##### 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, 2007
 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(State or other jurisdiction of 
incorporation or organization)
    
    04-3125110(I.R.S. Employer
Identification No.)5 Carlisle RoadWestford, MA
    
    01886(Address of principal executive offices)
    
    (Zip code)
 (978) 256-4200
 (Registrants telephone number, including area code)
 þ o
  o þ o
 o þ
  Class
    

Number of SharesClass A Common Stock, $0.001 par value
    
    
    8,336,995Class B Common Stock, $0.001 par value
    
    
    3,929,161




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##### 



Cynosure, Inc.
 Table of Contents
 Page No.PART I Financial InformationItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    21PART II Other InformationItem 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 6.
    
    Exhibits
    
    
    25SIGNATURES
    
    
    26EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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##### Table of Contents



Cynosure, Inc.
Consolidated Balance Sheets
 (Unaudited, in thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    23,112
    
    
    $
    13,690Marketable securities
    
    
    48,299
    
    
    
    43,556Accounts receivable, net
    
    
    21,856
    
    
    
    19,871Amounts due from related parties (Note 11)
    
    
    10
    
    
    
    335Inventories
    
    
    22,144
    
    
    
    17,624Prepaid expenses and other current assets
    
    
    3,325
    
    
    
    4,977Deferred income taxes
    
    
    2,625
    
    
    
    2,604Total current assets
    
    
    121,371
    
    
    
    102,657Property and equipment, net
    
    
    6,273
    
    
    
    5,662Other assets
    
    
    1,317
    
    
    
    1,247Total assets
    
    $
    128,961
    
    
    $
    109,566Liabilities and Stockholders EquityCurrent liabilities:Short-term loan
    
    $
    
    
    
    $
    167Accounts payable
    
    
    5,113
    
    
    
    5,986Amounts due to related party (Note 11)
    
    
    2,380
    
    
    
    1,052Accrued expenses
    
    
    14,562
    
    
    
    11,077Deferred revenue
    
    
    5,166
    
    
    
    3,476Capital lease obligation
    
    
    455
    
    
    
    439Total current liabilities
    
    
    27,676
    
    
    
    22,197Capital lease obligation, net of current portion
    
    
    912
    
    
    
    1,069Deferred revenue, net of current portion
    
    
    280
    
    
    
    311Other noncurrent liability
    
    
    153
    
    
    
    119Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.001 par valueAuthorized  5,000 shares; Issued  none
    
    
    
    
    
    
    Class A and Class B common stock, $0.001 par valueAuthorized  70,000 sharesIssued  12,244 and 11,210 shares as of
June 30, 2007 and December 31, 2006,
respectively
    
    
    12
    
    
    
    11Additional paid-in capital
    
    
    90,270
    
    
    
    81,026Retained earnings
    
    
    10,649
    
    
    
    5,820Accumulated other comprehensive loss
    
    
    (704
    )
    
    
    (700
    )Treasury stock, 36 shares, at cost
    
    
    (287
    )
    
    
    (287
    )Total stockholders equity
    
    
    99,940
    
    
    
    85,870Total liabilities and stockholders equity
    
    $
    128,961
    
    
    $
    109,566
  1




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Cynosure, Inc.
Consolidated Statements of Income
 (Unaudited, in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    30,132
    
    
    $
    18,131
    
    
    $
    56,209
    
    
    $
    35,270Cost of revenues
    
    
    11,068
    
    
    
    7,541
    
    
    
    20,990
    
    
    
    15,573Gross profit
    
    
    19,064
    
    
    
    10,590
    
    
    
    35,219
    
    
    
    19,697Operating expenses:Sales and marketing
    
    
    9,875
    
    
    
    6,149
    
    
    
    19,137
    
    
    
    11,607Research and development
    
    
    1,767
    
    
    
    1,039
    
    
    
    3,490
    
    
    
    2,248General and administrative
    
    
    2,933
    
    
    
    2,031
    
    
    
    5,228
    
    
    
    4,177Total operating expenses
    
    
    14,575
    
    
    
    9,219
    
    
    
    27,855
    
    
    
    18,032Income from operations
    
    
    4,489
    
    
    
    1,371
    
    
    
    7,364
    
    
    
    1,665Interest income, net
    
    
    596
    
    
    
    731
    
    
    
    1,101
    
    
    
    1,383Other income, net
    
    
    28
    
    
    
    276
    
    
    
    84
    
    
    
    406Income before provision for income taxes and
minority interest
    
    
    5,113
    
    
    
    2,378
    
    
    
    8,549
    
    
    
    3,454Provision for income taxes
    
    
    2,402
    
    
    
    915
    
    
    
    3,720
    
    
    
    1,351Minority interest in net income of subsidiary
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    36Net income
    
    $
    2,711
    
    
    $
    1,441
    
    
    $
    4,829
    
    
    $
    2,067Basic net income per share
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.41
    
    
    $
    0.19Diluted net income per share
    
    $
    0.21
    
    
    $
    0.12
    
    
    $
    0.39
    
    
    $
    0.17Basic weighted-average common shares outstanding
    
    
    11,964
    
    
    
    11,044
    
    
    
    11,654
    
    
    
    11,038Diluted weighted-average common shares
outstanding
    
    
    12,686
    
    
    
    12,138
    
    
    
    12,530
    
    
    
    12,158
  2




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Cynosure, Inc.
Consolidated Statements of Cash Flow
 (Unaudited, in thousands)
 Six Months EndedJune 30,2007
    
    
    2006Operating activities:Net income
    
    $
    4,829
    
    
    $
    2,067Reconciliation of net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,327
    
    
    
    991Stock-based compensation expense
    
    
    2,847
    
    
    
    790Accretion of discounts on marketable securities
    
    
    127
    
    
    
    (446
    )Deferred income taxes
    
    
    8
    
    
    
    (546
    )Minority interest in consolidated subsidiary
    
    
    
    
    
    
    27Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,853
    )
    
    
    (1,611
    )Due from related party
    
    
    325
    
    
    
    (50
    )Inventories
    
    
    (4,455
    )
    
    
    (2,516
    )Net book value of demonstration inventory sold
    
    
    150
    
    
    
    108Prepaid expenses and other current assets
    
    
    1,557
    
    
    
    (529
    )Accounts payable
    
    
    (895
    )
    
    
    927Due to related party
    
    
    1,326
    
    
    
    279Accrued expenses
    
    
    3,417
    
    
    
    482Deferred revenue
    
    
    1,650
    
    
    
    (1,404
    )Other noncurrent liability
    
    
    35
    
    
    
    42Net cash provided by (used in) operating activities
    
    
    10,395
    
    
    
    (1,389
    )Investing activities:Purchases of property and equipment
    
    
    (1,990
    )
    
    
    (1,042
    )Proceeds from the sales and maturities of marketable securities
    
    
    32,203
    
    
    
    66,152Purchases of marketable securities
    
    
    (37,150
    )
    
    
    (121,416
    )Decrease (increase) in other noncurrent assets
    
    
    4
    
    
    
    (8
    )Net cash used in investing activities
    
    
    (6,933
    )
    
    
    (56,314
    )Financing activities:Payment on short term loan
    
    
    (168
    )
    
    
    Proceeds from exercise of stock options
    
    
    4,563
    
    
    
    158Tax benefits related to stock options
    
    
    1,864
    
    
    
    164Payments of initial public offering costs
    
    
    
    
    
    
    (38
    )Payments on capital lease obligation
    
    
    (208
    )
    
    
    (171
    )Net cash provided by financing activities
    
    
    6,051
    
    
    
    113Effect of exchange rate changes on cash and cash equivalents
    
    
    (91
    )
    
    
    (322
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,422
    
    
    
    (57,912
    )Cash and cash equivalents, beginning of the period
    
    
    13,690
    
    
    
    64,646Cash and cash equivalents, end of the period
    
    $
    23,112
    
    
    $
    6,734Supplemental cash flow informationCash paid for interest
    
    $
    80
    
    
    $
    53Cash paid for taxes
    
    $
    
    
    
    $
    1,081Supplemental noncash investing and financing activitiesAssets acquired under capital lease
    
    $
    66
    
    
    $
    345
  3




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Cynosure, Inc.
Notes to Consolidated Financial Statements
 Note 1  Interim Consolidated Financial Statements
  Note 2  Stock-Based Compensation
 Share-Based Payment
   Six Months EndedJune 30,2007Risk-free interest rate
    
    
    4.64% - 4.77
    %Expected dividend yield
    
    
    Expected lives
    
    5.8 yearsExpected volatility
    
    
    70
    %
  4




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Note 3  Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Raw materials
    
    $
    1,967
    
    
    $
    1,848Work in process
    
    
    830
    
    
    
    818Finished goods
    
    
    19,347
    
    
    
    14,958$
    22,144
    
    
    $
    17,624
 Note 4  Marketable Securities
 Accounting for Certain
Investments in Debt and Equity Securities
   Amortized
    
    
    Unrealized
    
    
    UnrealizedMarket Value
    
    
    Cost
    
    
    Gains
    
    
    LossesCorporate bonds
    
    $
    1,645
    
    
    $
    1,645
    
    
    $
    
    
    
    $
    State and municipal bonds
    
    
    46,516
    
    
    
    46,527
    
    
    
    1
    
    
    
    (12
    )Equity security
    
    
    138
    
    
    
    270
    
    
    
    
    
    
    
    (132
    )$
    48,299
    
    
    $
    48,442
    
    
    $
    1
    
    
    $
    (144
    )
  5




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##### Table of Contents



MaturitiesLess Than
    
    
    One toTotal
    
    
    One Year
    
    
    Two YearsCorporate bonds
    
    $
    1,645
    
    
    $
    1,645
    
    
    $
    State and municipal bonds
    
    
    46,516
    
    
    
    43,721
    
    
    
    2,795$
    48,161
    
    
    $
    45,366
    
    
    $
    2,795
 Note 5  Warranty Costs
   June 30,2007(in thousands)Warranty accrual, beginning of period
    
    $
    2,803Charged to costs and expenses relating to new sales
    
    
    1,997Costs incurred
    
    
    (1,764
    )Warranty accrual, end of period
    
    $
    3,036
 Note 6  Segment Information
 Disclosures about
Segments of an Enterprise and Related Information
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006(in thousands)United States
    
    $
    16,197
    
    
    $
    9,625
    
    
    $
    30,276
    
    
    $
    19,203Europe
    
    
    7,088
    
    
    
    3,936
    
    
    
    14,087
    
    
    
    8,937Asia / Pacific
    
    
    3,662
    
    
    
    2,476
    
    
    
    6,214
    
    
    
    3,875Other
    
    
    3,185
    
    
    
    2,094
    
    
    
    5,632
    
    
    
    3,255Total
    
    $
    30,132
    
    
    $
    18,131
    
    
    $
    56,209
    
    
    $
    35,270
  June 30,
    
    
    December 31,2007
    
    
    2006(in thousands)United States
    
    $
    99,430
    
    
    $
    86,815Europe
    
    
    2,315
    
    
    
    443Asia / Pacific
    
    
    255
    
    
    
    374Eliminations
    
    
    (2,060
    )
    
    
    (1,762
    )Total
    
    $
    99,940
    
    
    $
    85,870
 6




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June 30,
    
    
    December 31,2007
    
    
    2006(in thousands)United States
    
    $
    7,007
    
    
    $
    6,435Europe
    
    
    431
    
    
    
    316Asia / Pacific
    
    
    151
    
    
    
    157Total
    
    $
    7,590
    
    
    $
    6,909
  Note 7  Net Income Per Common Share
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006(in thousands)Basic weighted-average number of shares outstanding
    
    
    11,964
    
    
    
    11,044
    
    
    
    11,654
    
    
    
    11,038Potential common shares pursuant to stock options
    
    
    722
    
    
    
    1,094
    
    
    
    876
    
    
    
    1,120Diluted weighted-average number of shares outstanding
    
    
    12,686
    
    
    
    12,138
    
    
    
    12,530
    
    
    
    12,158
  Note 8  Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Cumulative translation adjustment
    
    $
    50
    
    
    $
    25
    
    
    $
    45
    
    
    $
    (95
    )Unrealized loss on marketable securities
    
    
    (53
    )
    
    
    (28
    )
    
    
    (51
    )
    
    
    (32
    )Total other comprehensive loss
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (127
    )Reported net income
    
    
    2,711
    
    
    
    1,441
    
    
    
    4,829
    
    
    
    2,067Total comprehensive income
    
    $
    2,708
    
    
    $
    1,438
    
    
    $
    4,823
    
    
    $
    1,940
 Note 9  Litigation
  7




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Note 10  Sona MedSpa
   8




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Note 11  Related Party Transactions
  Note 12  Income Taxes
 Accounting for Uncertainty in
Income Taxes, an Interpretation of FAS 109, Accounting for Income Taxes
     9




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Note 13  Recent Accounting Pronouncements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 
 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.
  10




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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 Form
10-K filed with the SEC on March 12, 2007. 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.
 11




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Company Overview
   
    
    the Apogee Elitesystem for hair removal;
    
    the Cynergysystem for the treatment of vascular lesions;
    
    the TriActive LaserDermologysystem for the temporary reduction of the appearance of cellulite;
    
    the Affirmsystem for anti-aging, including treatments for wrinkles, skin texture, skin
discoloration and skin tightening; and
    
    the Smartliposystem for LaserBodySculptingSM and the removal of unwanted fat.
 Apogee Elite Cynergy
 Affirm Affirm
  Financial Operations Overview
 Revenues
  12




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Percentage of RevenuesSix Months EndedJune 30,2007
    
    2006RegionNorth America
    
    
    60
    %
    
    
    57
    %Europe
    
    
    25
    
    
    
    25Asia/Pacific
    
    
    11
    
    
    
    12Other
    
    
    4
    
    
    
    6Total
    
    
    100
    %
    
    
    100
    %
  Cost of Revenues
  Sales and Marketing Expenses
  Research and Development Expenses
  General and Administrative Expenses
  Interest Income, net
 13




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Other Income, net
  Provision for Income Taxes
  Results of Operations
 THREE MONTHS ENDED JUNE 30, 2007 AND 2006
  Three Months EndedJune 30,2007
    
    
    2006As a % of
    
    
    
    
    
    
    As a % ofTotal
    
    
    
    
    
    
    Total
    
    
    $
    
    
    %Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Change
    
    
    ChangeRevenues
    
    $
    30,132
    
    
    
    100
    %
    
    $
    18,131
    
    
    
    100
    %
    
    $
    12,001
    
    
    
    66
    %Cost of revenues
    
    
    11,068
    
    
    
    37
    
    
    
    7,541
    
    
    
    42
    
    
    
    3,527
    
    
    
    47Gross profit
    
    
    19,064
    
    
    
    63
    
    
    
    10,590
    
    
    
    58
    
    
    
    8,474
    
    
    
    80Operating expensesSales and marketing
    
    
    9,875
    
    
    
    33
    
    
    
    6,149
    
    
    
    34
    
    
    
    3,726
    
    
    
    61Research and development
    
    
    1,767
    
    
    
    6
    
    
    
    1,039
    
    
    
    6
    
    
    
    728
    
    
    
    70General and administrative
    
    
    2,933
    
    
    
    10
    
    
    
    2,031
    
    
    
    11
    
    
    
    902
    
    
    
    44Total operating expenses
    
    
    14,575
    
    
    
    48
    
    
    
    9,219
    
    
    
    51
    
    
    
    5,356
    
    
    
    58Income from operations
    
    
    4,489
    
    
    
    15
    
    
    
    1,371
    
    
    
    8
    
    
    
    3,118
    
    
    
    227Interest income, net
    
    
    596
    
    
    
    2
    
    
    
    731
    
    
    
    4
    
    
    
    (135
    )
    
    
    (18
    )Other income, net
    
    
    28
    
    
    
    
    
    
    
    276
    
    
    
    2
    
    
    
    (248
    )
    
    
    (90
    )Income before provision for income taxes and
minority interest
    
    
    5,113
    
    
    
    17
    
    
    
    2,378
    
    
    
    13
    
    
    
    2,735
    
    
    
    115Provision for income taxes
    
    
    2,402
    
    
    
    8
    
    
    
    915
    
    
    
    5
    
    
    
    1,487
    
    
    
    163Minority interest in net income of subsidiary
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    (22
    )
    
    
    (100
    )Net income
    
    $
    2,711
    
    
    
    8
    %
    
    $
    1,441
    
    
    
    8
    %
    
    $
    1,270
    
    
    
    88
    %
 Revenues
  14




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Three Months EndedJune 30,
    
    
    $
    
    
    %2007
    
    
    2006
    
    
    Change
    
    
    ChangeProduct sales in North America
    
    $
    16,775
    
    
    $
    9,276
    
    
    $
    7,499
    
    
    
    81
    %Product sales outside North America
    
    
    9,851
    
    
    
    6,341
    
    
    
    3,510
    
    
    
    55Original equipment manufacturer sales and revenue sharing
    
    
    277
    
    
    
    301
    
    
    
    (24
    )
    
    
    (8
    )Parts, accessories and service sales
    
    
    3,230
    
    
    
    2,213
    
    
    
    1,017
    
    
    
    46Total Revenues
    
    $
    30,132
    
    
    $
    18,131
    
    
    $
    12,001
    
    
    
    66
    %
 
    
    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 success of our recently introduced newer products, such as the
Affirmand Smartliposystems. The increase in North American revenues resulted in part from
the continued expansion of our North American sales organization, including the hiring of
26 additional direct sales employees between December 31, 2005 and June 30, 2007.
    
    Revenues from sales of products outside of North America increased mainly due to an
increase in sales in Europe of $2.8 million, or 88%, and an increase in sales in Asia
Pacific of $1.1 million, or 60%, over the 2006 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 remaining decrease of $0.4
million relates to a decrease in the volume of sales from distributors in the Middle East.
    
    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,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeCost of revenues (in thousands)
    
    $
    11,068
    
    
    $
    7,541
    
    
    $
    3,527
    
    
    
    47
    %Cost of revenues (as a percentage of total revenues)
    
    
    37
    %
    
    
    42
    %
  Sales and Marketing
 Three Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeSales and marketing (in thousands)
    
    $
    9,875
    
    
    $
    6,149
    
    
    $
    3,726
    
    
    
    61
    %Sales and marketing (as a percentage of total revenues)
    
    
    33
    %
    
    
    34
    %
  Research and Development
 Three Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeResearch and development (in thousands)
    
    $
    1,767
    
    
    $
    1,039
    
    
    $
    728
    
    
    
    70
    %Research and development (as a percentage of total revenues)
    
    
    6
    %
    
    
    6
    %
 15




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##### Table of Contents



General and Administrative
 Three Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeGeneral and administrative (in thousands)
    
    $
    2,933
    
    
    $
    2,031
    
    
    $
    902
    
    
    
    44
    %General and administrative (as a percentage of total revenues)
    
    
    10
    %
    
    
    11
    %
  Interest Income, net and Other Income, net
 Three Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeInterest income, net (in thousands)
    
    $
    596
    
    
    $
    731
    
    
    $
    (135
    )
    
    
    (18
    )%Other income, net (in thousands)
    
    $
    28
    
    
    $
    276
    
    
    $
    (248
    )
    
    
    (90
    )%
  Provision for Income Taxes
 Three Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeProvision for income taxes (in thousands)
    
    $
    2,402
    
    
    $
    915
    
    
    $
    1,487
    
    
    
    163
    %Provision as a % of income before provision
for income taxes and minority interest
    
    
    47
    %
    
    
    38
    %
  16




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##### Table of Contents



SIX MONTHS ENDED JUNE 30, 2007 AND 2006
  Six Months EndedJune 30,2007
    
    
    2006As a % of
    
    
    
    
    
    
    As a % ofTotal
    
    
    
    
    
    
    Total
    
    
    $
    
    
    %Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Change
    
    
    ChangeRevenues
    
    $
    56,209
    
    
    
    100
    %
    
    $
    35,270
    
    
    
    100
    %
    
    $
    20,939
    
    
    
    59
    %Cost of revenues
    
    
    20,990
    
    
    
    37
    
    
    
    15,573
    
    
    
    44
    
    
    
    5,417
    
    
    
    35Gross profit
    
    
    35,219
    
    
    
    63
    
    
    
    19,697
    
    
    
    56
    
    
    
    15,522
    
    
    
    79Operating expensesSales and marketing
    
    
    19,137
    
    
    
    34
    
    
    
    11,607
    
    
    
    33
    
    
    
    7,530
    
    
    
    65Research and development
    
    
    3,490
    
    
    
    6
    
    
    
    2,248
    
    
    
    6
    
    
    
    1,242
    
    
    
    55General and administrative
    
    
    5,228
    
    
    
    9
    
    
    
    4,177
    
    
    
    12
    
    
    
    1,051
    
    
    
    25Total operating expenses
    
    
    27,855
    
    
    
    49
    
    
    
    18,032
    
    
    
    51
    
    
    
    9,823
    
    
    
    54Income from operations
    
    
    7,634
    
    
    
    14
    
    
    
    1,665
    
    
    
    5
    
    
    
    5,969
    
    
    
    358Interest income, net
    
    
    1,101
    
    
    
    2
    
    
    
    1,383
    
    
    
    4
    
    
    
    (282
    )
    
    
    (20
    )Other income, net
    
    
    84
    
    
    
    
    
    
    
    406
    
    
    
    1
    
    
    
    (322
    )
    
    
    (79
    )Income
before provision for income taxes and minority interest
    
    
    8,549
    
    
    
    16
    
    
    
    3,454
    
    
    
    10
    
    
    
    5,095
    
    
    
    148Provision for income taxes
    
    
    3,720
    
    
    
    7
    
    
    
    1,351
    
    
    
    4
    
    
    
    2,369
    
    
    
    175Minority interest in net income of subsidiary
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    (36
    )
    
    
    (100
    )Net income
    
    $
    4,829
    
    
    
    9
    %
    
    $
    2,067
    
    
    
    6
    %
    
    $
    2,762
    
    
    
    134
    %
 Revenues
  Six Months EndedJune 30,
    
    
    $
    
    
    %2007
    
    
    2006
    
    
    Change
    
    
    ChangeProduct sales in North America
    
    $
    30,954
    
    
    $
    18,131
    
    
    $
    12,823
    
    
    
    71
    %Product sales outside North America
    
    
    18,621
    
    
    
    11,928
    
    
    
    6,693
    
    
    
    56Original equipment manufacturer sales and revenue sharing
    
    
    551
    
    
    
    575
    
    
    
    (24
    )
    
    
    (4
    )Parts, accessories and service sales
    
    
    6,083
    
    
    
    4,636
    
    
    
    1,447
    
    
    
    31Total Revenues
    
    $
    56,209
    
    
    $
    35,270
    
    
    $
    20,939
    
    
    
    59
    %
 
    
    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, such as the Affirmand Smartlipo
systems. The increase in North American revenues resulted in part from the continued
expansion of our North American sales organization, including the hiring of 26 additional
direct sales employees between December 31, 2005 and June 30, 2007.
    
    Revenues from sales of products outside of North America increased mainly due to an
increase in sales in Europe of $4.5 million, or 58%, and an increase in sales in Asia
Pacific of $2.3 million, or 98%, over the 2006 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.
 17




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##### Table of Contents




    
    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,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeCost of revenues (in thousands)
    
    $
    20,990
    
    
    $
    15,573
    
    
    $
    5,417
    
    
    
    35
    %Cost of revenues (as a percentage of total revenues)
    
    
    37
    %
    
    
    44
    %
  Sales and Marketing
 Six Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeSales and marketing (in thousands)
    
    $
    19,137
    
    
    $
    11,607
    
    
    $
    7,530
    
    
    
    65
    %Sales and marketing (as a percentage of total revenues)
    
    
    34
    %
    
    
    33
    %
  Research and Development
 Six Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeResearch and development (in thousands)
    
    $
    3,490
    
    
    $
    2,248
    
    
    $
    1,242
    
    
    
    55
    %Research and development (as a percentage of total revenues)
    
    
    6
    %
    
    
    6
    %
  General and Administrative
 Six Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeGeneral and administrative (in thousands)
    
    $
    5,228
    
    
    $
    4,177
    
    
    $
    1,051
    
    
    
    25
    %General and administrative (as a percentage of total revenues)
    
    
    9
    %
    
    
    12
    %
  18




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##### Table of Contents



Interest Income, net and Other Income, net
 Six Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeInterest income, net (in thousands)
    
    $
    1,101
    
    
    $
    1,383
    
    
    $
    (282
    )
    
    
    (20
    )%Other income, net (in thousands)
    
    $
    84
    
    
    $
    406
    
    
    $
    (322
    )
    
    
    (79
    )%
  Provision for Income Taxes
 Six Months EndedJune 30,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeProvision for income taxes (in thousands)
    
    $
    3,720
    
    
    $
    1,351
    
    
    $
    2,369
    
    
    
    175
    %Provision as a % of income before provision
for income taxes and minority interest
    
    
    44
    %
    
    
    39
    %
  Liquidity and Capital Resources
    19




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##### Table of Contents



Cash Flows
   Recent Accounting Pronouncements
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Sensitivity.
 20




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##### Table of Contents



Fair Valueat June 30,2007
    
    FY 2007
    
    FY 2008Investments (at fair value)
    
    $
    48,161
    
    
    $
    45,366
    
    
    $
    2,795Weighted-average interest rate
    
    
    4.42
    %
    
    
    4.35
    %
    
    
    5.46
    %
 Foreign Currency Exchange.
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  21




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##### Table of Contents



PART II  Other Information
 
 Item 1. Legal Proceedings
       22




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##### Table of Contents



Item 1A. Risk Factors
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 4. Submission of Matters to a Vote of Security Holders
    Proposal 1:
    
    To elect one Class II 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 WithheldPaul F. Kelleher
    
    
    10,446,505
    
    
    
    170,374
 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
    
    
    3,938,628
    
    
    
    0Andrea Cangioli
    
    
    3,938,628
    
    
    
    0George J. Vojta
    
    
    3,938,628
    
    
    
    0Leonardo Masotti
    
    
    3,938,628
    
    
    
    0
 23




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##### Table of Contents



Proposal 3:
    
    To amend our 2005 Stock Incentive Plan to increase the number of shares available for
grant by 450,000 to 1,288,369 (voted on by holders of class A common stock and class B common
stock, voting together as a single class):
 Votes For
    
    Votes Against
    
    Abstain5,404,538
    
    
    2,646,960
    
    
    
    4,275
 Proposal 4:
    
    To ratify the selection of Ernst & Young LLP as our independent registered public
accounting firm for the year ending December 31, 2007 (voted on by holders of class A common
stock and class B common stock, voting together as a single class):
 Votes For
    
    Votes Against
    
    Abstain10,572,586
    
    
    38,321
    
    
    
    0
 24




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    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
 25




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##### Table of Contents



Signatures
  Cynosure, Inc.
(Registrant)Date: August 8, 2007
    By:
    /s/ Michael R. DavinMichael R. DavinChairman, President, Chief Executive OfficerDate: August 8, 2007
    By:
    /s/ Timothy W. BakerTimothy W. BakerExecutive Vice President, Chief Financial Officer and
Treasurer 26




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    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
 27