business is doing well.
  Risks Related to Our Relationship with El.En.
 El.En. has substantial control over us and could delay or prevent a change of control.
  
    
    to elect a majority of the members of our board of directors;
    
    to approve amendments to our bylaws adopted by our class A and class B stockholders, voting as a single class; and
    
    to approve amendments to any provisions of our restated certificate of incorporation
relating to the rights of holders of common stock, the powers, election and classification
of the board of directors, corporate opportunities and the rights of holders of class A
common stock and class B common stock to elect and remove directors, act by written consent
and call special meetings of stockholders.
   We currently depend on El.En. for our Cynergy PL, PhotoLight, PhotoSilk Plus and TriActive
LaserDermology products. If our distribution agreements with El.En. terminate, we will no longer
be able to sell these products, and our business will be harmed.
 Cynergy PL, PhotoLight,
PhotoSilk Plus TriActive LaserDermology Cynergy PL PhotoLight, PhotoSilk TriActive LaserDermology PhotoLight, PhotoSilk Plus, Cynergy PL TriActive LaserDermology PhotoLight, PhotoSilk Plus TriActive LaserDermology
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El.En. and its subsidiaries market and sell products that compete with our products, and any
competition by El.En. could have a material adverse effect on our business.
 PhotoLight, PhotoSilk Plus TriActive LaserDermology
 Conflicts of interest may arise between us and El.En., and these conflicts might ultimately be
resolved in a manner unfavorable to us.
  
    
    the nature, timing, marketing, distribution and price of our products and El.En.s products that compete with each other;
    
    intellectual property matters; and
    
    business opportunities that may be attractive to both El.En. and us.
  Our class A share price may decline because of future sales of our shares by El.En.
  
    
    up to 33% of the shares of our common stock that it beneficially owned on December 8,
2005, the date of the prospectus relating to our initial public offering, until June 9,
2007; and
    
    up to an additional 33% of the shares of our common stock that it beneficially owned on
December 8, 2005 during the period between June 9, 2007 and December 9, 2007.
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If El.En. sells the shares of our stock held by it and no longer has control over us, our
commercial relationship with El.En. may be adversely affected.
   Risks Related to Intellectual Property
 If we infringe or are alleged to infringe intellectual property rights of third parties, our
business could be adversely affected.
    A third party has asserted that we need a license to its patents in order for us to continue
selling many of our products.
 Apogee Elite, Apogee 5500 PhotoLight Acclaim 7000 SmartEpil II PhotoSilk,
PhotoSilk Plus, Cynergy, Cynergy PL Cynergy III
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If we are unable to obtain or maintain intellectual property rights relating to our technology and
products, the commercial value of our technology and products will be adversely affected and our
competitive position could be harmed.
  If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be adversely affected.
  Risks Related to Government Regulation
 If we fail to obtain and maintain necessary U.S. Food and Drug Administration clearances for our
products and indications or if clearances for future products and indications are delayed or not
issued, our business would be harmed.
   
    
    FDA, other regulatory authorities or an institutional review board may place a clinical trial on hold;
    
    patients may not enroll in clinical trials, or patient follow-up may not occur, at the rate we expect;
    
    patients may not comply with trial protocols;
    
    institutional review boards and third party clinical investigators may delay or reject our trial protocol;
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
    
    third party clinical investigators may decline to participate in a trial or may not
perform a trial on our anticipated schedule or consistent with the clinical trial protocol,
good clinical practices, or other FDA requirements;
    
    third party organizations may not perform data collection and analysis in a timely or
accurate manner;
    
    regulatory inspections of our clinical trials or manufacturing facilities may, among
other things, require us to undertake corrective action or suspend or terminate our clinical
trials, or invalidate our clinical trials;
    
    changes in governmental regulations or administrative actions; and
    
    the interim or final results of the clinical trials may be inconclusive or unfavorable as to safety or effectiveness.
  After clearance or approval of our products, we are subject to continuing regulation by the FDA,
and if we fail to comply with FDA regulations, our business could suffer.
   
    
    untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall or seizure of our products;
    
    operating restrictions or partial suspension or total shutdown of production;
    
    refusing or delaying our requests for 510(k) clearance or premarket approval of new products or new intended uses;
    
    withdrawing 510(k) clearance or premarket approvals that have already been granted; and
    
    criminal prosecution.
  Federal regulatory reforms may adversely affect our ability to sell our products profitably.
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We have modified some of our products without FDA clearance. The FDA could retroactively determine
that the modifications were improper and require us to stop marketing and recall the modified
products.
  If we fail to comply with the FDAs Quality System Regulation and laser performance standards, our
manufacturing operations could be halted, and our business would suffer.
  If we fail to comply with state laws and regulations, or if state laws or regulations change, our
business could suffer.
  We or our distributors may be unable to obtain or maintain international regulatory qualifications
or approvals for our current or future products and indications, which could harm our business.
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New regulations may limit our ability to sell to non-physicians, which could harm our business.
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
    Proposal 1:
    
    To elect one classified director for the next three years (voted on by
holders of class A common stock and class B common stock, voting
together as a single class):
 Nominee
    
    Votes For
    
    Votes WithheldThomas H. Robinson
    
    
    10,060,543
    
    
    
    31,205
 Proposal 2:
    
    To elect four class B directors for the next year (voted on by the holders of class B
common stock, voting as a separate class):
 Nominee
    
    Votes For
    
    Votes WithheldEttore V. Biagioni
    
    
    4,385,402
    
    
    
    0Andrea Cangioli
    
    
    4,310,402
    
    
    
    75,000George J. Vojta
    
    
    4,385,402
    
    
    
    0Leonardo Masotti
    
    
    4,385,402
    
    
    
    0
 Proposal 3:
    
    To ratify the selection of Ernst & Young LLP as our independent registered public
accounting firm for the year ending December 31, 2006 (voted on by holders of class A common
stock and class B common stock, voting together as a single class):
 Votes For
    
    Votes Against
    
    Abstain10,070,450
    
    
    19,348
    
    
    
    1,950
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Item 5. Other Information
  Name and Principal Position
    
    Stock Option AwardMichael R. Davin
Chairman, President and Chief Executive Officer
    
    
    50,000Timothy W. Baker
Executive Vice President and Chief Financial Officer
    
    
    30,000Douglas J. Delaney
Executive Vice President, Sales
    
    
    30,000
   
 Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Form of Nonstatutory Stock Option Agreement10.2
    
    Form of Incentive Stock Option Agreement31.1
    
    Certification of the Principal Executive Officer31.2
    
    Certification of the Principal Financial Officer32.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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Signatures
  Cynosure, Inc.(Registrant)Date: August 4, 2006
    
    By:
    
    /s/ Michael R. DavinMichael R. DavinChairman, President, Chief Executive OfficerDate: August 4, 2006
    
    By:
    
    /s/ Timothy W. BakerTimothy W. Baker Executive Vice President,
Chief Financial Officer and Treasurer
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Exhibit Index
 Exhibit No.
    
    Description10.1
    
    Form of Nonstatutory Stock Option Agreement10.2
    
    Form of Incentive Stock Option Agreement31.1
    
    Certification of the Principal Executive Officer31.2
    
    Certification of the Principal Financial Officer32.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 42