##### 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 March 31, 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
    
    04-3125110(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
    
    
    7,677,379Class B Common Stock, $0.001 par value
    
    
    4,004,531




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##### 



Cynosure, Inc.
 Table of Contents
 Page No.PART I
    
    
    
    Financial InformationItem 1.
    
    
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    1Consolidated
Statements of Income for the Three Month Periods Ended March 31, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 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
    
    
    20PART II
    
    
    
    Other InformationItem 1.
    
    
    
    Legal Proceedings
    
    
    20Item 1A.
    
    
    
    Risk Factors
    
    
    21Item 2.
    
    
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 6.
    
    
    
    Exhibits
    
    
    37SIGNATURES
    
    
    
    
    38EX-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.




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##### Table of Contents



Cynosure, Inc.
 
 Consolidated Balance Sheets
 (Unaudited, in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,293
    
    
    $
    13,690Marketable securities
    
    
    49,871
    
    
    
    43,556Accounts receivable, net
    
    
    20,418
    
    
    
    19,871Amounts due from related parties (Note 11)
    
    
    346
    
    
    
    335Inventories
    
    
    19,267
    
    
    
    17,624Prepaid expenses and other current assets
    
    
    3,668
    
    
    
    4,977Deferred income taxes
    
    
    2,575
    
    
    
    2,604Total current assets
    
    
    108,438
    
    
    
    102,657Property and equipment, net
    
    
    6,145
    
    
    
    5,662Other assets
    
    
    1,242
    
    
    
    1,247Total assets
    
    $
    115,825
    
    
    $
    109,566Liabilities and Stockholders EquityCurrent liabilities:Short-term loan
    
    $
    
    
    
    $
    167Accounts payable
    
    
    5,085
    
    
    
    5,986Amounts due to related party (Note 11)
    
    
    2,131
    
    
    
    1,052Accrued expenses
    
    
    11,313
    
    
    
    11,077Deferred revenue
    
    
    3,651
    
    
    
    3,476Capital lease obligation
    
    
    452
    
    
    
    439Total current liabilities
    
    
    22,632
    
    
    
    22,197Capital lease obligation, net of current portion
    
    
    1,021
    
    
    
    1,069Deferred revenue, net of current portion
    
    
    289
    
    
    
    311Other noncurrent liability
    
    
    136
    
    
    
    119Commitments 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 value
Authorized  70,000 shares
Issued  11,670 and 11,210 shares as of March 31, 2007
and December 31, 2006, respectively
    
    
    12
    
    
    
    11Additional paid-in capital
    
    
    84,785
    
    
    
    81,026Retained earnings
    
    
    7,938
    
    
    
    5,820Accumulated other comprehensive loss
    
    
    (701
    )
    
    
    (700
    )Treasury stock, 36 shares, at cost
    
    
    (287
    )
    
    
    (287
    )Total stockholders equity
    
    
    91,747
    
    
    
    85,870Total liabilities and stockholders equity
    
    $
    115,825
    
    
    $
    109,566
  1




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##### Table of Contents



Cynosure, Inc.
 
 Consolidated Statements of Income
 (Unaudited, in thousands, except per share data)
 Three Months EndedMarch 31,2007
    
    
    2006Revenues
    
    $
    26,077
    
    
    $
    17,139Cost of revenues (1)
    
    
    9,922
    
    
    
    8,032Gross profit
    
    
    16,155
    
    
    
    9,107Operating expenses (1):Sales and marketing
    
    
    9,262
    
    
    
    5,458Research and development
    
    
    1,723
    
    
    
    1,209General and administrative
    
    
    2,295
    
    
    
    2,146Total operating expenses
    
    
    13,280
    
    
    
    8,813Income from operations
    
    
    2,875
    
    
    
    294Interest income, net
    
    
    505
    
    
    
    652Other income, net
    
    
    56
    
    
    
    130Income before provision for income taxes and minority interest
    
    
    3,436
    
    
    
    1,076Provision for income taxes
    
    
    1,318
    
    
    
    436Minority interest in net income of subsidiary
    
    
    
    
    
    
    14Net income
    
    $
    2,118
    
    
    $
    626Basic net income per share
    
    $
    0.19
    
    
    $
    0.06Diluted net income per share
    
    $
    0.17
    
    
    $
    0.05Basic weighted average common shares outstanding
    
    
    11,345
    
    
    
    11,031Diluted weighted average common shares outstanding
    
    
    12,374
    
    
    
    12,178
 (1)
    
    Stock-based compensation is
attributable to the following categories:Cost of revenues
    
    $
    98
    
    
    $
    6Sales and marketing
    
    
    327
    
    
    
    74Research and development
    
    
    465
    
    
    
    68General and administrative
    
    
    460
    
    
    
    150$
    1,350
    
    
    $
    298
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##### Table of Contents



Cynosure, Inc.
 
 Consolidated Statements of Cash Flow
 (Unaudited, in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006Operating activities:Net income
    
    $
    2,118
    
    
    $
    626Reconciliation of net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    620
    
    
    
    486Stock-based compensation expense
    
    
    1,350
    
    
    
    298Accretion of discounts on marketable securities
    
    
    49
    
    
    
    (155
    )Deferred income taxes
    
    
    29
    
    
    
    (429
    )Minority interest in consolidated subsidiary
    
    
    
    
    
    
    14Changes in operating assets and liabilities:Accounts receivable
    
    
    (487
    )
    
    
    399Due from related party
    
    
    (12
    )
    
    
    (19
    )Inventories
    
    
    (1,627
    )
    
    
    (1,489
    )Net book value of demonstration inventory sold
    
    
    122
    
    
    
    41Prepaid expenses and other current assets
    
    
    1,681
    
    
    
    (104
    )Accounts payable
    
    
    (906
    )
    
    
    1,337Due to related party
    
    
    1,079
    
    
    
    525Accrued expenses
    
    
    218
    
    
    
    (505
    )Deferred revenue
    
    
    142
    
    
    
    (1,411
    )Other noncurrent liability
    
    
    17
    
    
    
    21Net cash provided by (used in) operating activities
    
    
    4,393
    
    
    
    (365
    )Investing activities:Purchases of property and equipment
    
    
    (1,141
    )
    
    
    (348
    )Proceeds from the sales and maturities of marketable securities
    
    
    15,151
    
    
    
    33,395Purchases of marketable securities
    
    
    (21,510
    )
    
    
    (86,424
    )Increase in other noncurrent assets
    
    
    
    
    
    
    (8
    )Net cash used in investing activities
    
    
    (7,500
    )
    
    
    (53,385
    )Financing activities:Payment on short term loan
    
    
    (168
    )
    
    
    Proceeds from exercise of stock options
    
    
    1,297
    
    
    
    22Tax benefits related to stock options
    
    
    769
    
    
    
    Initial public offering costs
    
    
    
    
    
    
    (21
    )Payments on capital lease obligation
    
    
    (101
    )
    
    
    (84
    )Net cash provided by (used in) financing activities
    
    
    1,797
    
    
    
    (83
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (87
    )
    
    
    (123
    )Net decrease in cash and cash equivalents
    
    
    (1,397
    )
    
    
    (53,956
    )Cash and cash equivalents, beginning of the period
    
    
    13,690
    
    
    
    64,646Cash and cash equivalents, end of the period
    
    $
    12,293
    
    
    $
    10,690Supplemental cash flow informationCash paid for interest
    
    $
    38
    
    
    $
    25Cash paid for taxes
    
    $
    
    
    
    $
    536Supplemental noncash investing and financing activitiesAssets acquired under capital lease
    
    $
    66
    
    
    $
    142
  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
   Three Months EndedMarch 31,2007Risk-free interest rate
    
    
    4.77
    %Expected dividend yield
    
    
    Expected lives
    
    5.8
    yearsExpected volatility
    
    
    70
    %
  4




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Note 3  Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006(in thousands)Raw materials
    
    $
    1,348
    
    
    $
    1,848Work in process
    
    
    976
    
    
    
    818Finished goods
    
    
    16,943
    
    
    
    14,958$
    19,267
    
    
    $
    17,624
 Note 4  Marketable Securities
 Accounting for Certain
Investments in Debt and Equity Securities
   Amortized
    
    
    Unrealized
    
    
    UnrealizedMarket Value
    
    
    Cost
    
    
    Gains
    
    
    LossesCorporate bonds
    
    $
    4,315
    
    
    $
    4,314
    
    
    $
    1
    
    
    $
    State and municipal bonds
    
    
    45,340
    
    
    
    45,349
    
    
    
    
    
    
    
    9Equity security
    
    
    216
    
    
    
    270
    
    
    
    
    
    
    
    54$
    49,871
    
    
    $
    49,933
    
    
    $
    1
    
    
    $
    63
  5




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##### Table of Contents



MaturitiesTotal
    
    
    Less Than One Year
    
    
    One to Two YearsCorporate bonds
    
    $
    4,315
    
    
    $
    4,315
    
    
    $
    State and municipal bonds
    
    
    45,340
    
    
    
    42,530
    
    
    
    2,810$
    49,655
    
    
    $
    46,845
    
    
    $
    2,810
 Note 5  Warranty Costs
   March 31,2007(in thousands)Warranty accrual, beginning of period
    
    $
    2,803Charged to costs and expenses relating to new sales
    
    
    1,087Costs incurred
    
    
    (897
    )Warranty accrual, end of period
    
    $
    2,993
 Note 6  Segment Information
 Disclosures about
Segments of an Enterprise and Related Information
  Three Months EndedMarch 31,2007
    
    
    2006(in thousands)United States
    
    $
    14,079
    
    
    $
    9,578Europe
    
    
    6,999
    
    
    
    5,001Asia / Pacific
    
    
    2,552
    
    
    
    1,399Other
    
    
    2,447
    
    
    
    1,161Total
    
    $
    26,077
    
    
    $
    17,139
  March 31,
    
    
    December 31,2007
    
    
    2006(in thousands)United States
    
    $
    92,199
    
    
    $
    86,815Europe
    
    
    1,202
    
    
    
    443Asia / Pacific
    
    
    302
    
    
    
    374Eliminations
    
    
    (1,956
    )
    
    
    (1,762
    )Total
    
    $
    91,747
    
    
    $
    85,870
 6




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##### Table of Contents



March 31,
    
    
    December 31,2007
    
    
    2006(in thousands)United States
    
    $
    6,878
    
    
    $
    6,435Europe
    
    
    353
    
    
    
    316Asia / Pacific
    
    
    156
    
    
    
    157Total
    
    $
    7,387
    
    
    $
    6,909
  Note 7  Net Income Per Common Share
   Three Months EndedMarch 31,2007
    
    
    2006(in thousands)Basic weighted average number of shares outstanding
    
    
    11,345
    
    
    
    11,031Potential common shares pursuant to stock options
    
    
    1,029
    
    
    
    1,147Diluted weighted average number of shares outstanding
    
    
    12,374
    
    
    
    12,178
  Note 8  Comprehensive Income (Loss)
  Three Months EndedMarch 31,2007
    
    
    2006(in thousands)Cumulative translation adjustment
    
    $
    (5
    )
    
    $
    62Unrealized gain (loss) on marketable securities
    
    
    2
    
    
    
    (4
    )Total other comprehensive (loss) income
    
    
    (3
    )
    
    
    58Reported net income
    
    
    2,118
    
    
    
    626Total comprehensive income
    
    $
    2,115
    
    
    $
    684
 Note 9  Litigation
  7




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Note 10  Sona MedSpa
   8




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##### Table of Contents



Note 11  Related Party Transactions
  Note 12  Income Taxes
 Accounting for Uncertainty in
Income Taxes, an Interpretation of FAS 109, Accounting for Income Taxes
    Note 13  Recent Accounting Pronouncements
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
 9




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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 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.
 Company Overview
  10




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##### Table of Contents




    
    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
   11




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##### Table of Contents



Percentage of RevenuesThree-Months
    
    
    Three-MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,Region
    
    2007
    
    
    2006North America
    
    
    59
    %
    
    
    59
    %Europe
    
    
    27
    
    
    
    29Asia/Pacific
    
    
    10
    
    
    
    8Other
    
    
    4
    
    
    
    4Total
    
    
    100
    %
    
    
    100
    %
  Cost of Revenues
  Sales and Marketing Expenses
  Research and Development Expenses
  General and Administrative Expenses
  Interest Income, net
  12




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Other Income, net
  Provision for Income Taxes
  Results of Operations
  Three Months EndedMarch 31,2007
    
    
    2006As a % of
    
    
    
    
    
    
    As a % ofTotal
    
    
    
    
    
    
    Total
    
    
    $
    
    
    %Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Change
    
    
    ChangeRevenues
    
    $
    26,077
    
    
    
    100
    %
    
    $
    17,139
    
    
    
    100
    %
    
    $
    8,938
    
    
    
    52
    %Cost of revenues
    
    
    9,922
    
    
    
    38
    
    
    
    8,032
    
    
    
    47
    
    
    
    1,890
    
    
    
    24Gross profit
    
    
    16,155
    
    
    
    62
    
    
    
    9,107
    
    
    
    53
    
    
    
    7,048
    
    
    
    77Operating expensesSales and marketing
    
    
    9,262
    
    
    
    36
    
    
    
    5,458
    
    
    
    32
    
    
    
    3,804
    
    
    
    70Research and development
    
    
    1,723
    
    
    
    7
    
    
    
    1,209
    
    
    
    7
    
    
    
    514
    
    
    
    43General and administrative
    
    
    2,295
    
    
    
    9
    
    
    
    2,146
    
    
    
    13
    
    
    
    149
    
    
    
    7Total operating expenses
    
    
    13,280
    
    
    
    51
    
    
    
    8,813
    
    
    
    51
    
    
    
    4,467
    
    
    
    51Income from operations
    
    
    2,875
    
    
    
    11
    
    
    
    294
    
    
    
    2
    
    
    
    2,581
    
    
    
    878Interest income, net
    
    
    505
    
    
    
    2
    
    
    
    652
    
    
    
    4
    
    
    
    (147
    )
    
    
    (23
    )Other income, net
    
    
    56
    
    
    
    
    
    
    
    130
    
    
    
    1
    
    
    
    (74
    )
    
    
    (57
    )Income before provision for income taxes and
minority interest
    
    
    3,436
    
    
    
    13
    
    
    
    1,076
    
    
    
    7
    
    
    
    2,360
    
    
    
    219Provision for income taxes
    
    
    1,318
    
    
    
    5
    
    
    
    436
    
    
    
    3
    
    
    
    882
    
    
    
    202Minority interest in net income of subsidiary
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    (14
    )
    
    
    (100
    )Net income
    
    $
    2,118
    
    
    
    8
    %
    
    $
    626
    
    
    
    4
    %
    
    $
    1,492
    
    
    
    238
    %
 Revenues
  Three Months EndedMarch 31,
    
    
    $
    
    
    %2007
    
    
    2006
    
    
    Change
    
    
    ChangeProduct sales in North America
    
    $
    14,179
    
    
    $
    8,855
    
    
    $
    5,324
    
    
    
    60
    %Product sales outside North America
    
    
    8,770
    
    
    
    5,587
    
    
    
    3,183
    
    
    
    57Original equipment manufacturer sales and revenue
sharing
    
    
    274
    
    
    
    274
    
    
    
    
    
    
    
    Parts, accessories and service sales
    
    
    2,854
    
    
    
    2,423
    
    
    
    431
    
    
    
    18Total Revenues
    
    $
    26,077
    
    
    $
    17,139
    
    
    $
    8,938
    
    
    
    52
    %
 13




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##### Table of Contents




    
    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 29 additional
direct sales employees between December 31, 2005 and March 31, 2007.
    
    Revenues from sales of products outside of North America increased mainly attributable to
an increase in sales in Europe of $1.6 million, or 36%, and an increase in sales in Asia
Pacific of $1.3 million, or 215%, 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 increase of $0.3
million relates to an increase 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 EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeCost of revenues (in thousands)
    
    $
    9,922
    
    
    $
    8,032
    
    
    $
    1,890
    
    
    
    24
    %Cost of revenues (as a percentage of total revenues)
    
    
    38
    %
    
    
    47
    %
  Sales and Marketing
 Three Months EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeSales and marketing (in thousands)
    
    $
    9,262
    
    
    $
    5,458
    
    
    $
    3,804
    
    
    
    70
    %Sales and marketing (as a percentage of total revenues)
    
    
    36
    %
    
    
    32
    %
  Research and Development
 Three Months EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeResearch and development (in thousands)
    
    $
    1,723
    
    
    $
    1,209
    
    
    $
    514
    
    
    
    43
    %Research and development (as a percentage
of total revenues)
    
    
    7
    %
    
    
    7
    %
 14




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##### Table of Contents



General and Administrative
 Three Months EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeGeneral and administrative (in thousands)
    
    $
    2,295
    
    
    $
    2,146
    
    
    $
    149
    
    
    
    7
    %General and administrative (as a percentage
of total revenues)
    
    
    9
    %
    
    
    13
    %
  Interest Income, net and Other Income, net
 Three Months EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeInterest income, net (in thousands)
    
    $
    505
    
    
    $
    652
    
    
    $
    (147
    )
    
    
    (23
    )%Other income, net (in thousands)
    
    $
    56
    
    
    $
    130
    
    
    $
    (74
    )
    
    
    (57
    )%
  Provision for Income Taxes
 Three Months EndedMarch 31,
    
    $
    
    %2007
    
    2006
    
    Change
    
    ChangeProvision for income taxes (in thousands)
    
    $
    1,318
    
    
    $
    436
    
    
    $
    882
    
    
    
    202
    %Provision as a % of income before provision
for income taxes and minority interest
    
    
    38
    %
    
    
    41
    %
  Liquidity and Capital Resources
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Cash Flows
   Critical Accounting Policies and Estimates
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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.
  Revenue Arrangements with Multiple Deliverables
 Accounts Receivable and Concentration of Credit Risk
  Inventories and Allowance for Obsolescence
  Product Warranty Costs and Provisions
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Stock-Based Compensation
 Share-Based Payment
  Three Months EndedMarch 31,2007Risk-free interest rate
    
    4.77%Expected dividend yield
    
    Expected lives
    
    5.8 yearsExpected volatility
    
    70%
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Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in Income
Taxes, an Interpretation of FAS 109, Accounting for Income Taxes
   Recent Accounting Pronouncements
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Sensitivity.
 Fair Valueat March 31,2007
    
    FY 2007
    
    FY 2008Investments (at fair value)
    
    $
    49,655
    
    
    $
    46,845
    
    
    $
    2,810Weighted average interest rate
    
    
    4.32
    %
    
    
    4.26
    %
    
    
    5.46
    %
 Foreign Currency Exchange.
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II  Other Information
 
 Item 1. Legal Proceedings
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Item 1A. Risk Factors
  Risks Related to Our Business and Industry
 We have a history of operating losses, and we may not maintain profitability.
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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.
   
    
    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.
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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.
 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.
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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,
Affirm, 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.
  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.
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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.
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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
    
    consumer confidence, which may be affected by economic and other conditions.
  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;
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
    
    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.
  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.
  
    
    a dual class capital structure that allows El.En. to control the election of a majority
of the members of our board of directors;
    
    the classification of the members of our directors who are elected by holders of our
class A common stock and class B common stock, voting together as a single class;
    
    limitations on the removal of directors who are elected by holders of our class A
common stock and class B common stock, voting together as a single class;
    
    advance notice requirements for stockholder proposals and nominations;
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
    
    the inability of class A stockholders to act by written consent or to call special meetings; and
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock without stockholder approval, which could be used to institute a poison
pill that would work to dilute the stock ownership of a potential hostile acquirer,
effectively preventing acquisitions that have not been approved by our board of directors.
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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.
 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.
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
    
    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.
   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, TriActive LaserDermology Smartlipo
 Conflicts of interest may arise between us and El.En., and these conflicts might ultimately be
resolved in a manner unfavorable to us.
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
    
    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.
  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.
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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.
    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.
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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;
    
    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.
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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.
  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.
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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 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 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
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Signatures
  Cynosure, Inc.(Registrant)Date: May 7, 2007
    
    By:
    
    /s/ Michael R. Davin

Michael R. DavinChairman, President, Chief Executive OfficerDate: May 7, 2007
    
    By:
    
    /s/ Timothy W. Baker

Timothy W. BakerExecutive Vice President, Chief FinancialOfficer and Treasurer
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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
 39