10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

¨ 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 incorporation or organization)	(I.R.S. Employer Identification No.)
5 Carlisle Road Westford, MA	01886
(Address of principal executive offices)	(Zip code)

(978) 256-4200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

The number of shares outstanding of each of the registrant’s classes of common stock, as of: August 1, 2011

Class	Number of Shares
Class A Common Stock, $0.001 par value	9,673,172
Class B Common Stock, $0.001 par value	2,939,161

Cynosure, Inc.

Table of Contents

		Page No.
PART I	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		1
	Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2011 and 2010		2
	Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2011 and 2010		3
	Notes to Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		21
PART II	Other Information
Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 6.	Exhibits		23
SIGNATURES			24

Cynosure, Inc.

Consolidated Balance Sheets

(in thousands)

	(Unaudited) June 30, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	20,909		$	27,434
Short-term marketable securities		41,334			59,402
Accounts receivable, net		15,454			10,621
Inventories		27,019			18,684
Prepaid expenses and other current assets		4,306			3,902
Deferred income taxes		510			489
Total current assets		109,532			120,532
Property and equipment, net		8,589			8,892
Long-term marketable securities		6,530			9,990
Other noncurrent assets		25,310			2,398
Total assets	$	149,961		$	141,812
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	9,690		$	4,840
Amounts due to related party		3,012			1,785
Accrued expenses		12,976			10,427
Deferred revenue		3,973			3,660
Capital lease obligation		73			133
Total current liabilities		29,724			20,845
Capital lease obligation, net of current portion		72			40
Deferred revenue, net of current portion		532			348
Other noncurrent liability		199			279
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value
Authorized — 5,000 shares
Issued — none		—			—
Class A and Class B common stock, $0.001 par value
Authorized — 70,000 shares
Issued — 9,822 Class A shares and 2,975 Class B shares at June 30, 2011; Issued — 9,786 Class A shares and 2,975 Class B shares at December 31, 2010, respectively		13			13
Additional paid-in capital		123,230			121,706
(Accumulated deficit) Retained earnings		(967	)		2,227
Accumulated other comprehensive loss		(1,134	)		(1,938	)
Treasury stock, 149 Class A shares and 36 Class B shares, at cost		(1,708	)		(1,708	)
Total stockholders’ equity		119,434			120,300
Total liabilities and stockholders’ equity	$	149,961		$	141,812

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

1

Cynosure, Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Product revenues	$	20,675		$	16,385		$	37,286		$	30,606
Parts, accessories and service revenues		5,664			5,104			10,937			9,776
Total revenues		26,339			21,489			48,223			40,382
Cost of revenues		11,273			9,069			21,076			17,162
Gross profit		15,066			12,420			27,147			23,220
Operating expenses:
Sales and marketing		9,656			8,645			18,412			17,047
Research and development		2,431			1,848			4,671			3,555
General and administrative		4,175			2,830			7,126			6,063
Total operating expenses		16,262			13,323			30,209			26,665
Loss from operations		(1,196	)		(903	)		(3,062	)		(3,445	)
Interest income, net		46			45			100			98
Other (expense) income, net		(1	)		(550	)		213			(701	)
Loss before provision for income taxes		(1,151	)		(1,408	)		(2,749	)		(4,048	)
Provision for income taxes		149			69			445			241
Net loss	$	(1,300	)	$	(1,477	)	$	(3,194	)	$	(4,289	)
Basic net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)
Diluted net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)
Basic weighted-average common shares outstanding		12,599			12,710			12,588			12,711
Diluted weighted-average common shares outstanding		12,599			12,710			12,588			12,711

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

2

Cynosure, Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Six Months Ended June 30,
	2011			2010
Operating activities:
Net loss	$	(3,194	)	$	(4,289	)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization		2,971			2,888
Stock-based compensation expense		1,325			2,437
Gain on investments		—			(21	)
Loss on disposal of fixed assets		4			7
Deferred income taxes		—			1
Accretion of discounts on marketable securities		638			448
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(2,565	)		402
Inventories		(5,627	)		(1,031	)
Net book value of demonstration inventory sold		543			748
Prepaid expenses and other current assets		(108	)		2,995
Accounts payable		3,371			(73	)
Due to related party		1,225			748
Tax benefit from stock option exercises		(32	)		(2	)
Accrued expenses		1,748			588
Deferred revenue		(243	)		(1,214	)
Other noncurrent liability		2			(1	)
Net cash provided by operating activities		58			4,631
Investing activities:
Purchases of property and equipment		(560	)		(244	)
Proceeds from the sales and maturities of marketable securities		49,103			29,741
Purchases of marketable securities		(28,196	)		(53,603	)
Acquisitions		(26,970	)		—
Decrease (increase) in other noncurrent assets		4			(46	)
Net cash used in investing activities		(6,619	)		(24,152	)
Financing activities:
Excess tax benefit on options exercised		32			2
Repurchases of common stock		—			(75	)
Proceeds from stock option exercises		198			78
Payments on capital lease obligation		(29	)		(133	)
Net cash provided by (used in) financing activities		201			(128	)
Effect of exchange rate changes on cash and cash equivalents		(165	)		326
Net decrease in cash and cash equivalents		(6,525	)		(19,323	)
Cash and cash equivalents, beginning of the period		27,434			44,797
Cash and cash equivalents, end of the period	$	20,909		$	25,474
Supplemental cash flow information
Cash paid for interest	$	8		$	26
Cash paid for income taxes	$	491		$	178
Supplemental noncash investing and financing activities
Transfer of demonstration equipment from inventory to fixed assets	$	1,788		$	2,110
Net unrealized gain on marketable securities, net of $18 and $11 deferred income tax provision	$	34		$	21

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

3

Cynosure, Inc.

Notes to Consolidated Financial Statements

Note 1 — Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Cynosure, Inc. (Cynosure) for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the six months ended June 30, 2011 may not be indicative of the results that may be expected for the year ending December 31, 2011, or any other period.

Note 2 — Stock-Based Compensation

Cynosure recorded stock-based compensation expense of $0.7 million and $1.2 million for the three months ended June 30, 2011 and 2010, respectively. Cynosure recorded stock-based compensation expense of $1.3 million and $2.4 million for the six months ended June 30, 2011 and 2010, respectively. Cynosure capitalized $18,000 and $51,000 of stock-based compensation expense as part of inventory during the six months ended June 30, 2011 and 2010, respectively.

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individual holding the respective options, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(In thousands)
Cost of revenues	$	37	$	103	$	73	$	189
Sales and marketing		214		591		444		1,170
Research and development		116		160		236		338
General and administrative		292		363		572		740
Total stock-based compensation expense	$	659	$	1,217	$	1,325	$	2,437

Cash received from option exercises was $198,000 and $78,000 during the six months ended June 30, 2011 and 2010, respectively.

Cynosure granted 344,500 and 397,000 stock options during the six months ended June 30, 2011 and 2010, respectively. Cynosure has elected to use the Black-Scholes model to determine the weighted average fair value of options. The weighted average fair value of the options granted during the six months ended June 30, 2011 and 2010 was $7.47 and $5.82, respectively, using the following assumptions:

	Six Months Ended June  30,
	2011		2010
Risk-free interest rate		1.60% -2.37%		2.10% -2.50%
Expected dividend yield		—		—
Expected term		5.8 years		5.8 years
Expected volatility		55% -56%		59%
Estimated forfeiture rate		5%		5%

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Cynosure’s estimated expected stock price volatility is based on its own historical volatility. Cynosure’s expected term of options granted in the six months ended June 30, 2011 and 2010 was derived from the short-cut method. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield of zero is based on the fact that Cynosure has never paid cash dividends and has no present intention to pay cash dividends.

4

Note 3 — Inventories

Cynosure states all inventories at the lower of cost or market, determined on a first-in, first-out method. Inventory includes material, labor and overhead and consists of the following:

	June 30, 2011		December 31, 2010
	(in thousands)
Raw materials	$	6,885	$	3,980
Work in process		2,462		711
Finished goods		17,672		13,993
	$	27,019	$	18,684

Note 4 — Fair Value

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable markets data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of June 30, 2011 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	6,696	$	—	$	—	$	6,696
State and municipal bonds		—		22,828		—		22,828
Treasuries and government agencies		—		25,026		—		25,026
Equity securities		10		—		—		10
Total	$	6,706	$	47,854	$	—	$	54,560

(1) Included in cash and cash equivalents at June 30, 2011.

During the six months ended June 30, 2011, there were no significant transfers in and out of Level 1 and Level 2. Cynosure did not have any Level 3 financial assets at June 30, 2011 or December 31, 2010.

Note 5 — Short and Long-Term Marketable Securities

Cynosure’s available-for-sale securities at June 30, 2011 consist of approximately $47.9 million of investments in debt securities consisting of state and municipal bonds, treasuries and government agencies and approximately $10,000 in equity securities. All investments in available-for-sale securities are recorded at fair market value, with any unrealized gains and losses reported as a separate component of accumulated other comprehensive loss. As of June 30, 2011, Cynosure’s marketable securities consist of the following (in thousands):

5

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Short-term marketable securities:
State and municipal bonds	$	19,300	$	19,290	$	10	$	—
Treasuries and government agencies		22,024		22,007		17		—
Equity securities		10		11		—		(1	)
Total short-term marketable securities	$	41,334	$	41,308	$	27	$	(1	)
Long-term marketable securities:
State and municipal bonds	$	3,528	$	3,518	$	10	$	—
Treasuries and government agencies		3,002		2,998		4		—
Total long-term marketable securities	$	6,530	$	6,516	$	14	$	—
Total available-for-sale securities	$	47,864	$	47,824	$	41	$	(1	)
Total marketable securities	$	47,864

As of December 31, 2010, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-sale Securities:
Cash equivalents:
State and municipal bonds	$	1,109	$	1,109	$	—	$	—
Treasuries and government agencies		5,008		5,011		—		(3	)
Total cash equivalents	$	6,117	$	6,120	$	—	$	(3	)
Short-term marketable securities:
State and municipal bonds	$	13,416	$	13,420	$	—	$	(4	)
Treasuries and government agencies		45,974		45,953		31		(10	)
Equity securities		12		15		—		(3	)
Total short-term marketable securities	$	59,402	$	59,388	$	31	$	(17	)
Long-term marketable securities:
State and municipal bonds	$	5,191	$	5,200	$	—	$	(9	)
Treasuries and government agencies		4,799		4,798		1		—
Total long-term marketable securities	$	9,990	$	9,998	$	1	$	(9	)
Total available-for-sale securities	$	75,509	$	75,506	$	32	$	(29	)
Total marketable securities	$	69,392

As of June 30, 2011, Cynosure’s available-for-sale debt securities mature as follows (in thousands):

	Total		Maturities
			Less Than One Year		One to Five Years		More than five years
State and municipal bonds	$	22,828	$	19,300	$	3,528	$	—
Treasuries and government agencies		25,026		22,024		3,002		—
Total available-for-sale debt securities	$	47,854	$	41,324	$	6,530	$	—

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Note 6 — Acquisitions

ConBio

On June 27, 2011, Cynosure acquired the net assets of HOYA ConBio’s aesthetic laser business, (ConBio), for $24.5 million in cash. The business purpose of this transaction was to acquire and incorporate ConBio’s aesthetic laser product line which utilizes proprietary PhotoAcoustic energy technology including high-speed energy waves to penetrate the skin in nanoseconds, minimizing the amount of heat in each procedure, into Cynosure’s product portfolio. ConBio’s Q-Switched Nd:YAG technology is designed to treat a broad range of high-volume applications, including skin rejuvenation, skin toning, multi-color tattoo removal, wrinkle and acne scar reduction, pigmented lesions and vascular lesions. This acquisition was considered a business acquisition for accounting purposes.

Cynosure has retained an independent valuation firm to assess the fair value of the identifiable intangible assets acquired and is currently assessing the fair value of other assets acquired and liabilities assumed and plans to file pro forma financial information with the SEC within the applicable time period. Cynosure has preliminarily allocated the purchase price to the net tangible and intangible assets based on their estimated fair values as of June 27, 2011. As such, the assets acquired and liabilities assumed, including intangible assets, presented in the table below are provisional and will be finalized in a later period once the fair value procedures are completed.

The following table summarizes the estimated fair value as of June 27, 2011 of the net assets acquired (in thousands):

Purchase price:
Cash paid per Agreement	$	24,500
Total	$	24,500
Assets (liabilities) acquired:
Accounts receivable	$	1,709
Inventory		3,077
Prepaids and other assets		147
Property and equipment		528
Intangible assets		21,615
Accounts payable		(1,446	)
Accrued expenses		(430	)
Deferred revenue		(700	)
Total	$	24,500

Eleme Medical

On February 2, 2011, Cynosure acquired assets and certain liabilities of Eleme Medical for $2.5 million in cash. The business purpose of this transaction was to acquire and incorporate Eleme Medical’s non-invasive SmoothShapes^® XV system for the temporary reduction in the appearance of cellulite into Cynosure’s product portfolio and also included licensing rights to intellectual property related to the SmoothShapes technology. This acquisition was considered a business acquisition for accounting purposes. The goodwill recognized is attributable to expected synergies as the SmoothShapes XV technology will be integrated into Cynosure’s U.S. and international distribution channel and complement the Cellulite product family.

The total purchase price was allocated to the net tangible and intangible assets based upon their fair values as of February 2, 2011. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. Cynosure acquired $2.5 million of net assets, including $1.0 million of identifiable intangible assets, and goodwill of $0.5 million. The identifiable intangible assets are being amortized over five years on a straight-line basis. All intangible assets, including goodwill, are deductible for income tax purposes over 15 years.

The following table summarizes the fair value as of February 2, 2011 of the net assets acquired (in thousands):

7

Purchase price:
Cash paid per Agreement	$	2,470
Total	$	2,470
Assets (liabilities) acquired:
Accounts receivable	$	161
Inventory		736
Property and equipment		363
Identifiable intangible assets		988
Goodwill		460
Accrued warranty and royalty		(238	)
Total	$	2,470

The following unaudited pro forma condensed consolidated operating results for the three and six months ended June 30, 2011 and 2010 summarizes the combined results of operations for Cynosure and the other two companies that were acquired during fiscal year 2011, ConBio and Eleme Medical. The unaudited pro forma condensed consolidated operating results includes the business combination accounting effects as if the acquisitions had been completed as of January 1, 2011 (for the 2011 period results) and January 1, 2010 (for the 2010 period results). These pro forma financial statements do not contain certain business combination accounting effects including intangible amortization related to the ConBio acquisition as the Company is currently evaluating the fair value of the assets acquired and liabilities assumed. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands)
Revenue	$	30,599		$	29,063		$	59,804		$	54,996
Pre-tax loss		(710	)		(1,850	)		(543	)		(5,492	)

Cynosure recorded $1.3 million of acquisition related costs for the three and six month periods ending June 30, 2011. This amount is primarily recorded in the general and administrative line on the consolidated statement of operations.

Note 7 — Goodwill and Other Intangible Assets

Changes to goodwill during the six months ended June 30, 2011 were as follows (in thousands):

	United States		Asia Pacific		Total
Balance — December 31, 2010	$	—	$	1,225	$	1,225
Acquisition		460		—		460
Translation adjustment		—		60		60
Balance — June 30, 2011	$	460	$	1,285	$	1,745

Other intangible assets consist of the following at June 30, 2011 and December 31, 2010 (in thousands):

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	Technology Patents			Business Licenses			Customer Relationships			Other			Total
June 30, 2011
Cost	$	1,320		$	384		$	333		$	68		$	2,105
Translation adjustment		—			37			23			2			62
Accumulated amortization		(636	)		(129	)		(63	)		(5	)		(833	)
Balance, June 30, 2011	$	684		$	292		$	293		$	65		$	1,334
December 31, 2010
Cost	$	591		$	384		$	64		$	48		$	1,087
Translation adjustment		—			30			19			1			50
Accumulated amortization		(554	)		(109	)		(30	)		(2	)		(695	)
Balance, December 31, 2010	$	37		$	305		$	53		$	47		$	442

Cynosure purchased $1.0 million of identifiable intangible assets from its Eleme Medical acquisition, of which $0.7 million was assigned to technology patents, $0.3 million was assigned to customer relationships and $20,000 was assigned to trademarks in the six months ended June 30, 2011. These identifiable intangible assets are being amortized on a straight-line basis over a five year period.

Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed from the ConBio acquisition, including identifiable intangible assets and has therefore excluded the estimated $21.6 million from the tables above.

Amortization expense for the three months ended June 30, 2011 and 2010 was $0.1 million and $16,000, respectively. Amortization expense for the six months ended June 30, 2011 and 2010, was $0.1 million and $32,000, respectively. Cynosure has approximately $41,000 of indefinite-life intangible assets that are included in other intangible assets in the table above. As of June 30, 2011, amortization expense on existing intangible assets for the next five years and beyond is as follows (table in thousands):

Remainder of 2011	$	145
2012		263
2013		263
2014		225
2015 and thereafter		397
Total	$	1,293

The amortization related to the estimated $21.6 million of identifiable intangible assets is excluded from the table above.

Note 8 — Warranty Costs

Cynosure typically provides a one-year parts and labor warranty on end-user sales of laser systems. Distributor sales generally include a warranty on parts only. Estimated future costs for initial product warranties are provided at the time of revenue recognition.

The following table provides the detail of the change in Cynosure’s product warranty accrual during the six months ended a June 30, 2011, which is a component of accrued expenses in the consolidated balance sheets:

	June 30, 2011
	(in thousands)
Warranty accrual, beginning of period	$	2,112
Warranty provision related to new sales		2,306
Warranty provision assumed from acquisitions		530
Costs incurred		(1,980	)
Warranty accrual, end of period	$	2,968

Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed from the ConBio acquisition, including its warranty accrual. As a result, the warranty accrual related to the ConBio acquisition above is preliminary in nature.

Note 9 — Segment Information

Cynosure identifies operating segments as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Cynosure’s chief decision-maker is a combination of the Chief Executive Officer and the Chief Financial Officer. Cynosure views its operations and manages its business as one segment, aesthetic treatment products and services.

The following table represents total revenue by geographic destination:

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	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(in thousands)
United States	$	10,429	$	8,491	$	18,414	$	14,675
Europe		7,253		6,007		14,721		12,241
Asia / Pacific		5,449		5,447		9,571		9,114
Other		3,208		1,544		5,517		4,352
Total	$	26,339	$	21,489	$	48,223	$	40,382

Total assets by geographic area are as follows:

	June 30, 2011			December 31, 2010
	(in thousands)
United States	$	129,406		$	123,211
Europe		14,289			12,119
Asia / Pacific		8,267			8,279
Eliminations		(2,001	)		(1,797	)
Total	$	149,961		$	141,812

Long-lived assets by geographic area are as follows:

	June 30, 2011		December 31, 2010
	(in thousands)
United States	$	30,234	$	7,571
Europe		1,729		1,833
Asia / Pacific		1,936		1,886
Total	$	33,899	$	11,290

No individual country within Europe or Asia/Pacific represented greater than 10% of total revenue, total assets or total long lived assets for any period presented.

The increase in the amount of long-lived assets in the United States is due to both the intangible assets realized from the Eleme acquisition and the excess of the purchase price over the net assets acquired from the ConBio acquisition as Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed including identifiable intangible assets.

Note 10 — Net Loss Per Common Share

Basic net loss per share was determined by dividing net loss by the weighted average common shares outstanding during the period. Diluted net loss per share was determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflect the dilutive effect, if any, of common stock options based on the treasury stock method. Common shares outstanding includes both Class A and Class B common stock as each participates equally in earnings. Class B shares are convertible at any time into shares of Class A on a one-for-one basis at the option of the holder.

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A reconciliation of basic and diluted shares is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net loss	$	(1,300	)	$	(1,477	)	$	(3,194	)	$	(4,289	)
Basic weighted average common shares outstanding		12,599			12,710			12,588			12,711
Weighted average common equivalent shares		—			—			—			—
Diluted weighted average common shares outstanding		12,599			12,710			12,588			12,711
Basic net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)
Diluted net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)

For the three and six months ended June 30, 2011 and 2010, the number of basic and diluted weighted average shares outstanding was the same because any increase in the number of shares of common stock equivalents for those periods would be antidilutive based on the net loss for the period. During the three and six months ended June 30, 2011 and 2010, respectively, outstanding options to purchase 2.0 million and 1.2 million shares were excluded from the computation of diluted earnings per share because their inclusion would have been antidilutive.

Note 11 — Comprehensive Loss

Comprehensive loss is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners.

The components of accumulated other comprehensive loss as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011			December 31, 2010
	(in thousands)
Unrealized gain on marketable securities, net of taxes	$	36		$	29
Cumulative translation adjustment		(1,170	)		(1,967	)
Total accumulated other comprehensive loss	$	(1,134	)	$	(1,938	)

The components of total comprehensive loss for the three and six month periods ended June 30, 2011 and 2010 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(in thousands)
Cumulative translation adjustment	$	228		$	(564	)	$	797		$	(1,220	)
Unrealized gain on marketable securities		21			20			7			18
Total other comprehensive gain (loss)		249			(544	)		804			(1,202	)
Reported net loss		(1,300	)		(1,477	)		(3,194	)		(4,289	)
Total comprehensive loss	$	(1,051	)	$	(2,021	)	$	(2,390	)	$	(5,491	)

Note 12 — Litigation

In 2005, Dr. Ari Weitzner, individually and as putative representative of a purported class, filed a complaint against Cynosure under the federal Telephone Consumer Protection Act (TCPA) in Massachusetts Superior Court in Middlesex County seeking monetary damages, injunctive relief, costs and attorneys fees. The complaint alleges that Cynosure violated the TCPA by sending unsolicited advertisements by facsimile to the plaintiff and other recipients without the prior express invitation or permission of the recipients. Under the TCPA, recipients of unsolicited facsimile advertisements are entitled to damages of up to $500 per facsimile for inadvertent violations and up to $1,500 per facsimile for knowing or willful violations. Based on discovery in this matter, the plaintiff alleges that approximately three million facsimiles were sent on Cynosure’s behalf by a third party to approximately 100,000 individuals. In February 2008, several months after the close of discovery, the plaintiff served a motion for class certification, which Cynosure opposed on numerous factual and legal grounds, including that a nationwide class action may not be maintained in a

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Massachusetts state court by Dr. Weitzner, a New York resident; individual issues predominate over common issues; a class action is not superior to other methods of resolving TCPA claims; and Dr. Weitzner is an inadequate class representative. Cynosure also believes it has many merits defenses, including that the faxes in question do not constitute “advertising” within the meaning of the TCPA and many recipients had an established business relationship with Cynosure and are thereby deemed to have consented to the receipt of facsimile communications. The Court held a hearing on the plaintiff’s class certification motion in June 2008, but no decision on the motion was rendered. In July 2010, the Court issued an order dismissing this matter without prejudice for Dr. Weitzner’s failure to prosecute the case. In August 2010, Dr. Weitzner filed a motion for relief from the dismissal order, which the Court allowed. At a status conference held in November 2010, the Court confirmed that the class certification motion was still under advisement. Cynosure is not currently able to estimate the amount or range of loss that could result from an unfavorable outcome of this lawsuit.

In July 2008, Cynosure commenced a declaratory judgment action in the U.S. District Court for the District of Massachusetts requesting a declaration that Dr. Weitzner’s and the putative class claims are covered under the Company’s general liability insurance policies. In August 2008, Cynosure’s insurance company filed an Answer and Counterclaim against Cynosure seeking a declaration that the Company’s policy does not provide coverage for Dr. Weitzner’s claims. In August 2008, Cynosure filed a reply to the Counterclaim. The insurance company filed a Motion for Summary Judgment in December 2008, and Cynosure cross moved for Summary Judgment in January 2009. The court held a hearing on the motions in February 2009, and in April 2009 rendered a decision that Cynosure’s liability insurer is obligated to provide Cynosure with a defense to the Weitzner action and, if necessary, indemnify Cynosure for the putative class claims. Thereafter, Cynosure’s liability insurer filed a motion for reconsideration, which Cynosure opposed. The court denied the insurer’s motion in May 2009. In January 2010, the court entered an Order for Judgment consistent with its April 2009 decision that the insurer is obligated to defend Cynosure against the putative class claims and to indemnify Cynosure for any single damages, attorneys’ fees or costs. Per agreement of the parties, Cynosure was awarded $0.4 million in fees and costs for the period through July 1, 2009. The insurer filed a Notice of Appeal of the judgment in January 2010. On May 12, 2011, the First Circuit issued an opinion reversing the District Court’s decision in favor of Cynosure and ordering that judgment enter in favor of the insurer. Final judgment after remand was entered on May 12, 2011 and the case is now concluded.

In addition to the matters discussed above, from time to time, Cynosure is subject to various claims, lawsuits, disputes with third parties, investigations and pending actions involving various allegations against Cynosure incident to the operation of its business, principally product liability. Each of these other matters is subject to various uncertainties, and it is possible that some of these other matters may be resolved unfavorably to Cynosure. Cynosure establishes accruals for losses that management deems to be probable and subject to reasonable estimate. Cynosure believes that the ultimate outcome of these matters will not have a material adverse impact on its consolidated financial position, results of operations or cash flows.

Note 13 — Related Party Transactions

As of June 30, 2011, El. En. S.p.A. (El.En.) owned 23% of Cynosure’s outstanding common stock. Purchases of inventory from El.En. during the three months ended June 30, 2011 and 2010 were approximately $2.2 million and $1.6 million. Purchases of inventory from El.En. during the six months ended June 30, 2011 and 2010 were approximately $4.3 million and $3.0 million, respectively. As of June 30, 2011 and December 31, 2010, amounts due to related party for these purchases were approximately $3.0 million and $1.8 million, respectively. There were no amounts due from El.En. as of June 30, 2011 or December 31, 2010.

Note 14 — Income Taxes

At June 30, 2011, there are no material gross unrecognized tax benefits. Cynosure files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Cynosure is no longer subject to U.S. federal tax examinations by tax authorities for years before 2007. The Internal Revenue Service commenced an examination of Cynosure’s 2008 and 2009 federal income tax returns during the six months ended June 30, 2011. With few exceptions, Cynosure is no longer subject to state and local income tax examinations by tax authorities for years before 2007. Additionally non-U.S. jurisdictions are generally no longer subject to income tax examinations by tax authorities for years before 2006.

Note 15 — Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) amended its accounting guidance on the presentation of other comprehensive income (OCI) in an entity’s financial statements. The amended guidance eliminates the option to present the components of OCI as part of the statement of changes in shareholders equity and provides two options for presenting OCI: in a statement included in the income statement or in a separate statement immediately following the income statement. The amendments do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Adoption of this guidance will not have an impact on the consolidated financial statements of the Company.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

• 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.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2010, particularly in Part I — Item 1A and in our other public filings with the Securities and Exchange Commission that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report and the documents that we have filed as exhibits to the Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report on Form 10-Q and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

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 10, 2011. 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

We develop and market aesthetic treatment systems that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and pigmented lesions, rejuvenate the skin, liquefy and remove unwanted fat through laser lipolysis and reduce the appearance of cellulite. We are also developing in conjunction with our development agreement with Unilever Ltd., (Unilever) a laser treatment system for the home use market. This product is targeted for commercialization in 2012.

Our systems incorporate a broad range of laser and other light-based energy sources, including Alexandrite, pulse dye, Nd:Yag and diode lasers, as well as intense pulsed light. We believe that we are one of only a few companies that currently offer aesthetic treatment systems utilizing Alexandrite and pulse dye lasers, which are particularly well suited for some applications and skin types. We offer single energy source systems as well as workstations that incorporate two or more different types of lasers or pulsed light technologies. We offer multiple technologies and system alternatives at a variety of price points depending primarily on the number and type of energy sources included in the system. Our newer products are designed to be easily upgradeable to add additional energy sources and handpieces, which provide our customers with technological flexibility as they expand their practices. As the aesthetic treatment market evolves to include new customers, such as aesthetic spas and additional physician specialties, we believe that our broad technology base and tailored solutions will provide us with a competitive advantage.

We focus our development and marketing efforts on offering leading, or flagship, products for the following high volume applications:

• the Elite product line for hair removal, treatment of facial and leg veins and pigmentations;

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• the Smartlipo product line for LaserBodySculpting^SM for the removal of unwanted fat;

• the Cellulaze, SmoothShapes XV and TriActive product line for the temporary and long-term reduction in the appearance of cellulite;

• the Affirm/SmartSkin product line for anti-aging applications, including treatments for wrinkles, skin texture, skin discoloration and skin tightening;

• the Cynergy product line for the treatment of vascular lesions; and

• the Accolade product line for the removal of benign pigmented lesions, as well as multi-colored tattoos.

In June 2011, we acquired the assets and certain liabilities of HOYA ConBio’s aesthetic laser business, (ConBio). The acquisition expands our broad product portfolio with the addition of HOYA ConBio’s proprietary PhotoAcoustic energy technology, which uses high-speed energy waves to penetrate the skin in nanoseconds, minimizing the amount of heat in each procedure. The acquired aesthetic laser products which have been added to our portfolio include:

• The MedLite^R C6 and RevLite^Rwhich is a Q-Switched Nd:YAG nanosecond technology dual-wavelength system which treats facial wrinkles, acne scars, overall skin rejuvenation, multi-color tattoos, sun spots, brown spots and uneven skin tone.

We generate revenues primarily from sales of our products and parts and accessories and from services, including product warranty revenues. During the six months ended June 30, 2011, we derived approximately 77% of our revenues from sales of our products and 23% of our revenues from parts, accessories and service revenues. During the six months ended June 30, 2010, we derived approximately 76% of our revenues from sales of products and 24% of our revenues from parts, accessories and service revenues. Generally, we recognize revenues from the sales of our products upon delivery to our customers, revenues from service contracts and extended product warranties ratably over the coverage period and revenues from service in the period in which the service occurs.

We sell our products directly in North America, France, Spain, the United Kingdom, Germany, Korea, China, Japan and Mexico and use distributors to sell our products in other countries where we do not have a direct presence. During the six months ended June 30, 2011, and 2010 we derived 57% and 59% of our revenues, respectively, from sales outside North America. As of June 30, 2011, we had 33 sales employees covering North America, 33 sales employees in France, Spain, the United Kingdom, Germany, Korea, China and Japan and 73 distributors covering 98 countries.

The following table provides revenue data by geographical region for the six months ended June 30, 2011 and 2010:

	Percentage of Revenues
	Six-Months Ended June 30,
Region	2011			2010
North America		43	%		41	%
Europe		31			30
Asia/Pacific		20			23
Other		6			6
Total		100	%		100	%

See Note 9 to our consolidated financial statements included in this Quarterly Report for revenues and asset data by geographic region.

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Results of Operations

The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the three months ended June 30, 2011 and 2010, respectively (in thousands, except for percentages):

	Three Months Ended June 30,												$ Change			% Change
	2011						2010
	Amount			As a % of Total Revenues			Amount			As a % of Total Revenues
Product revenues	$	20,675			78	%	$	16,385			76	%	$	4,290			26	%
Parts, accessories and service revenues		5,664			22			5,104			24			560			11
Total revenues		26,339			100			21,489			100			4,850			23
Cost of revenues		11,273			43			9,069			42			2,204			24
Gross profit		15,066			57			12,420			58			2,646			21
Operating expenses
Sales and marketing		9,656			37			8,645			40			1,011			12
Research and development		2,431			9			1,848			9			583			32
General and administrative		4,175			16			2,830			13			1,345			48
Total operating expenses		16,262			62			13,323			62			2,939			22
Loss from operations		(1,196	)		(5	)		(903	)		(4	)		(293	)		(32	)
Interest income, net		46			—			45			—			1			2
Other expense, net		(1	)		—			(550	)		(3	)		549			100
Loss before provision for income taxes		(1,151	)		(5	)		(1,408	)		(7	)		257			18
Provision for income taxes		149			—			69			—			80			116
Net loss	$	(1,300	)		(5	)%	$	(1,477	)		(7	)%	$	177			12	%

Revenues

Revenues in the three months ended June 30, 2011 increased from the three months ended June 30, 2010 by $4.9 million or 23%. The increase was attributable to a number of factors (in thousands, except for percentages):

	Three Months Ended June 30,				$ Change		% Change
	2011		2010
Product sales in North America	$	8,556	$	7,867	$	689		9	%
Product sales outside North America		12,120		8,518		3,602		42
Parts, accessories and service sales		5,663		5,104		559		11
Total Revenues	$	26,339	$	21,489	$	4,850		23	%

• Revenues from the sale of products in North America increased 9% from the second quarter of 2010, primarily attributable to our newly acquired SmoothShapes XV product line which contributed $1.0 million in North America revenues for the three months ended June 30, 2011. We believe that the availability of credit remains limited and demand for discretionary aesthetic laser treatments remains uncertain and as a result, our revenues may continue to be adversely affected. We develop and market aesthetic treatment systems (capital equipment) that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures in the aesthetic marketplace. These procedures are discretionary and not reimbursed by third-party insurers. The significant majority of our business each quarter is derived from new customers. A portion of our customers finance the purchase of these lasers through third party finance companies or banks.

• Revenues from sales of products outside of North America increased by approximately $3.6 million, or 42%, from the 2010 period due to an increase in the number of laser units sold, primarily by our European subsidiaries as a result of improved global economic business conditions compared with the second quarter of 2010, as well as increased revenues from our international distributors.

15

• Revenues from the sale of parts, accessories and services increased by approximately $0.6 million, or 11%, from the 2010 period, primarily due to an increase in revenues generated from the sale of our service contracts as well our service business.

Cost of Revenues

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
Cost of revenues (in thousands)	$	11,273		$	9,069		$	2,204		24	%
Cost of revenues (as a percentage of total revenues)		43	%		42	%

Total cost of revenues increased $2.2 million, or 24%, to $11.3 million for three months ended June 30, 2011, as compared to $9.1 million for the three months ended June 30, 2010, primarily related to our 23% increase in revenues. Our total cost of revenues increased slightly as a percentage of total revenues to 43% for the three months ended June 30, 2011, from 42% for the three months ended June 30, 2010, primarily due to a higher percentage of laser revenue from our international distribution where our products tend to have lower average selling prices than in North America.

Sales and Marketing

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
Sales and marketing (in thousands)	$	9,656		$	8,645		$	1,011		12	%
Sales and marketing (as a percentage of total revenues)		37	%		40	%

Sales and marketing expenses increased $1.0 million, or 12%. The increase is primarily attributed to an increase in promotional costs of $0.4 million, primarily due to an increased number of workshops, trade shows and other promotional efforts. Our commission expense increased $0.3 million due to the 26% increase in product revenues as well as our personnel, administrative costs and travel expenses which increased by $0.3 million. Our sales and marketing expenses for the three months ended June 30, 2011 decreased as a percentage of revenue to 37% primarily due to the 23% increase in revenues as compared to the three months ended June 30, 2010.

Research and Development

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
Research and development (in thousands)	$	2,431		$	1,848		$	583		32	%
Research and development (as a percentage of total revenues)		9	%		9	%

Research and development expenses increased $0.6 million, or 32% for the three months ended June 30, 2011 when compared with the three months ended June 30, 2010. This is primarily due to a $0.3 million increase in professional fees and consulting associated with clinical studies and $0.3 million in personnel and other administrative costs.

General and Administrative

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
General and administrative (in thousands)	$	4,175		$	2,830		$	1,345		48	%
General and administrative (as a percentage of total revenues)		16	%		13	%

General and administrative expenses increased $1.3 million, or 48%, for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. The increase is primarily due to acquisition costs of $1.2 million in legal, accounting, and investment banking fees associated with the acquisition of ConBio.

Interest Income, net

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	Three Months Ended June 30,				$ Change		% Change
	2011		2010
Interest income, net (in thousands)	$	46	$	45	$	1		2	%

Interest income, net remained relatively consistent for the three months ended June 30, 2011 when compared to the three months ended June 30. 2010, as we continue to invest in securities that bear low risk and low interest rates.

Other Expense, net

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
Other expense, net (in thousands)	$	(1	)	$	(550	)	$	549		100	%

The changes in other expense, net is primarily a result of less net foreign currency remeasurement losses in the second quarter of 2011, as compared to the second quarter of 2010.

Provision for Income Taxes

	Three Months Ended June 30,						$ Change		% Change
	2011			2010
Provision for income taxes (in thousands)	$	149		$	69		$	80		116	%
Provision as a % of income before provision for income taxes		13	%		5	%

The provision for income taxes results from a combination of the activities of our domestic and foreign subsidiaries. During the three months ended June 30, 2011, we recorded an income tax provision of $0.1 million, representing an effective tax rate of 13%. We continue to maintain a valuation allowance against our net domestic deferred tax assets, with the exception of net operating loss carryforwards that can be utilized to offset current year U.S. taxable income. During the three months ended June 30, 2010, we recorded an income tax provision of $0.1 million, representing an effective tax rate of 5%. The effective tax rate from the 2010 period to the 2011 period changed primarily due to changes in the jurisdictional mix of earnings.

SIX MONTHS ENDED JUNE 30, 2011 AND 2010

The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the six months ended June 30, 2011 and 2010, respectively (in thousands, except for percentages):

	Six Months Ended June 30,												$ Change		% Change
	2011						2010
	Amount			As a % of Total Revenues			Amount			As a % of Total Revenues
Product revenues	$	37,286			77	%	$	30,606			76	%	$	6,680		22	%
Parts, accessories and service revenues		10,937			23			9,776			24			1,161		12
Total revenues	$	48,223			100	%	$	40,382			100	%	$	7,841		19	%
Cost of revenues		21,076			44			17,162			42			3,914		23
Gross profit		27,147			56			23,220			58			3,927		17
Operating expenses
Sales and marketing		18,412			38			17,047			42			1,365		8
Research and development		4,671			10			3,555			9			1,116		31
General and administrative		7,126			15			6,063			15			1,063		18
Total operating expenses		30,209			63			26,665			66			3,544		13
Loss from operations		(3,062	)		(6	)		(3,445	)		(8	)		383		11
Interest income, net		100			—			98			—			2		2
Other income (expense), net		213			—			(701	)		(2	)		914		130
Loss before provision for income taxes		(2,749	)		(6	)		(4,048	)		(10	)		1,299		32
Provision for income taxes		445			1			241			1			204		85
Net loss	$	(3,194	)		(7	)%	$	(4,289	)		(11	)%	$	1,095		26	%

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Revenues

Revenues in the six months ended June 30, 2011 increased from revenues in the six months ended June 30, 2010 by $7.8 million, or 19%. The increase in revenues was attributable to a number of factors (in thousands, except for percentages):

	Six Months Ended June 30,				$ Change		% Change
	2011		2010
Product sales in North America	$	15,649	$	14,195	$	1,454		10	%
Product sales outside North America		21,637		16,411		5,226		32
Parts, accessories and service sales		10,937		9,776		1,161		12
Total Revenues	$	48,223	$	40,382	$	7,841		19	%

• Revenues from the sale of products in North America for the six months ended June 30, 2011 increased $1.5 million, or 10%, from the six months ended June 30, 2010. The increase is primarily due to our newly acquired SmoothShapes XV product line which contributed $1.5 million of revenue in North America since our acquisition date. We believe that the availability of credit remains limited and demand for discretionary aesthetic laser treatments remains uncertain and as a result, our revenues may continue to be adversely affected. We develop and market aesthetic treatment systems (capital equipment) that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures in the aesthetic marketplace. These procedures are discretionary and not reimbursed by third-party insurers. The significant majority of our business each quarter is derived from new customers. A portion of our customers finance the purchase of these lasers through third party finance companies or banks.

• Revenues from sales of products outside of North America increased by approximately $5.2 million, or 32%, over the 2010 period, due to an increase in the number of units sold primarily by our European subsidiaries as a result of improved global economic business conditions compared with the first six months of 2010, as well as increased revenues from our international distributors.

• Revenues from the sale of parts, accessories and services increased by approximately $1.2 million, or 12%, over the 2010 period, primarily due to an increase in revenues generated from the sale of our service contracts as well as an increase in sales of certain parts and accessories and our service business.

Cost of Revenues

	Six Months Ended June 30,						$ Change		% Change
	2011			2010
Cost of revenues (in thousands)	$	21,076		$	17,162		$	3,914		23	%
Cost of revenues (as a percentage of total revenues)		44	%		42	%

Total cost of revenues increased $3.9 million, or 23%, to $21.1 million for the six months ended June 30, 2011 as compared to $17.2 million for the six months ended June 30, 2010, primarily related to our 19% increase in revenues and approximately $0.2 million in one-time costs for purchase accounting adjustments which related to the write-up of Eleme Medical’s finished goods inventory sold in the period. Our cost of revenues increased as a percentage of revenues to 44% for the six months ended June 30, 2011, from 42% for the six months ended June 30, 2010, primarily due to a higher percentage of laser revenue from international distribution where our products tend to have lower average selling prices than in North America, and purchase accounting adjustments.

Sales and Marketing

	Six Months Ended June 30,						$ Change		% Change
	2011			2010
Sales and marketing (in thousands)	$	18,412		$	17,047		$	1,365		8	%
Sales and marketing (as a percentage of total revenues)		38	%		42	%

Sales and marketing expenses increased by $1.4 million, or 8%. The increase is due to a $0.6 million increase in commissions expense associated with our 19% increase in revenues. Our costs associated with workshops, tradeshows and other promotional efforts increased $0.4 million, as well as a $0.4 million increase in personnel costs, travel expenses and other administrative costs associated with our overall increased marketing efforts. Our sales and marketing expenses for the six months ended June 30, 2011

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decreased as a percentage of revenue to 38% due to the 19% increase in revenues for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

Research and Development

	Six Months Ended June 30,						$ Change		% Change
	2011			2010
Research and development (in thousands)	$	4,671		$	3,555		$	1,116		31	%
Research and development (as a percentage of total revenues)		10	%		9	%

Research and development expenses increased by $1.1 million for the six months ended June 30, 2011, when compared with the six months ended June 30, 2010. This increase is due to $0.5 million in professional fees and consulting associated with clinical studies and $0.6 million in personnel and other administrative costs.

General and Administrative

	Six Months Ended June 30,						$ Change		% Change
	2011			2010
General and administrative (in thousands)	$	7,126		$	6,063		$	1,063		18	%
General and administrative (as a percentage of total revenues)		15	%		15	%

General and administrative expenses increased $1.1 million, or 18%, for the six months ended June 30, 2011 when compared with the six months ended June 30, 2010. This increase is primarily due to acquisition costs of $1.3 million in legal, accounting and investment banking fees associated with the acquisition of ConBio and Eleme Medical. The increase was partially offset with a decrease in overall administrative costs of $0.2 million.

Interest Income, net

	Six Months Ended June 30,				$ Change		% Change
	2011		2010
Interest income, net (in thousands)	$	100	$	98	$	2		2	%

Interest income, net remained relatively consistent for the six months ended June 30, 2011 when compared to the six months ended June 30, 2010, as we continue to invest in securities that bear low risk and low interest rates.

Other Income (Expense), net

	Six Months Ended June 30,					$ Change		% Change
	2011		2010
Other income (expense), net (in thousands)	$	213	$	(701	)	$	914		130	%

The increase in other income (expense), net is primarily a result of net foreign currency remeasurement gains in the first half of 2011 due to the strengthening of the U.S. dollar, compared to net foreign currency remeasurement losses in the first half of 2010 due to the weakening of the U.S. dollar, primarily against the euro.

Provision for Income Taxes

	Six Months Ended June 30,						$ Change		% Change
	2011			2010
Provision for income taxes (in thousands)	$	445		$	241		$	204		85	%
Provision as a % of income before provision for income taxes		16	%		6	%

The provision for income taxes results from a combination of the activities of our domestic and foreign subsidiaries. During the six months ended June 30, 2011, we recorded an income tax provision of $0.4 million, representing an effective tax rate of 16%. We continue to maintain a valuation allowance against our net domestic deferred tax assets, with the exception of net operating loss carryforwards that can be utilized to offset current year U.S. taxable income. During the six months ended June 30, 2010, we recorded

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an income tax provision of $0.2 million, representing an effective tax rate of 6%. The effective tax rate from the 2010 period to the 2011 period changed primarily due to changes in the jurisdictional mix of earnings.

Liquidity and Capital Resources

We require cash to pay our operating expenses, make capital expenditures and pay our long-term liabilities. Since our inception, we have funded our operations through our 2005 initial public offering, private placements of equity securities, short-term borrowings and funds generated from our operations.

Our cash and marketable securities balance decreased by $28.1 million from December 31, 2010 to June 30, 2011 primarily due to acquisitions in the first half of 2011. During the first half of 2011, we purchased the aesthetic laser business of ConBio for $24.5 million and the assets of Eleme Medical for $2.5 million. At June 30, 2011, our cash, cash equivalents and short and long-term marketable securities were $68.8 million. Our cash and cash equivalents of $20.9 million are highly liquid investments with maturities of 90 days or less at date of purchase and consist of cash in operating accounts and investments in money market funds. Our short-term marketable securities of $41.3 million consist of investments in various state and municipal governments, U.S. government agencies and treasuries, all of which mature by June 30, 2012. Our long-term marketable securities of $6.5 million consist of investments in various state and municipal governments, U.S. government agencies and treasuries all of which mature by March 14, 2013.

Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future products, the resources we devote to developing and supporting our products and continued progress of our research and development of new products. We incurred minimal capital expenditures for the six months ended June 30, 2011 and expect capital expenditures for the remainder of the year to be relatively consistent with the year ended December 31. 2010. During the six months ended June 30, 2011 and 2010, respectively, we transferred $1.8 million and $2.1 million of demonstration equipment to fixed assets.

On July 28, 2009, our Board of Directors authorized the repurchase of up to $10 million of our Class A common stock, from time to time, on the open market or in privately negotiated transactions under a stock repurchase program. The program will terminate upon the purchase of $10 million in common stock, unless our Board of Directors discontinues it sooner. During the six months ended June 30, 2011, we did not repurchase any shares of our common stock under this program. As of June 30, 2011 we have repurchased an aggregate of 148,935 shares under this program at an aggregate cost of $1.4 million.

We believe that our current cash, cash equivalents and marketable securities, as well as cash generated from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future.

Cash Flows

Net cash provided by operating activities was $0.1 million for the six months ended June 30, 2011, and resulted primarily from the net loss for the period of $3.2 million, increased by approximately $4.3 million in depreciation and amortization and stock-based compensation expense and by approximately $0.6 million in accretion of discounts on marketable securities. Net changes in working capital items decreased cash from operating activities by approximately $1.7 million primarily related to an increase in inventory of $5.6 million due to increased purchases to meet the increased revenue requirements. Accounts receivable increased $2.6 million associated with increased revenues. These increases were offset by an increase in accounts payable of $3.4 million, accrued expenses of $1.7 million and amounts due to related party of $1.2 million. Net cash used in investing activities was $6.6 million for the six months ended June 30, 2011, which consisted primarily of $27.0 million used to acquire Eleme Medical and ConBio, $0.6 million used for fixed asset purchases offset by net proceeds of marketable securities of $20.9 million. Net cash provided by financing activities during the six months ended June 30, 2011 was $0.2 million, principally relating to the proceeds of stock option exercises.

Net cash provided by operating activities was $4.6 million for the six months ended June 30, 2010, and resulted primarily from the net loss for the period of $4.3 million, increased by approximately $5.3 million in depreciation and amortization and stock-based compensation expense and by approximately $0.4 million in accretion of discounts on marketable securities and working capital changes. Net changes in working capital items increased cash from operating activities by approximately $3.2 million primarily related to a decrease in prepaid expenses and other assets of $3.0 million associated with our income tax refund and an increase in amounts due to related parties and accrued expenses of $1.3 million. These changes were partially offset by a decrease in deferred revenue of $1.2 million. Net cash used in investing activities was $24.2 million for the six months ended June 30, 2010, which consisted primarily of net purchases of marketable securities of $23.9 million and $0.2 million used for fixed asset purchases. Net cash used in financing activities during the six months ended June 30, 2010 was $0.1 million, principally relating to payments on capital lease obligations.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and

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expenses. On an ongoing basis, we evaluate our estimates and judgments, including those that relate to revenue recognition, allowances for doubtful accounts, inventories, warranty obligations, stock-based compensation and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A discussion of our critical accounting policies and the related judgments and estimates affecting the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There have been no material changes to our critical accounting policies as of June 30, 2011.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments.

Interest Rate Sensitivity. We maintain an investment portfolio consisting mainly of money market funds, state and municipal government obligations, U.S. government agencies and treasuries. The securities, other than money market funds, are classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive (loss) income. All investments mature by March 14, 2013. These available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. We currently have the ability and intent to hold our fixed income investments until maturity. We do not utilize derivative financial instruments to manage our interest rate risks.

The following table provides information about our investment portfolio in available-for-sale debt securities. For investment securities, the table presents principal cash flows (in thousands) and weighted average interest rates by expected maturity dates.

	As of June 30, 2011			Maturing in 2011			Maturing in 2012			Maturing in 2013
Investments (at fair value)	$	47,854		$	32,738		$	14,115		$	1,001
Weighted average interest rate		0.35	%		0.30	%		0.45	%		0.45	%

Foreign Currency Exchange. A significant portion of our operations is conducted through operations in countries other than the United States. Revenues from our international operations that were recorded in U.S. dollars represented approximately 35% of our total international revenues during the six months ended June 30, 2011. Substantially all of the remaining 65% were sales in euros, British pounds, Japanese yen, Chinese yuan and South Korean won. Since we conduct our business in U.S. dollars, our main exposure, if any, results from changes in the exchange rate between these currencies and the U.S. dollar. Our functional currency is the U.S. dollar. Our policy is to reduce exposure to exchange rate fluctuations by having most of our assets and liabilities, as well as most of our revenues and expenditures, in U.S. dollars, or U.S. dollar linked. We have not historically engaged in hedging activities relating to our non-U.S. dollar operations. We sell inventory to our subsidiaries in U.S. dollars. These amounts are recorded at our local subsidiaries in local currency rates in effect on the transaction date. Therefore, we may be exposed to exchange rate fluctuations that occur while the debt is outstanding which we recognize as unrealized gains and losses in our statements of operations. Upon settlement of these debts, we may record realized foreign exchange gains and losses in our statements of operations. We may incur negative foreign currency translation charges as a result of changes in currency exchange rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2011, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — Other Information

Item 1. Legal Proceedings

In 2005, Dr. Ari Weitzner, individually and as putative representative of a purported class, filed a complaint against us under the federal Telephone Consumer Protection Act, or the TCPA in Massachusetts Superior Court in Middlesex County seeking monetary damages, injunctive relief, costs and attorneys fees. The complaint alleges that we violated the TCPA by sending unsolicited advertisements by facsimile to the plaintiff and other recipients without the prior express invitation or permission of the recipients. Under the TCPA, recipients of unsolicited facsimile advertisements are entitled to damages of up to $500 per facsimile for inadvertent violations and up to $1,500 per facsimile for knowing or willful violations. Based on discovery in this matter, the plaintiff alleges that approximately three million facsimiles were sent on our behalf by a third party to approximately 100,000 individuals. On February 6, 2008, several months after the close of discovery, the plaintiff served a motion for class certification, which we opposed on numerous factual and legal grounds, including that a nationwide class action may not be maintained in a Massachusetts state court by Dr. Weitzner, a New York resident; individual issues predominate over common issues; a class action is not superior to other methods of resolving TCPA claims; and Dr. Weitzner is an inadequate class representative. We also believe we have many merits defenses, including that the faxes in question do not constitute “advertising” within the meaning of the TCPA and many recipients had an established business relationship with us and are thereby deemed to have consented to the receipt of facsimile communications. The Court held a hearing on the plaintiff’s class certification motion in June 2008, but no decision on the motion has been rendered. In July 2010, the Court issued an order dismissing this matter without prejudice for Dr. Weitzner’s failure to prosecute the case in August 2010, Dr. Weitzner filed a motion for relief from the dismissal order, which the Court allowed. At a status conference held in November 2010, the Court confirmed that the class certification motion was still under advisement. We are not currently able to estimate the amount or range of loss that could result from an unfavorable outcome of this lawsuit.

In July 2008, we commenced a declaratory judgment action in the U.S. District Court for the District of Massachusetts requesting a declaration that Dr. Weitzner’s and the putative class claims are covered under our general liability insurance policies. In August 2008, our insurance company filed an Answer and Counterclaim against us seeking a declaration that our policy does not provide coverage for Dr. Weitzner’s claims. In August 2008, we filed a reply to the Counterclaim. The insurance company filed a Motion for Summary Judgment in December 2008, and we cross moved for Summary Judgment in January 2009. The Court held a hearing on the motions in February 2009, and in April 2009 rendered a decision that our liability insurer is obligated to provide us with a defense to the Weitzner action and, if necessary, indemnify us for the putative class claims. Thereafter, our liability insurer filed a motion for reconsideration, which we opposed. The court denied the insurer’s motion in May 2009. In January 2010, the court entered an Order for Judgment consistent with its April 8, 2009 decision that the insurer is obligated to defend us against the putative class claims and to indemnify us for any single damages, attorneys’ fees or costs. Per agreement of the parties, we were awarded $0.4 million in fees and costs for the period through July 1, 2009. The insurer filed a Notice of Appeal of the judgment in January 2010. The matter was fully briefed and the U.S. First Circuit Court of Appeals heard oral arguments in January 2011. On May 12, 2011, the First Circuit issued an opinion reversing the District Court’s decision in favor of us and ordering that judgment enter in favor of the insurer. Final judgment after remand was entered on May 12, 2011 and the case is now concluded.

In addition to the matters discussed above, from time to time, we are subject to various claims, lawsuits, disputes with third parties, investigations and pending actions involving various allegations against us incident to the operation of its business, principally product liability. Each of these other matters is subject to various uncertainties, and it is possible that some of these other matters may be resolved unfavorably to us. We establish accruals for losses that management deems to be probable and subject to reasonable estimate. We believe that the ultimate outcome of these matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2010 in addition to the other information included in this quarterly report. If any of the risks actually occurs, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall.

As of June 30, 2011, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, although we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 28, 2009, our Board of Directors authorized the repurchase of up to $10 million of our Class A common stock from time to time on the open market or in privately negotiated transactions under a stock repurchase program. The program will terminate upon the purchase of $10 million in common stock, unless our Board of Directors terminates it sooner. During the six months ended June 30, 2011, we did not repurchase any shares of our common stock. As of June 30, 2011, we have repurchased an aggregate of 148,935 shares under the program at an aggregate cost of $1.4 million.

Item 6. Exhibits

(a) Exhibits

Exhibit No.	Description
31.1	Certification of the Principal Executive Officer
31.2	Certification of the Principal Financial Officer
32.1	Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following materials from the Cynosure, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Statement of Earnings for the three months and six months ended June 30, 2011 and 2010, (ii) Condensed Statement of Financial Position at June 30, 2011 and December 31, 2010, (iii) Condensed Statement of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements.

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant certifies that it has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Cynosure, Inc.
	(Registrant)
Date: August 5, 2011	By:	/S/    MICHAEL R. DAVIN
		Michael R. Davin
		Chairman, President, Chief Executive Officer
Date: August 5, 2011	By:	/S/    TIMOTHY W. BAKER
		Timothy W. Baker
		Executive Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Principal Executive Officer
31.2	Certification of the Principal Financial Officer
32.1	Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following materials from the Cynosure, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Statement of Earnings for the three months and six months ended June 30, 2011 and 2010, (ii) Condensed Statement of Financial Position at June 30, 2011 and December 31, 2010, (iii) Condensed Statement of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements.

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Michael R. Davin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cynosure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011	/s/    Michael R. Davin
	Michael R. Davin
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Timothy W. Baker, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cynosure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011	/s/    Timothy W. Baker
	Timothy W. Baker
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cynosure, Inc. (the “Company”) for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael R. Davin, Chairman, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2011	/s/    Michael R. Davin
	Michael R. Davin
	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cynosure, Inc. (the “Company”) for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Timothy W. Baker, Executive Vice President, Chief Financial Officer and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2011	/s/    Timothy W. Baker
	Timothy W. Baker
	Executive Vice President, Chief Financial Officer and Treasurer

XML



Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data	Jun. 30, 2011	Dec. 31, 2010
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares issued	0	0
Common Stock Class A
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	70,000	70,000
Common stock, shares issued	9,822	9,786
Treasury stock, shares	149	149
Common Stock Class B
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	70,000	70,000
Common stock, shares issued	2,975	2,975
Treasury stock, shares	36	36

XML



Consolidated Statements Of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements Of Operations
Product revenues	$ 20,675	$ 16,385	$ 37,286	$ 30,606
Parts, accessories and service revenues	5,664	5,104	10,937	9,776
Total revenues	26,339	21,489	48,223	40,382
Cost of revenues	11,273	9,069	21,076	17,162
Gross profit	15,066	12,420	27,147	23,220
Operating expenses:
Sales and marketing	9,656	8,645	18,412	17,047
Research and development	2,431	1,848	4,671	3,555
General and administrative	4,175	2,830	7,126	6,063
Total operating expenses	16,262	13,323	30,209	26,665
Loss from operations	(1,196)	(903)	(3,062)	(3,445)
Interest income, net	46	45	100	98
Other (expense) income, net	(1)	(550)	213	(701)
Loss before provision for income taxes	(1,151)	(1,408)	(2,749)	(4,048)
Provision for income taxes	149	69	445	241
Net loss	$ (1,300)	$ (1,477)	$ (3,194)	$ (4,289)
Basic net loss per share	$ (0.10)	$ (0.12)	$ (0.25)	$ (0.34)
Diluted net loss per share	$ (0.10)	$ (0.12)	$ (0.25)	$ (0.34)
Basic weighted-average common shares outstanding	12,599	12,710	12,588	12,711
Diluted weighted-average common shares outstanding	12,599	12,710	12,588	12,711

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Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 01, 2011 Common Stock Class A	Aug. 01, 2011 Common Stock Class B
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	CYNOSURE INC
Entity Central Index Key	0000885306
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		9,673,172	2,939,161

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Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

Acquisitions

Note 6 — Acquisitions

ConBio

On June 27, 2011, Cynosure acquired the net assets of HOYA ConBio's aesthetic laser business, (ConBio), for $24.5 million in cash. The business purpose of this transaction was to acquire and incorporate ConBio's aesthetic laser product line which utilizes proprietary PhotoAcoustic energy technology including high-speed energy waves to penetrate the skin in nanoseconds, minimizing the amount of heat in each procedure, into Cynosure's product portfolio. ConBio's Q-Switched Nd:YAG technology is designed to treat a broad range of high-volume applications, including skin rejuvenation, skin toning, multi-color tattoo removal, wrinkle and acne scar reduction, pigmented lesions and vascular lesions. This acquisition was considered a business acquisition for accounting purposes.

Cynosure has retained an independent valuation firm to assess the fair value of the identifiable intangible assets acquired and is currently assessing the fair value of other assets acquired and liabilities assumed and plans to file pro forma financial information with the SEC within the applicable time period. Cynosure has preliminarily allocated the purchase price to the net tangible and intangible assets based on their estimated fair values as of June 27, 2011. As such, the assets acquired and liabilities assumed, including intangible assets, presented in the table below are provisional and will be finalized in a later period once the fair value procedures are completed.

The following table summarizes the estimated fair value as of June 27, 2011 of the net assets acquired (in thousands):

Purchase price:
Cash paid per Agreement	$	24,500
Total	$	24,500
Assets (liabilities) acquired:
Accounts receivable	$	1,709
Inventory		3,077
Prepaids and other assets		147
Property and equipment		528
Intangible assets		21,615
Accounts payable		(1,446	)
Accrued expenses		(430	)
Deferred revenue		(700	)
Total	$	24,500

Eleme Medical

On February 2, 2011, Cynosure acquired assets and certain liabilities of Eleme Medical for $2.5 million in cash. The business purpose of this transaction was to acquire and incorporate Eleme Medical's non-invasive SmoothShapes^® XV system for the temporary reduction in the appearance of cellulite into Cynosure's product portfolio and also included licensing rights to intellectual property related to the SmoothShapes technology. This acquisition was considered a business acquisition for accounting purposes. The goodwill recognized is attributable to expected synergies as the SmoothShapes XV technology will be integrated into Cynosure's U.S. and international distribution channel and complement the Cellulite product family.

The total purchase price was allocated to the net tangible and intangible assets based upon their fair values as of February 2, 2011. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. Cynosure acquired $2.5 million of net assets, including $1.0 million of identifiable intangible assets, and goodwill of $0.5 million. The identifiable intangible assets are being amortized over five years on a straight-line basis. All intangible assets, including goodwill, are deductible for income tax purposes over 15 years.

The following table summarizes the fair value as of February 2, 2011 of the net assets acquired (in thousands):

Purchase price:
Cash paid per Agreement	$	2,470
Total	$	2,470
Assets (liabilities) acquired:
Accounts receivable	$	161
Inventory		736
Property and equipment		363
Identifiable intangible assets		988
Goodwill		460
Accrued warranty and royalty		(238	)
Total	$	2,470

The following unaudited pro forma condensed consolidated operating results for the three and six months ended June 30, 2011 and 2010 summarizes the combined results of operations for Cynosure and the other two companies that were acquired during fiscal year 2011, ConBio and Eleme Medical. The unaudited pro forma condensed consolidated operating results includes the business combination accounting effects as if the acquisitions had been completed as of January 1, 2011 (for the 2011 period results) and January 1, 2010 (for the 2010 period results). These pro forma financial statements do not contain certain business combination accounting effects including intangible amortization related to the ConBio acquisition as the Company is currently evaluating the fair value of the assets acquired and liabilities assumed. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands)
Revenue	$	30,599		$	29,063		$	59,804		$	54,996
Pre-tax loss		(710	)		(1,850	)		(543	)		(5,492	)

Cynosure recorded $1.3 million of acquisition related costs for the three and six month periods ending June 30, 2011. This amount is primarily recorded in the general and administrative line on the consolidated statement of operations.

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Comprehensive Loss

6 Months Ended

Jun. 30, 2011

Comprehensive Loss

Comprehensive Loss

Note 11 — Comprehensive Loss

Comprehensive loss is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners.

The components of accumulated other comprehensive loss as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011			December 31, 2010
	(in thousands)
Unrealized gain on marketable securities, net of taxes	$	36		$	29
Cumulative translation adjustment		(1,170	)		(1,967	)
Total accumulated other comprehensive loss	$	(1,134	)	$	(1,938	)

The components of total comprehensive loss for the three and six month periods ended June 30, 2011 and 2010 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(in thousands)
Cumulative translation adjustment	$	228		$	(564	)	$	797		$	(1,220	)
Unrealized gain on marketable securities		21			20			7			18
Total other comprehensive gain (loss)		249			(544	)		804			(1,202	)
Reported net loss		(1,300	)		(1,477	)		(3,194	)		(4,289	)
Total comprehensive loss	$	(1,051	)	$	(2,021	)	$	(2,390	)	$	(5,491	)

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

Note 2 — Stock-Based Compensation

Cynosure recorded stock-based compensation expense of $0.7 million and $1.2 million for the three months ended June 30, 2011 and 2010, respectively. Cynosure recorded stock-based compensation expense of $1.3 million and $2.4 million for the six months ended June 30, 2011 and 2010, respectively. Cynosure capitalized $18,000 and $51,000 of stock-based compensation expense as part of inventory during the six months ended June 30, 2011 and 2010, respectively.

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individual holding the respective options, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(In thousands)
Cost of revenues	$	37	$	103	$	73	$	189
Sales and marketing		214		591		444		1,170
Research and development		116		160		236		338
General and administrative		292		363		572		740
Total stock-based compensation expense	$	659	$	1,217	$	1,325	$	2,437

Cash received from option exercises was $198,000 and $78,000 during the six months ended June 30, 2011 and 2010, respectively.

Cynosure granted 344,500 and 397,000 stock options during the six months ended June 30, 2011 and 2010, respectively. Cynosure has elected to use the Black-Scholes model to determine the weighted average fair value of options. The weighted average fair value of the options granted during the six months ended June 30, 2011 and 2010 was $7.47 and $5.82, respectively, using the following assumptions:

	Six Months Ended June  30,
	2011		2010
Risk-free interest rate		1.60% -2.37%		2.10% -2.50%
Expected dividend yield		—		—
Expected term		5.8 years		5.8 years
Expected volatility		55% -56%		59%
Estimated forfeiture rate		5%		5%

Option-pricing models require the input of various subjective assumptions, including the option's expected life and the price volatility of the underlying stock. Cynosure's estimated expected stock price volatility is based on its own historical volatility. Cynosure's expected term of options granted in the six months ended June 30, 2011 and 2010 was derived from the short-cut method. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield of zero is based on the fact that Cynosure has never paid cash dividends and has no present intention to pay cash dividends.

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Warranty Costs

6 Months Ended

Jun. 30, 2011

Warranty Costs

Warranty Costs

Note 8 — Warranty Costs

Cynosure typically provides a one-year parts and labor warranty on end-user sales of laser systems. Distributor sales generally include a warranty on parts only. Estimated future costs for initial product warranties are provided at the time of revenue recognition.

The following table provides the detail of the change in Cynosure's product warranty accrual during the six months ended a June 30, 2011, which is a component of accrued expenses in the consolidated balance sheets:

	June 30, 2011
	(in thousands)
Warranty accrual, beginning of period	$	2,112
Warranty provision related to new sales		2,306
Warranty provision assumed from acquisitions		530
Costs incurred		(1,980	)
Warranty accrual, end of period	$	2,968

Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed from the ConBio acquisition, including its warranty accrual. As a result, the warranty accrual related to the ConBio acquisition above is preliminary in nature.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions

Related Party Transactions

Note 13 — Related Party Transactions

As of June 30, 2011, El. En. S.p.A. (El.En.) owned 23% of Cynosure's outstanding common stock. Purchases of inventory from El.En. during the three months ended June 30, 2011 and 2010 were approximately $2.2 million and $1.6 million. Purchases of inventory from El.En. during the six months ended June 30, 2011 and 2010 were approximately $4.3 million and $3.0 million, respectively. As of June 30, 2011 and December 31, 2010, amounts due to related party for these purchases were approximately $3.0 million and $1.8 million, respectively. There were no amounts due from El.En. as of June 30, 2011 or December 31, 2010.

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Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information

Segment Information

Note 9 — Segment Information

Cynosure identifies operating segments as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Cynosure's chief decision-maker is a combination of the Chief Executive Officer and the Chief Financial Officer. Cynosure views its operations and manages its business as one segment, aesthetic treatment products and services.

The following table represents total revenue by geographic destination:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(in thousands)
United States	$	10,429	$	8,491	$	18,414	$	14,675
Europe		7,253		6,007		14,721		12,241
Asia / Pacific		5,449		5,447		9,571		9,114
Other		3,208		1,544		5,517		4,352
Total	$	26,339	$	21,489	$	48,223	$	40,382

Total assets by geographic area are as follows:

	June 30, 2011			December 31, 2010
	(in thousands)
United States	$	129,406		$	123,211
Europe		14,289			12,119
Asia / Pacific		8,267			8,279
Eliminations		(2,001	)		(1,797	)
Total	$	149,961		$	141,812

Long-lived assets by geographic area are as follows:

	June 30, 2011		December 31, 2010
	(in thousands)
United States	$	30,234	$	7,571
Europe		1,729		1,833
Asia / Pacific		1,936		1,886
Total	$	33,899	$	11,290

No individual country within Europe or Asia/Pacific represented greater than 10% of total revenue, total assets or total long lived assets for any period presented.

The increase in the amount of long-lived assets in the United States is due to both the intangible assets realized from the Eleme acquisition and the excess of the purchase price over the net assets acquired from the ConBio acquisition as Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed including identifiable intangible assets.

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Goodwill And Other Intangible Assets

6 Months Ended

Jun. 30, 2011

Goodwill And Other Intangible Assets

Goodwill And Other Intangible Assets

Note 7 — Goodwill and Other Intangible Assets

Changes to goodwill during the six months ended June 30, 2011 were as follows (in thousands):

	United States		Asia Pacific		Total
Balance — December 31, 2010	$	—	$	1,225	$	1,225
Acquisition		460		—		460
Translation adjustment		—		60		60
Balance — June 30, 2011	$	460	$	1,285	$	1,745

Other intangible assets consist of the following at June 30, 2011 and December 31, 2010 (in thousands):

	Technology Patents			Business Licenses			Customer Relationships			Other			Total
June 30, 2011
Cost	$	1,320		$	384		$	333		$	68		$	2,105
Translation adjustment		—			37			23			2			62
Accumulated amortization		(636	)		(129	)		(63	)		(5	)		(833	)
Balance, June 30, 2011	$	684		$	292		$	293		$	65		$	1,334
December 31, 2010
Cost	$	591		$	384		$	64		$	48		$	1,087
Translation adjustment		—			30			19			1			50
Accumulated amortization		(554	)		(109	)		(30	)		(2	)		(695	)
Balance, December 31, 2010	$	37		$	305		$	53		$	47		$	442

Cynosure purchased $1.0 million of identifiable intangible assets from its Eleme Medical acquisition, of which $0.7 million was assigned to technology patents, $0.3 million was assigned to customer relationships and $20,000 was assigned to trademarks in the six months ended June 30, 2011. These identifiable intangible assets are being amortized on a straight-line basis over a five year period.

Cynosure is currently evaluating the fair value of assets acquired and liabilities assumed from the ConBio acquisition, including identifiable intangible assets and has therefore excluded the estimated $21.6 million from the tables above.

Amortization expense for the three months ended June 30, 2011 and 2010 was $0.1 million and $16,000, respectively. Amortization expense for the six months ended June 30, 2011 and 2010, was $0.1 million and $32,000, respectively. Cynosure has approximately $41,000 of indefinite-life intangible assets that are included in other intangible assets in the table above. As of June 30, 2011, amortization expense on existing intangible assets for the next five years and beyond is as follows (table in thousands):

Remainder of 2011	$	145
2012		263
2013		263
2014		225
2015 and thereafter		397
Total	$	1,293

The amortization related to the estimated $21.6 million of identifiable intangible assets is excluded from the table above.

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Consolidated Statements Of Cash Flows (Parenthetical) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements Of Cash Flows
Net unrealized gain on marketable securities, deferred income tax provision	$ 18	$ 11

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Inventories

6 Months Ended

Jun. 30, 2011

Inventories

Inventories

Note 3 — Inventories

Cynosure states all inventories at the lower of cost or market, determined on a first-in, first-out method. Inventory includes material, labor and overhead and consists of the following:

	June 30, 2011		December 31, 2010
	(in thousands)
Raw materials	$	6,885	$	3,980
Work in process		2,462		711
Finished goods		17,672		13,993
	$	27,019	$	18,684

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Fair Value

6 Months Ended

Jun. 30, 2011

Fair Value

Fair Value

Note 4 — Fair Value

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable markets data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents Cynosure's fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of June 30, 2011 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	6,696	$	—	$	—	$	6,696
State and municipal bonds		—		22,828		—		22,828
Treasuries and government agencies		—		25,026		—		25,026
Equity securities		10		—		—		10
Total	$	6,706	$	47,854	$	—	$	54,560

(1) Included in cash and cash equivalents at June 30, 2011.

During the six months ended June 30, 2011, there were no significant transfers in and out of Level 1 and Level 2. Cynosure did not have any Level 3 financial assets at June 30, 2011 or December 31, 2010.

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Litigation

6 Months Ended

Jun. 30, 2011

Litigation

Litigation

Note 12 — Litigation

In 2005, Dr. Ari Weitzner, individually and as putative representative of a purported class, filed a complaint against Cynosure under the federal Telephone Consumer Protection Act (TCPA) in Massachusetts Superior Court in Middlesex County seeking monetary damages, injunctive relief, costs and attorneys fees. The complaint alleges that Cynosure violated the TCPA by sending unsolicited advertisements by facsimile to the plaintiff and other recipients without the prior express invitation or permission of the recipients. Under the TCPA, recipients of unsolicited facsimile advertisements are entitled to damages of up to $500 per facsimile for inadvertent violations and up to $1,500 per facsimile for knowing or willful violations. Based on discovery in this matter, the plaintiff alleges that approximately three million facsimiles were sent on Cynosure's behalf by a third party to approximately 100,000 individuals. In February 2008, several months after the close of discovery, the plaintiff served a motion for class certification, which Cynosure opposed on numerous factual and legal grounds, including that a nationwide class action may not be maintained in a Massachusetts state court by Dr. Weitzner, a New York resident; individual issues predominate over common issues; a class action is not superior to other methods of resolving TCPA claims; and Dr. Weitzner is an inadequate class representative. Cynosure also believes it has many merits defenses, including that the faxes in question do not constitute "advertising" within the meaning of the TCPA and many recipients had an established business relationship with Cynosure and are thereby deemed to have consented to the receipt of facsimile communications. The Court held a hearing on the plaintiff's class certification motion in June 2008, but no decision on the motion was rendered. In July 2010, the Court issued an order dismissing this matter without prejudice for Dr. Weitzner's failure to prosecute the case. In August 2010, Dr. Weitzner filed a motion for relief from the dismissal order, which the Court allowed. At a status conference held in November 2010, the Court confirmed that the class certification motion was still under advisement. Cynosure is not currently able to estimate the amount or range of loss that could result from an unfavorable outcome of this lawsuit.

In July 2008, Cynosure commenced a declaratory judgment action in the U.S. District Court for the District of Massachusetts requesting a declaration that Dr. Weitzner's and the putative class claims are covered under the Company's general liability insurance policies. In August 2008, Cynosure's insurance company filed an Answer and Counterclaim against Cynosure seeking a declaration that the Company's policy does not provide coverage for Dr. Weitzner's claims. In August 2008, Cynosure filed a reply to the Counterclaim. The insurance company filed a Motion for Summary Judgment in December 2008, and Cynosure cross moved for Summary Judgment in January 2009. The court held a hearing on the motions in February 2009, and in April 2009 rendered a decision that Cynosure's liability insurer is obligated to provide Cynosure with a defense to the Weitzner action and, if necessary, indemnify Cynosure for the putative class claims. Thereafter, Cynosure's liability insurer filed a motion for reconsideration, which Cynosure opposed. The court denied the insurer's motion in May 2009. In January 2010, the court entered an Order for Judgment consistent with its April 2009 decision that the insurer is obligated to defend Cynosure against the putative class claims and to indemnify Cynosure for any single damages, attorneys' fees or costs. Per agreement of the parties, Cynosure was awarded $0.4 million in fees and costs for the period through July 1, 2009. The insurer filed a Notice of Appeal of the judgment in January 2010. On May 12, 2011, the First Circuit issued an opinion reversing the District Court's decision in favor of Cynosure and ordering that judgment enter in favor of the insurer. Final judgment after remand was entered on May 12, 2011 and the case is now concluded.

In addition to the matters discussed above, from time to time, Cynosure is subject to various claims, lawsuits, disputes with third parties, investigations and pending actions involving various allegations against Cynosure incident to the operation of its business, principally product liability. Each of these other matters is subject to various uncertainties, and it is possible that some of these other matters may be resolved unfavorably to Cynosure. Cynosure establishes accruals for losses that management deems to be probable and subject to reasonable estimate. Cynosure believes that the ultimate outcome of these matters will not have a material adverse impact on its consolidated financial position, results of operations or cash flows.

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Short And Long-Term Marketable Securities

6 Months Ended

Jun. 30, 2011

Short And Long-Term Marketable Securities

Short And Long-Term Marketable Securities

Note 5 — Short and Long-Term Marketable Securities

Cynosure's available-for-sale securities at June 30, 2011 consist of approximately $47.9 million of investments in debt securities consisting of state and municipal bonds, treasuries and government agencies and approximately $10,000 in equity securities. All investments in available-for-sale securities are recorded at fair market value, with any unrealized gains and losses reported as a separate component of accumulated other comprehensive loss. As of June 30, 2011, Cynosure's marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Short-term marketable securities:
State and municipal bonds	$	19,300	$	19,290	$	10	$	—
Treasuries and government agencies		22,024		22,007		17		—
Equity securities		10		11		—		(1	)
Total short-term marketable securities	$	41,334	$	41,308	$	27	$	(1	)
Long-term marketable securities:
State and municipal bonds	$	3,528	$	3,518	$	10	$	—
Treasuries and government agencies		3,002		2,998		4		—
Total long-term marketable securities	$	6,530	$	6,516	$	14	$	—
Total available-for-sale securities	$	47,864	$	47,824	$	41	$	(1	)
Total marketable securities	$	47,864

As of December 31, 2010, Cynosure's marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-sale Securities:
Cash equivalents:
State and municipal bonds	$	1,109	$	1,109	$	—	$	—
Treasuries and government agencies		5,008		5,011		—		(3	)
Total cash equivalents	$	6,117	$	6,120	$	—	$	(3	)
Short-term marketable securities:
State and municipal bonds	$	13,416	$	13,420	$	—	$	(4	)
Treasuries and government agencies		45,974		45,953		31		(10	)
Equity securities		12		15		—		(3	)
Total short-term marketable securities	$	59,402	$	59,388	$	31	$	(17	)
Long-term marketable securities:
State and municipal bonds	$	5,191	$	5,200	$	—	$	(9	)
Treasuries and government agencies		4,799		4,798		1		—
Total long-term marketable securities	$	9,990	$	9,998	$	1	$	(9	)
Total available-for-sale securities	$	75,509	$	75,506	$	32	$	(29	)
Total marketable securities	$	69,392

As of June 30, 2011, Cynosure's available-for-sale debt securities mature as follows (in thousands):

	Total		Maturities
			Less Than One Year		One to Five Years		More than five years
State and municipal bonds	$	22,828	$	19,300	$	3,528	$	—
Treasuries and government agencies		25,026		22,024		3,002		—
Total available-for-sale debt securities	$	47,854	$	41,324	$	6,530	$	—

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 15 — Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) amended its accounting guidance on the presentation of other comprehensive income (OCI) in an entity's financial statements. The amended guidance eliminates the option to present the components of OCI as part of the statement of changes in shareholders equity and provides two options for presenting OCI: in a statement included in the income statement or in a separate statement immediately following the income statement. The amendments do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Adoption of this guidance will not have an impact on the consolidated financial statements of the Company.

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Consolidated Statements Of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating activities:
Net loss	$ (3,194)	$ (4,289)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization	2,971	2,888
Stock-based compensation expense	1,325	2,437
Gain on investments		(21)
Loss on disposal of fixed assets	4	7
Deferred income taxes		1
Accretion of discounts on marketable securities	638	448
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(2,565)	402
Inventories	(5,627)	(1,031)
Net book value of demonstration inventory sold	543	748
Prepaid expenses and other current assets	(108)	2,995
Accounts payable	3,371	(73)
Due to related party	1,225	748
Tax benefit from stock option exercises	(32)	(2)
Accrued expenses	1,748	588
Deferred revenue	(243)	(1,214)
Other noncurrent liability	2	(1)
Net cash provided by operating activities	58	4,631
Investing activities:
Purchases of property and equipment	(560)	(244)
Proceeds from the sales and maturities of marketable securities	49,103	29,741
Purchases of marketable securities	(28,196)	(53,603)
Acquisitions	(26,970)
Decrease (increase) in other noncurrent assets	4	(46)
Net cash used in investing activities	(6,619)	(24,152)
Financing activities:
Excess tax benefit on options exercised	32	2
Repurchases of common stock		(75)
Proceeds from stock option exercises	198	78
Payments on capital lease obligation	(29)	(133)
Net cash provided by (used in) financing activities	201	(128)
Effect of exchange rate changes on cash and cash equivalents	(165)	326
Net decrease in cash and cash equivalents	(6,525)	(19,323)
Cash and cash equivalents, beginning of the period	27,434	44,797
Cash and cash equivalents, end of the period	20,909	25,474
Supplemental cash flow information
Cash paid for interest	8	26
Cash paid for income taxes	491	178
Supplemental noncash investing and financing activities
Transfer of demonstration equipment from inventory to fixed assets	1,788	2,110
Net unrealized gain on marketable securities, net of $18 and $11 deferred income tax provision	$ 34	$ 21

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Interim Consolidated Financial Statements

6 Months Ended

Jun. 30, 2011

Interim Consolidated Financial Statements

Interim Consolidated Financial Statements

Note 1 — Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Cynosure, Inc. (Cynosure) for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the six months ended June 30, 2011 may not be indicative of the results that may be expected for the year ending December 31, 2011, or any other period.

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Net Loss Per Common Share

6 Months Ended

Jun. 30, 2011

Net Loss Per Common Share

Net Loss Per Common Share

Note 10 — Net Loss Per Common Share

Basic net loss per share was determined by dividing net loss by the weighted average common shares outstanding during the period. Diluted net loss per share was determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflect the dilutive effect, if any, of common stock options based on the treasury stock method. Common shares outstanding includes both Class A and Class B common stock as each participates equally in earnings. Class B shares are convertible at any time into shares of Class A on a one-for-one basis at the option of the holder.

A reconciliation of basic and diluted shares is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net loss	$	(1,300	)	$	(1,477	)	$	(3,194	)	$	(4,289	)
Basic weighted average common shares outstanding		12,599			12,710			12,588			12,711
Weighted average common equivalent shares		—			—			—			—
Diluted weighted average common shares outstanding		12,599			12,710			12,588			12,711
Basic net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)
Diluted net loss per share	$	(0.10	)	$	(0.12	)	$	(0.25	)	$	(0.34	)

For the three and six months ended June 30, 2011 and 2010, the number of basic and diluted weighted average shares outstanding was the same because any increase in the number of shares of common stock equivalents for those periods would be antidilutive based on the net loss for the period. During the three and six months ended June 30, 2011 and 2010, respectively, outstanding options to purchase 2.0 million and 1.2 million shares were excluded from the computation of diluted earnings per share because their inclusion would have been antidilutive.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

Note 14 — Income Taxes

At June 30, 2011, there are no material gross unrecognized tax benefits. Cynosure files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Cynosure is no longer subject to U.S. federal tax examinations by tax authorities for years before 2007. The Internal Revenue Service commenced an examination of Cynosure's 2008 and 2009 federal income tax returns during the six months ended June 30, 2011. With few exceptions, Cynosure is no longer subject to state and local income tax examinations by tax authorities for years before 2007. Additionally non-U.S. jurisdictions are generally no longer subject to income tax examinations by tax authorities for years before 2006.

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 20,909	$ 27,434
Short-term marketable securities	41,334	59,402
Accounts receivable, net	15,454	10,621
Inventories	27,019	18,684
Prepaid expenses and other current assets	4,306	3,902
Deferred income taxes	510	489
Total current assets	109,532	120,532
Property and equipment, net	8,589	8,892
Long-term marketable securities	6,530	9,990
Other noncurrent assets	25,310	2,398
Total assets	149,961	141,812
Liabilities and Stockholders' Equity
Accounts payable	9,690	4,840
Amounts due to related party	3,012	1,785
Accrued expenses	12,976	10,427
Deferred revenue	3,973	3,660
Capital lease obligation	73	133
Total current liabilities	29,724	20,845
Capital lease obligation, net of current portion	72	40
Deferred revenue, net of current portion	532	348
Other noncurrent liability	199	279
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value Authorized - 5,000 shares Issued - none
Class A and Class B common stock, $0.001 par value Authorized - 70,000 shares Issued - 9,822 Class A shares and 2,975 Class B shares at June 30, 2011; Issued - 9,786 Class A shares and 2,975 Class B shares at December 31, 2010, respectively	13	13
Additional paid-in capital	123,230	121,706
(Accumulated deficit) Retained earnings	(967)	2,227
Accumulated other comprehensive loss	(1,134)	(1,938)
Treasury stock, 149 Class A shares and 36 Class B shares, at cost	(1,708)	(1,708)
Total stockholders' equity	119,434	120,300
Total liabilities and stockholders' equity	$ 149,961	$ 141,812