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, 2012

OR

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

For the transition period _____ to_____.

Commission file number: 000-50644

Cutera, Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0492262
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

3240 Bayshore Blvd., Brisbane, California 94005

(Address of principal executive offices)

(415) 657-5500

(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.    Yes    x    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).    Yes x     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 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  ¨   Smaller reporting company ¨

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

The number of shares of Registrant’s common stock issued and outstanding as of July 31, 2012 was 14,125,094.

CUTERA, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	24
Item 1A	Risk Factors	24
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3	Defaults Upon Senior Securities	35
Item 4	Mine Safety Disclosures	35
Item 5	Other Information	35
Item 6	Exhibits	36
	Signature	37

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CUTERA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2012 (unaudited)			December 31, 2011 (audited)
Assets
Current assets:
Cash and cash equivalents	$	17,788		$	14,020
Marketable investments		62,794			74,666
Accounts receivable, net		6,203			5,193
Inventories		12,722			10,729
Deferred tax asset		52			55
Other current assets and prepaid expenses		1,443			1,432
Total current assets		101,002			106,095
Property and equipment, net		946			853
Long-term investments		840			3,027
Deferred tax asset, net of current portion		463			446
Intangibles, net		3,186			446
Goodwill		1,339			—
Other long-term assets		539			486
Total assets	$	108,315		$	111,353
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,199		$	2,573
Accrued liabilities		9,382			9,262
Deferred revenue		6,285			5,185
Total current liabilities		17,866			17,020
Deferred rent		1,400			1,448
Deferred revenue, net of current portion		905			840
Income tax liability		469			478
Total liabilities		20,640			19,786
Commitments and Contingencies (Note 12)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; authorized: 5,000,000 shares; none issued and outstanding		—			—
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 14,124,678 and 13,948,395 shares at June 30, 2012 and December 31, 2011, respectively		14			14
Additional paid-in capital		98,044			95,719
Accumulated deficit		(10,058	)		(3,325	)
Accumulated other comprehensive loss		(325	)		(841	)
Total stockholders’ equity		87,675			91,567
Total liabilities and stockholders’ equity	$	108,315		$	111,353

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

3

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net revenue:
Products	$	15,156		$	11,301		$	27,010		$	19,594
Service		4,435			3,594			8,308			6,922
Total net revenue		19,591			14,895			35,318			26,516
Cost of revenue:
Products		6,968			4,210			12,619			7,498
Service		2,306			2,266			4,500			4,202
Total cost of revenue		9,274			6,476			17,119			11,700
Gross profit		10,317			8,419			18,199			14,816
Operating expenses:
Sales and marketing		7,112			6,348			14,549			12,294
Research and development		1,872			2,346			4,088			4,476
General and administrative		2,854			2,588			6,349			4,916
Total operating expenses		11,838			11,282			24,986			21,686
Loss from operations		(1,521	)		(2,863	)		(6,787	)		(6,870	)
Interest and other income, net		144			199			240			383
Loss before income taxes		(1,377	)		(2,664	)		(6,547	)		(6,487	)
Provision (benefit) for income taxes		89			(208	)		186			(176	)
Net loss	$	(1,466	)	$	(2,456	)	$	(6,733	)	$	(6,311	)
Net loss per share:
Basic and Diluted	$	(0.10	)	$	(0.18	)	$	(0.48	)	$	(0.46	)
Weighted-average number of shares used in per share calculations:
Basic and Diluted		14,095			13,765			14,027			13,716

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

4

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net loss	$	(1,466	)	$	(2,456	)	$	(6,733	)	$	(6,311	)
Other comprehensive income:
Net change in unrealized gain on available-for-sale securities		373			510			536			690
Provision (benefit) for income taxes related to items of other comprehensive income		(17	)		68			20			68
Other comprehensive income, net of tax		390			442			516			622
Comprehensive loss	$	(1,076	)	$	(2,014	)	$	(6,217	)	$	(5,689	)

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

5

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(6,733	)	$	(6,311	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,525			2,211
Tax benefit from stock-based compensation		—			16
Excess tax benefit related to stock-based compensation		—			(16	)
Depreciation and amortization		768			319
Other		—			(35	)
Changes in assets and liabilities:
Accounts receivable		(1,057	)		936
Inventories		(441	)		(1,853	)
Other current assets and prepaid expenses		503			1,439
Other long-term assets		(53	)		—
Accounts payable		(374	)		884
Accrued liabilities		(241	)		675
Deferred rent		3			(6	)
Deferred revenue		385			(548	)
Income tax liability		(9	)		17
Net cash used in operating activities		(5,724	)		(2,272	)
Cash flows from investing activities:
Acquisition of property and equipment		(311	)		(397	)
Business acquisition		(5,091	)		—
Proceeds from sales of marketable and long-term investments		17,795			10,441
Proceeds from maturities of marketable investments		19,835			28,436
Purchase of marketable investments		(23,536	)		(32,125	)
Net cash provided by investing activities		8,692			6,355
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		800			865
Excess tax benefit related to stock-based compensation		—			16
Net cash provided by financing activities		800			881
Net increase in cash and cash equivalents		3,768			4,964
Cash and cash equivalents at beginning of period		14,020			12,519
Cash and cash equivalents at end of period	$	17,788		$	17,483

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

6

CUTERA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Description of Operations and Principles of Consolidation.

Cutera, Inc. (Cutera or the Company) is a global provider of laser and light-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets the CoolGlide, Xeo, Solera, GenesisPlus and ExcelV product platforms for use by physicians and other qualified practitioners to allow its customers to offer safe and effective aesthetic treatments to their customers. The Xeo and Solera platforms offer multiple hand pieces and applications, which allow customers to upgrade their systems (Upgrade revenue). In addition to systems and Upgrade revenue, the Company generates revenue from the sale of post warranty service contracts, providing services for products that are out of warranty, and Titan hand piece refills.  In Japan the Company also distributes third party manufactured dermal fillers, cosmeceuticals and a Q-switched laser system called myQ.

In February 2012, the Company acquired the global aesthetic business unit of IRIDEX Corporation (or Iridex), which included various laser systems (such as the VariLite and Gemini) and an installed base of customers, whose products will be serviced by the Company.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries in Australia, Canada, France, Japan, Spain, and the United Kingdom that market, sell and service its products outside of the United States. Effective March 31, 2012, the Company decided to discontinue its direct operations in Spain and the United Kingdom and instead plans on seeking a distributor to market its products in these countries. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all inter-company transactions and balances have been eliminated.

Unaudited Interim Financial Information

The financial information filed is unaudited. The Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The December 31, 2011 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (GAAP). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The Condensed Consolidated Financial Statements should be read in conjunction with the Company’s financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission, or SEC, on March 15, 2012.

Use of Estimates

The preparation of interim Condensed Consolidated Financial Statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported and disclosed in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates these estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, provision for excess and obsolete inventories, fair values of marketable and long-term investments, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Note 2. Cash and Cash Equivalents, Marketable Securities and Long-Term Investments

The Company considers all highly liquid investments, with an original maturity of three months or less at the time of purchase, to be cash equivalents. Investments in debt securities are accounted for as “available-for-sale” securities, carried at fair value with unrealized gains and losses reported in other comprehensive loss, held for use in current operations and classified in current assets as “Marketable investments” and in long term assets as “Long-term investments.”

7

The following tables summarize unrealized gains and losses related to our marketable investments and long-term investments, both designated as available-for-sale (in thousands):

June 30, 2012	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,244		$	—	$	—		$	2,244
Money market funds		12,919			—		—			12,919
Commercial paper		2,625			—		—			2,625
Total cash and cash equivalents		17,788			—		—			17,788
Marketable securities:
U.S. government notes		1,600			2		—			1,602
U.S. government agencies		32,376			43		(4	)		32,415
Municipal securities		5,733			38		(1	)		5,770
Commercial paper		3,926			1		—			3,927
Corporate debt securities		19,072			21		(13	)		19,080
Total marketable investments		62,707			105		(18	)		62,794
Long-term investment in auction rate securities		1,200			—		(360	)		840
Total cash, cash equivalents, marketable investments and long-term investments	$	81,695		$	105	$	(378	)	$	81,422

December 31, 2011	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,153		$	—	$	—		$	2,153
Money market funds		7,318			—		—			7,318
Commercial paper		4,549			—		—			4,549
Total cash and cash equivalents		14,020			—		—			14,020
Marketable securities:
U.S. government notes		3,655			10		—			3,665
U.S. government agencies		41,535			44		(14	)		41,565
Municipal securities		6,091			44		(1	)		6,134
Commercial paper		4,747			1		(1	)		4,747
Corporate debt securities		18,574			15		(34	)		18,555
Total marketable investments		74,602			114		(50	)		74,666
Long-term investment in auction rate securities		3,900			—		(873	)		3,027
Total cash, cash equivalents, marketable investments and long-term investments	$	92,522		$	114	$	(923	)	$	91,713

As of June 30, 2012 and December 31, 2011, the total gross unrealized losses were $378,000 and $923,000 respectively and were primarily related to long-term investments in auction rate securities (ARS), which were in an unrealized loss position for 12 months or greater. No other securities were in unrealized loss positions for more than 12 months.  The unrealized losses in the ARS securities are not attributed to changes in credit risk and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

Since February 2008, uncertainties in the credit markets affected the majority of ARS investments and auctions for the Company’s investments in these securities have failed to settle on their respective settlement dates. However, since 2009 $12.2 million of ARS were redeemed at full par value. The maturity date for the one remaining ARS investment in the Company’s portfolio is 2041.

8

The following table summarizes the estimated fair value of our securities available-for-sale and classified as cash and cash equivalents, marketable investments and long-term investments classified by the contractual maturity date of the security as of June 30, 2012 (in thousands):

	Amount
Due in less than one year	$	33,044
Due in 1 to 3 years		32,375
Due in 3 to 5 years		—
Due in 5 to 10 years		—
Due in greater than 10 years		840
	$	66,259

Note 3. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

● Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

● Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of June 30, 2012, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

June 30, 2012	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	12,919		—		—	$	12,919
Commercial paper		—		2,625		—		2,625
Short-term marketable investments:
U.S. government notes		—		1,602		—		1,602
U.S. government agencies		—		32,415		—		32,415
Municipal securities		—		5,770		—		5,770
Commercial paper		—		3,927		—		3,927
Corporate debt securities		—		19,080		—		19,080
Long-term investments:
Available-for-sale auction rate securities		—		—		840		840
Total assets at fair value	$	12,919	$	65,419	$	840	$	79,178

9

As of December 31, 2011, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2011	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	7,318		—		—	$	7,318
Commercial paper		—		4,549		—		4,549
Short-term marketable investments:
U.S. government notes		—		3,665		—		3,665
U.S. government agencies		—		41,565		—		41,565
Municipal securities		—		6,134		—		6,134
Commercial paper		—		4,747		—		4,747
Corporate debt securities		—		18,555		—		18,555
Long-term investments:
Available-for-sale auction rate securities		—		—		3,027		3,027
Total assets at fair value	$	7,318	$	79,215	$	3,027	$	89,560

The Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining maturity of the Company’s Level 2 investments as of June 30, 2012 is less than 36 months and all of these investments are rated by S&P and Moody’s at A or better except for one security with a fair value of $450,000 which was rated as A when purchased but was downgraded and rated as BBB+.

At June 30, 2012, observable market information was not available to determine the fair value of the Company’s ARS investments. Therefore, the fair value was based on broker-provided valuation models that relied on Level 3 inputs including those that are based on expected cash flow streams and collateral values, assessments of counterparty credit quality, default risk underlying the security, market discount rates and overall capital market liquidity. The expected future cash flows of the ARS were discounted using a risk adjusted discount rate that compensated for the illiquidity. Projected future cash flows over the economic life of the ARS (of approximately 12.5 years) were modeled based on the contractual penalty rates for the security added to a tax adjusted LIBOR interest rate curve. The discount rates that were applied to the cash flows were based on a premium over the projected yield curve and included an adjustment for credit, illiquidity, and other risk factors. The valuation of the Company’s ARS investment is subject to uncertainties that are difficult to predict. Factors that may impact the valuation in the future include changes to credit ratings of the security, as well as to the underlying assets supporting that security, rates of default of the underlying assets, underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. This financial instrument is classified within Level 3 of the fair value hierarchy.

The table presented below summarizes the change in carrying value associated with Level 3 financial assets, which represents the Company’s investment in long term ARS, for the three months ended June 30, 2012 (in thousands):

Balance at December 31, 2011	$	3,027
Total gains and losses included in other comprehensive loss		513
Settlements		(2,700	)
Balance at June 30, 2012	$	840

Note 4. Inventories

Inventories consist of the following (in thousands):

	June 30, 2012		December 31, 2011
Raw materials	$	7,533	$	6,587
Finished goods		5,189		4,142
Total	$	12,722	$	10,729

10

Note 5. Acquisition

On February 2, 2012, Cutera acquired certain assets and liabilities of Iridex’s global aesthetics business unit for $5.1 million in cash. This business is engaged in developing, manufacturing, marketing and servicing laser-based medical systems and delivery devices. The business purpose of this transaction was to acquire access to an expanded installed base of customers, add to Cutera’s product offerings and acquire a recurring stream of service revenue. This acquisition was considered a business combination for accounting purposes, and as such, in addition to valuing all the assets, the Company recorded goodwill associated with the expected synergies from leveraging the customer relationships and integrating new product offerings into the Company’s business.

The fair values of the assets acquired were determined to be $4.8 million of net tangible and intangible assets and $1.3 million of goodwill. The customer relationship intangible assets are being amortized over 5 years on a straight-line basis. Other intangible assets are being amortized over 11 months to 5 years from the date of acquisition on a straight-line basis.

The recorded purchase price amounts are preliminary and subject to change as the Company is awaiting additional information related to inventory valuation and experience with respect to inventory usage.

The following table summarizes the fair value as of February 2, 2012 of the net assets acquired (in thousands):

Purchase price paid	$	5,091
Assets (liabilities acquired)
Inventory		1,552
Customer relationship intangible assets		2,510
Other identified intangible assets		780
Goodwill		1,339
Deferred service revenue		(780	)
Accrued warranty liability		(310	)
Total	$	5,091

Disclosure of the amounts of revenue and earnings of the asset and liabilities of the acquired Iridex aesthetics business is not practicable because the acquired business has been immediately integrated into Cutera's operations.

Note 6. Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006; a technology sublicense acquired in 2002; and, intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit. The components of intangible assets were as follows (in thousands):

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	862	$	356
Technology sublicense		538		538		—
Customer relationship intangible related to acquisition		2,510		209		2,301
Other identified intangible assets related to acquisition		780		251		529
Goodwill		1,339		—		1,339
Total	$	6,385	$	1,860	$	4,525

11

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	793	$	425
Technology sublicense		538		517		21
Total	$	1,756	$	1,310	$	446

Amortization expense for intangible assets was $549,000 and $96,000 for the six-month periods ended June 30, 2012 and 2011 respectively.

Based on intangible assets recorded at June 30, 2012, and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):

Fiscal Year Ending December 31,	Amount
2012 (remainder)	$	620
2013		696
2014		696
2015		569
2016		558
Thereafter		47
Total	$	3,186

Note 7. Warranty

The Company provides a standard one-year warranty on all systems. Warranty coverage provided is for labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost of the standard warranty coverage as a charge to costs of revenue when revenue is recognized. The estimated warranty cost is based on historical product performance. To determine the estimated warranty reserve, the Company utilizes actual service records to calculate the average service expense per system and applies this to the equivalent number of units exposed under warranty. The Company updates these estimated charges every quarter.

The following table provides the changes in the product warranty accrual for the six-month period ended June 30, 2012 (in thousands):

Beginning Balance – December 31, 2011	$	1,121
Add: Accruals for warranties issued during the period		1,743
Add: Warranties assumed with business acquisition		310
Less: Settlements made during the period		(1,935	)
Ending Balance –June 30, 2012	$	1,239

Note 8. Deferred Service Contract Revenue

Service contract revenue is recognized on a straight-line basis over the period of the applicable extended warranty contract.

12

The following table provides changes in deferred service contract revenue for the six-month period ended June 30, 2012 and 2011 (in thousands):

	June 30
	2012			2011
Beginning Balance	$	5,838			$	6,765
Add:  Payments received		6,033				4,226
Add:  Contract revenue assumed with business acquisition		780				—
Less:  Revenue recognized		(5,645	)			(4,749	)
Ending Balance	$	7,006			$	6,242

Costs incurred under service contracts were $3.6 million for the six-month period ended June 30, 2012 and $2.3 million for the six-month period ended June 30, 2011 and are recognized as incurred.

Note 9. Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the three and six-month periods ended June 30, 2012 and 2011 was as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Cost of revenue	$	168	$	183	$	311	$	326
Sales and marketing		159		177		299		415
Research and development		147		197		293		340
General and administrative		313		768		622		1,130
Total stock-based compensation expense	$	787	$	1,325	$	1,525	$	2,211

Under the 2004 Equity Incentive Plan, the Company issued 176,283 shares of common stock during the six-month period ended June 30, 2012, in conjunction with stock options exercised, restricted stock units released and purchases associated with the Employee Stock Purchase Plan.

Note 10. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the year. Diluted net loss per common share is the same as basic net loss per common share, as the effect of the potential common stock equivalents is anti-dilutive and as such is excluded from the calculations of the diluted net loss per share.

The following number of shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Options to purchase common stock		3,463		3,520		3,564		3,430
Restricted stock units		51		65		53		65
Employee stock purchase plan shares		53		46		53		46
Total		3,567		3,631		3,670		3,541

Note 11. Income Taxes

The Company’s income tax provision for the three and six-month periods ended June 30, 2012 and 2011 was primarily related to income taxes of the Company’s non-U.S. operations. The Company recorded a 100% valuation allowance against its U.S. deferred tax assets and as such did not record any income tax benefit related to its U.S. loss for the three and six-month periods ended June 30, 2012 and 2011.

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For the three and six months ended June 30, 2012, the Company’s income tax provision was $89,000 and $186,000, compared to a benefit of $208,000 and $176,000 for the three and six months ended June 30, 2011. The income tax benefit for the three and six-month periods ended June 30, 2011 was primarily related to the carryback of fiscal year 2010 federal losses to obtain a $246,000 refund of alternative minimum taxes paid for fiscal year 2008, reduced by the tax impact of the Company’s non-U.S. operations.

The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. As of June 30, 2012 and December 31, 2011, the Company had a 100% valuation allowance against its U.S. deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considered available positive and negative evidence giving greater weight to its recent cumulative losses and its ability to carry-back losses against prior taxable income and lesser weight to its projected financial results due to the challenges of forecasting future periods. The Company also considered, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

As of June 30, 2012, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined and disclosed pursuant to FASB ASC Topic 740 as of December 31, 2011.

Note 12. Commitments and Contingencies

Purchase Commitments

The Company maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous supply for key components. The Company’s liability in these purchase commitments is generally restricted to a forecasted time-horizon as agreed between the parties. These forecasted time-horizons can vary among different suppliers. The Company’s open inventory purchase commitments with its suppliers were not significant at June 30, 2012.

Litigation and Litigation Settlements

The Company is named from time to time as a party to product liability and contractual lawsuits in the normal course of business. The Company routinely assesses the likelihood of any adverse judgments or outcomes related to legal matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that the Company shall incur a loss, and whether the loss is estimable. As of June 30, 2012, the Company had accrued $449,000 related to pending product liability and contractual lawsuits.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward-Looking Statements

The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011 as contained in our annual report on Form 10-K filed with the SEC on March 15, 2012. This quarterly report, including the following sections, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout this report, and particularly in this Item 2, the forward-looking statements are based upon our current expectations, estimates and projections and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” and other similar terms. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements relating to our future financial performance, the ability to grow our business, increase our revenue, manage expenses, generate additional cash, achieve and maintain profitability, develop and commercialize existing and new products and applications, and improve the performance of our worldwide sales and distribution network, and the outlook regarding long term prospects. These forward-looking statements involve risks and uncertainties. The cautionary statements set forth below and those contained in Part II, Item 1A – “Risk Factors” commencing on page 24, identify important factors that could cause actual results to differ materially from those predicted in any such forward-looking statements. We caution you to not place undue reliance on these forward-looking statements, which reflect management’s analysis and expectations only as of the date of this report. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.

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Introduction

The Management’s Discussion and Analysis, or MD&A, is organized as follows:

● Executive Summary. This section provides a general description and history of our business, a brief discussion of our product lines and the opportunities, trends, challenges and risks we focus on in the operation of our business.

● Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by critical accounting estimates.

● Results of Operations. This section provides our analysis and outlook for the significant line items on our Consolidated Statements of Operations.

● Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments.

Executive Summary

Company Description. We are a global medical device company specializing in the design, development, manufacture, marketing and servicing of laser and light-based aesthetics systems for practitioners worldwide. We offer easy-to-use products based on six platforms — CoolGlide®, Xeo®, Solera®, GenesisPlusTM, ExcelVTM and myQTM, each of which enables physicians and other qualified practitioners to perform safe and effective aesthetic procedures for their customers. The Xeo and Solera platforms offer multiple hand pieces and applications, which allow customers to upgrade their systems, which we treat as Upgrade revenue. In addition to systems and Upgrade revenue, we generate revenue from the sale of post warranty service contracts, providing services for products that are out of warranty, Titan hand piece refills, and third party manufactured dermal fillers and cosmeceutical products.

In February 2012, we acquired the global aesthetic business unit of Iridex Inc., which included various laser systems (such as the VariLite and Gemini) and an installed base of customers, whose products will be serviced by us.

Our corporate headquarters and U.S. operations are located in Brisbane, California, from where we conduct our manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative activities. In the United States, we market, sell and service our products through direct sales and service employees, and a distribution relationship with PSS World Medical Shared Services, Inc. (“PSS”), a wholly owned subsidiary of PSS World Medical which has over 700 sales representatives serving physician offices throughout the United States. We also sell certain items such as our Titan hand piece refills and marketing brochures online.

International sales are generally made through direct sales employees and a worldwide distributor network in over 35 countries. Outside of the United States, we have a direct sales presence in Australia, Canada, France, Japan, Spain, and the United Kingdom. Effective March 31, 2012, we decided to discontinue our direct operations in Spain and the United Kingdom and instead plan on seeking a distributor to market our products in these countries.

Products

Our revenue is derived from the sale of Products, Upgrades, Service, Titan hand piece refills, and Dermal fillers and cosmeceutical products. Product revenue represents the sale of a system. A system consists of a console that incorporates a universal graphic user interface, a laser and/or light-based module, control system software and high voltage electronics; as well as one or more hand pieces. However, depending on the application, the laser or light-based module is sometimes contained in the hand piece, such as with our Pearl and Pearl Fractional applications, instead of within the console.

We offer our customers the ability to select the system that best fits their practice at the time of purchase and then to cost-effectively add applications to their system as their practice grows. This provides customers the flexibility to upgrade their systems whenever they want and provides us with a source of recurring revenue which we classify as Upgrade revenue. Service revenue relates to amortization of prepaid service contracts, direct billings for detachable hand piece replacements and revenue for parts and labor on out-of-warranty products. Titan hand piece refill revenue is associated with our Titan hand piece which requires replacement of the optical source after a set number of pulses have been used. In Japan, we distribute Merz Pharma GmbH’s (Merz) Radiesse® dermal filler product; and Obagi Medical Products, Inc.’s (Obagi) cosmeceutical products.

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Significant Business Trends

We believe that our ability to grow revenue will be primarily dependent on the following:

● Continuing to expand our product offerings ─ both through internal development and sourcing from other vendors.

● Ongoing investment in our global sales and marketing infrastructure.

● Use of clinical results to support new aesthetic products and applications.

● Enhanced luminary development and reference selling efforts (to develop a location where our products can be displayed and used to assist in selling efforts).

● Customer demand for our products.

● Consumer demand for the application of our products.

● Marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those specialties.

● Generating ongoing revenue from our growing installed base of customers through the sale of Service, Upgrade, Titan hand piece refills, and Dermal fillers and cosmeceutical products.

Geographical revenue

Our U.S. revenue increased by $2.1 million, or 38%, in the three-month period ended June 30, 2012, and by $4.2 million or 43%, in the six-month period ended June 30, 2012, compared to the same periods in 2011. This increase was due primarily to our recent new product introductions (GenesisPlus and ExcelV), increased promotional activities and improvements in the U.S. macroeconomic environment.

For the three and six months ended June 30, 2012, out international revenue increased by $2.6 million or 28%, and by $4.6 million, or 27%, respectively, compared to the same periods in 2011. Our international revenue was generated through direct sales employees in Australia, Canada, France, Japan, (U.K. and Spain until March 31, 2012) as well as a worldwide distributor network in over 35 countries. Over the past nine months, we have decided to shift from a direct sales model to a distributor model in Spain, U.K. and Switzerland. In addition to France, where we continue to have a direct sales and service team, our European revenue is sourced from distributors. These changes have not had a material negative impact on or European sourced revenue in the three and six months ended June 30, 2012, compared to the same periods in the prior year.

Upgrade Revenue

In the past, we introduced new products that allowed existing customers to upgrade their previously purchased systems to obtain benefits from the additional capabilities, which drove our Upgrade revenue. However, since 2008 we have not introduced any new products that our customers could purchase as an upgrade to their previously purchased system. Instead we have launched new stand-alone products (GenesisPlus, ExcelV, myQ). As a result, our Upgrade revenue has declined since 2009.

Iridex Aesthetic Business Acquisition

We acquired Iridex’s aesthetic business unit in February 2012. This acquisition was the primary driver of the $841,000 increase in our Service revenue in the three-month period ended June 30, 2012, and the $1.4 million increase in the six-month period ended June 30, 2012, compared to the respective periods in 2011. For the three and six-months ended June 30, 2012, we generated $624,000 of Iridex product revenue, primarily from the sale of VariLite and Gemini systems. The VariLite is a small compact vascular product that complements our ExcelV and other vascular products. We believe that our Product revenue will have a favorable impact from this acquisition for the remainder of 2012.

Factors that May Impact Future Performance.

Our industry is impacted by numerous competitive, regulatory, macroeconomic and other significant factors. Our industry is highly competitive and our future performance depends on our ability to compete successfully. Additionally, our future performance is dependent upon our ability to continue to expand our product offerings, develop innovative technologies, obtain regulatory clearances for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture our products cost-effectively, and successfully market and distribute our products in a profitable manner. If we fail to execute on the aforementioned initiatives, our business would be adversely affected. A detailed discussion of these and other factors that could impact our future performance are provided in Part II, Item 1A “Risk Factors” section below.

Critical Accounting Policies and Estimates.

The preparation of our Condensed Consolidated Financial Statements and related disclosures in conformity with generally accepted accounting principles in the United States, or GAAP, requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates, judgments and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

Critical accounting estimates, as defined by the Securities and Exchange Commission (SEC), are those that are most important to the portrayal of our financial condition and results of operations and require our management’s most difficult and subjective judgments and estimates of matters that are inherently uncertain. The accounting policies and estimates that we consider to be critical, subjective, and requiring judgment in their application are summarized in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 15, 2012. There have been no significant changes to the accounting policies and estimates disclosed in our Form 10-K, except for the following:

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Long-Lived Assets Impairment:

In February 2012, we acquired the global aesthetic business unit of IRIDEX Corporation, which included various laser systems (such as the VariLite and Gemini) and an installed base of customers, whose products will be serviced by us. This acquisition was considered a business combination for accounting purposes, and as such, in addition to valuing all the assets, we recorded goodwill associated with the expected synergies from leveraging the customer relationships and integrating new product offerings into our business. The fair values of the assets acquired were determined to be $4.8 million of net tangible and intangible assets and $1.3 million of goodwill. Long-lived assets, such as property and equipment, intangible assets and goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not ultimately be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its ultimate disposition. If the sum of the expected future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Through June 30, 2012, there have been no such impairments.

Results of Operations

The following table sets forth selected consolidated financial data for the periods indicated, expressed as a percentage of total revenue, net. Percentages in this table and throughout our discussion and analysis of financial condition and results of operations may reflect rounding adjustments.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net revenue		100	%		100	%		100	%		100	%
Cost of revenue		47	%		43	%		48	%		44	%
Gross margin		53	%		57	%		52	%		56	%
Operating expenses:
Sales and marketing		36	%		43	%		41	%		46	%
Research and development		10	%		16	%		12	%		17	%
General and administrative		15	%		17	%		18	%		19	%
Total operating expenses		61	%		76	%		71	%		82	%
Loss from operations		(8	)%		(19	)%		(19	)%		(26	)%
Interest and other income, net		1	%		1	%		1	%		1	%
Loss before income taxes		(7	)%		(18	)%		(18	)%		(25	)%
(Benefit) provision for income taxes		—			(2	)%		1	%		(1	)%
Net loss		(7	)%		(16	)%		(19	)%		(24	)%

Total Net Revenue

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012			% Change			2011
Revenue mix by geography:
United States	$	7,834			38	%	$	5,697		$	14,145			43	%	$	9,904
International		11,757			28	%		9,198			21,173			27	%		16,612
Consolidated total revenue	$	19,591			32	%	$	14,895		$	35,318			33	%	$	26,516
United States as a percentage of total revenue		40	%					38	%		40	%					37	%
International as a percentage of total revenue		60	%					62	%		60	%					63	%
Revenue mix by product category:
Products	$	11,690			44	%	$	8,142		$	20,123			49	%	$	13,487
Upgrades		797			(7	% )		856			1,622			(3	% )		1,677
Service		4,435			23	%		3,594			8,308			20	%		6,922
Titan hand piece refills		1,216			(3	% )		1,249			2,346			2	%		2,306
Dermal fillers and cosmeceuticals		1,453			38	%		1,054			2,919			37	%		2,124
Consolidated total revenue	$	19,591			32	%	$	14,895		$	35,318			33	%	$	26,516

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Discussion of Revenue by Product Type:

Product Revenue

As explained in more detail in the Products section of the Executive Summary above, some of our products consist of a configurable system platform that includes a console and one or more hand pieces. Each product is configured to give our customers the ability to select the combination of platform and hand pieces that provides the applications that best fit their practice.

Product revenue increased by $3.5 million or 44% in the three-month period ended June 30, 2012, compared to the same period in 2011, and by $6.6 million or 49% in the six-month period ended June 30, 2012 compared to the same period in 2011. These increases in revenue were due primarily to the FDA clearance of our GenesisPlus system for toenail fungus in April 2011, the commencement of ExcelV shipments in the second quarter of 2011, increases in Xeo sales due to promotional activity and improvement in the U.S. macroeconomic environment.

Upgrade Revenue

As explained in more detail in the Products section of the Executive Summary above, our configurable system platforms allow customers to add applications to their existing systems to meet the changing needs of their practices. In some cases, when certain applications are desired that are only available on a platform other than the one owned by the customer, the Upgrade revenue will include a platform exchange and additional hand pieces.

Upgrade revenue decreased by $59,000, or 7%, in the three-month period ended June 30, 2012, and by $55,000, or 3%, in the six-month periods ended June 30, 2012, compared to the same periods in 2011. In the past, we introduced new products that allowed existing customers to upgrade their previously purchased systems to take advantage of the additional capabilities, which drove our Upgrade revenue. However, recently we have launched stand alone products (GenesisPlus and ExcelV) versus products that can be an upgrade to an existing system, which has resulted in a decline of our upgrade revenue.

Service Revenue

Our worldwide Service revenue increased by $841,000, or 23%, in the three-month period ended June 30, 2012, compared to the same period in 2011, and by $1.4 million, or 20%, in the six-month period ended June 30, 2012, compared to the same period in 2011. This increase was primarily the result of Service revenue from the Iridex business acquisition.

Titan Hand Piece Refill Revenue

Our Titan hand piece refill revenue decreased by $33,000 or 3% in the three-month period ended June 30, 2012, and increased by $40,000, or 2%, in the six-month period ended June 30, 2012, compared to the same periods in 2011. The decrease in the three-month period ended June 30, 2012 and the increase in the six-month period ended June 30, 2012 were due primarily to the growth in Titan refill revenue in Japan offset by a decrease in U.S. Titan refill revenue.

Dermal Filler and Cosmeceuticals Revenue

Our Dermal fillers and cosmeceuticals revenue increased by $399,000, or 38%, in the three-month period ended June 30, 2012 and by $795,000, or 37%, in the six-month period ended June 30, 2012, compared to the same periods in 2011. This increase was due primarily to the higher number of customers purchasing Obagi and Merz distributed products in Japan, and due to the expansion of product lines being distributed.

Discussion of Revenue by Geography:

U.S. Revenue

Our U.S. revenue increased by $2.1 million, or 38%, in the three-month period ended June 30, 2012, and by $4.2 million or 43%, in the six-month period ended June 30, 3012, compared to the same periods in 2011. This increase was primarily attributable to an increase in Product revenue due to the:

● FDA clearance of our GenesisPlus system for onychomycosis, or toenail fungus, in April 2011;

● Commencement of ExcelV shipments in the second quarter of 2011;

● Increased sales of our Xeo platform as a result of promotional activities; and

● Improvements in the U.S. macroeconomic enviroment.

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International Revenue

International revenue increased by $2.6 million, or 28%, in the three-month period ended June 30, 2012, compared to the same period in 2011, and by $4.6 million, or 27%, in the six-month period ended June 30, 2012, compared to the same period in 2011. This increase was primarily attributable to:

● Higher Product revenue from Canada, France and many countries in our Asia Pacific region; and

● An increase in our Dermal filler and cosmeceuticals revenue in Japan, due primarily to additional Obagi and Merz product lines being added and a higher number of customers purchasing such products from Cutera.

Gross Profit

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012			% Change			2011
Gross profit	$	10,317			23	%	$	8,419		$	18,199			23	%	$	14,816
As a percentage of total net revenue		53	%					57	%		52	%					56	%

Our cost of revenue consists primarily of material, personnel expenses, royalty expense, warranty and manufacturing overhead expenses.

Gross margin (which is gross profit divided by net revenue) was 53% in the three-month period ended June 30, 2012, compared to 57% for the same period in 2011. Gross margin was 52% in the six-month period ended June 30, 2012, compared to 56% for the same period in 2011. This decline was due primarily to:

● A product mix shift towards lower margin products; and

● An increase in sales through out distributers which typically have a lower margin than our direct revenue.

Sales and Marketing

	Three Months Ended June 30,											Six Months Ended June 30,
(Dollars in thousands)	2012				% Change			2011				2012				% Change			2011
Sales and marketing		$	7,112			12	%		$	6,348			$	14,549			18	%		$	12,294
As a percentage of total net revenue			36	%						43	%			41	%						46	%

Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended workshops and trade shows, post-marketing studies, and advertising. Sales and marketing expenses increased $764,000, and represented 36% of total net revenue, in the three-month period ended June 30, 2012, compared to 43% in the same period in 2011. The $764,000 increase was due primarily to:

● $342,000 of higher personnel expenses attributable primarily to higher headcount and sales commission expenses associated with the higher revenue;

● $251,000 of higher product demonstration related expenses related to increased activities associated with the ExcelV and Genesis Plus; and

● $167,000 of increased travel, entertainment and sales meeting expenses resulting from higher headcount.

Sales and marketing expenses increased $2.3 million, and represented 41% of total net revenue, in the six-month period ended June 30, 2012, compared to 46% in the same period in 2011. The $2.3 million increase was due primarily to:

● $1.0 million of higher personnel expenses attributable primarily to higher headcount and sales commission expenses associated with the higher revenue;

● $563,000 of higher product demonstration related expenses related to increased activities associated with the ExcelV and Genesis Plus;

● $425,000 of increased travel, entertainment and sales meeting expenses due to higher headcount; and

● $280,000 of increased promotional and marketing expenses.

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Research and Development (R&D)

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012			% Change			2011
Research and development	$	1,872			(20	%)	$	2,346		$	4,088			(9	%)	$	4,476
As a percentage of total net revenue		10	%					16	%		12	%					17	%

R&D expenses consist primarily of personnel expenses, clinical research, regulatory and material costs. R&D expenses decreased by $474,000, and represented 10% of total net revenue, in the three-month period ended June 30, 2012, compared to 16% for the same period in 2011. The decrease in expenses was due primarily to:

● $263,000 of reduced personnel expenses due to lower headcount;

● $114,000 of reduced prototype material expenses resulting from the timing of product development activities; and

● $85,000 of reduced consulting fees.

R&D expenses decreased by $388,000, and represented 12% of total net revenue, in the six-month period ended June 30, 2012, compared to 17% for the same period in 2011. The decrease in expenses was due primarily to:

● $188,000 of reduced personnel expenses due to lower headcount; and

● $172,000 of reduced prototype material expenses resulting from the timing of product development activities.

General and Administrative (G&A)

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012			% Change			2011
General and administrative	$	2,854			10	%	$	2,588		$	6,349			29	%	$	4,916
As a percentage of total net revenue		15	%					17	%		18	%					19	%

General and administrative expenses consist primarily of personnel expenses, legal fees, accounting, audit and tax consulting fees, and other general and administrative expenses. G&A expenses increased $266,000, and represented 15% of total net revenue, in the three-month period ended June 30, 2012, compared to the same period in 2011. This increase was due primarily to:

● $397,000 of higher legal fees and costs of settlements;

● $136,000 of higher accounting and tax consulting fees; offset by

● $265,000 of lower stock-based compensation expense for our independent board members. In the second quarter of 2011, our independent board members received fully vested stock; however, in the second quarter of 2012, they received restricted stock units that vest over a one year term.

G&A expenses increased $1.4 million, and represented 18% of total net revenue, in the six-month period ended June 30, 2012, compared to the same period in 2011. This increase was due primarily to:

● $559,000 of non-recurring integration expenses associated with the Iridex business acquisition;

● $477,000 of higher legal fees and costs of settlements;

● $383,000 of higher accounting and tax consulting fees;

● $120,000 of higher personnel expenses; offset by

● $281,000 of lower stock-based compensation expense for our independent board members. In the second quarter of 2011, our independent board members received fully vested stock; however, in the second quarter of 2012, they received restricted stock units that vest over a one year term.

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Interest and Other Income, Net

Interest and other income, net consist of the following:

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012				% Change			2011
Interest income		$	129		(20	%)		$	161		$	257			(19	%)		$	318
Other income, net			15		(61	%)			38			(17	)		(126	%)			65
Total interest and other income, net		$	144		(28	%)		$	199		$	240			(37	%)		$	383

Interest and other income, net, decreased $55,000 for the three-month period ended June 30, 2012, and decreased by $143,000 for the six-month period ended June 30, 2012 compared to the same periods in 2011. These decreases were primarily attributable to a $24,000 and an $86,000 increase in net foreign exchange losses in the three and six-month periods ended June 30, 2012 compared to the same periods in 2011.

Provision (Benefit) for Income Taxes

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2012			% Change			2011			2012			% Change			2011
Loss before income taxes	$	(1,377	)		(48	%)	$	(2,664	)	$	(6,547	)		1	%	$	(6,487	)
Provision (benefit) for income taxes		89			NA			(208	)		186			NA			(176	)

We recorded an income tax provision of $89,000 for the three-month period ended June 30, 2012, compared to an income tax benefit of $208,000 for the same period in 2011. We recorded an income tax provision of $186,000 for the six-month period ended June 30, 2012, compared to an income tax benefit of $176,000 for the same period in 2011. Our income tax provision for both the three and six-month periods ended June 30, 2012 was primarily related to income taxes for our non-U.S. operations. Our income tax benefit for the three and six-month periods ended June 30, 2011 was primarily related to the carryback of fiscal year 2010 federal losses to obtain a $246,000 refund of alternative minimum taxes paid for fiscal year 2008, reduced by the tax impact of the Company’s non-U.S. operations. We have recorded a 100% valuation allowance against our U.S. deferred tax assets and as such we do not record any income tax benefit related to our U.S. loss.

Liquidity and Capital Resources

Liquidity is the measurement of our ability to meet potential cash requirements, fund the planned expansion of our operations and acquire businesses. Our sources of cash include operations and stock option exercises. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our daily needs. The majority of our cash and investments are held in U.S. banks and our foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.

Cash and Cash Equivalents, Marketable Investments and Long-Term Investments Summary

The following table summarizes our cash and cash equivalents, marketable investments and long-term investments:

(Dollars in thousands)	June 30, 2012		December 31, 2011		Change
Cash and cash equivalents	$	17,788	$	14,020	$	3,768
Marketable investments		62,794		74,666		(11,872	)
Long-term investments		840		3,027		(2,187	)
Total	$	81,422	$	91,713	$	(10,291	)

Cash Flows

	Six Months Ended June 30,
(Dollars in thousands)	2012			2011
Net cash flow provided by (used in):
Operating activities	$	(5,724	)	$	(2,272	)
Investing activities		8,692			6,355
Financing activities		800			881
Net increase (decrease) in cash and cash equivalents	$	3,768		$	4,964

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Cash Flows from Operating Activities

Net cash used in operating activities in the six-month period ended June 30, 2012 was $5.7 million, which was due primarily to:

● $4.4 million used due to the net loss of $6.7 million, after adjusting for non-cash related items of $2.3 million consisting primarily of stock-based compensation expense of $1.5 million and depreciation and amortization expenses of $768,000;

● $1.1 million used as a result of an increase in accounts receivable that resulted from increased product sales in the three-month period ended June 30, 2012, compared to the three-month period ended December 31, 2011;

● $441,000 used to increase inventory relating primarily to higher raw materials and finished goods associated with our increased revenue levels and higher demonstration inventories as a result of increased sales personnel;

● $374,000 used to reduce accounts payable;

● $241,000 used to reduce accrued liabilities; offset by

● $503,000 generated by a reduction of other current assets, primarily relating to a $514,000 reduction in discounts and purchased interest with respect to our marketable investments; and

● $385,000 generated by an increase in deferred service revenue primarily as a result of the Iridex acquisition.

Net cash used in operating activities in the six-month period ended June 30, 2011 was $2.3 million, which was due primarily to:

● $3.8 million used due to the net loss of $6.3 million, after adjusting for non-cash related items of $2.5 million consisting primarily of stock-based compensation expense of $2.2 million and depreciation and amortization of $319,000;

● $1.9 million used to increase inventory relating primarily to finished goods and raw materials associated with the ramp up of our recently introduced products — GenesisPlus and ExcelV; partially offset by

● $1.4 million generated from the reduction of other current assets and prepaid expenses resulting primarily from the receipt of a U.S. income tax refund of $1.2 million during the six-month period ended June 30, 2011; and

● $936,000 generated from cash collections of the higher year end accounts receivable balance at December 31, 2010.

Cash Flows from Investing Activities

We generated net cash of $8.7 million from investing activities in the six-month period ended June 30, 2012, which was attributable primarily to:

● $37.6 million in net proceeds from the sales and maturities of marketable investments; partially offset by

● $23.6 million of cash used to purchase marketable investments; and

● $5.1 million of cash used for the Iridex acquisition.

We generated net cash of $6.4 million from investing activities in the six-month period ended June 30, 2011, which was attributable primarily to:

● $38.9 million in net proceeds from the sales and maturities of marketable investments; partially offset by

● $33.1 million of cash used to purchase marketable investments; and

$397,000 of cash used to purchase property and equipment primarily for our manufacturing function.

Cash Flows from Financing Activities

Net cash provided by financing activities was $800,000 in the six-month period ended June 30, 2012 and $881,000 in the six-month period ended June 30, 2011, which primarily resulted from cash generated by the issuance of stock as a result of employees exercising their stock options and shares issued pursuant to our employee stock purchase plan.

Adequacy of cash resources to meet future needs

We had cash, cash equivalents, marketable investments, and long-term investments of $81.4 million as of June 30, 2012. Of this amount, we had $840,000 of long-term ARS investments. For the first six months of 2012, we financed our operations through the sales and maturities of marketable investments and cash from the sale of stock through employee stock option exercises and our employee stock purchase plan. We believe the existing capital resources, including cash and cash equivalents and marketable investments of $80.6 million, are sufficient to meet our operating and capital requirements for the next 12 months. Except for the recent trend of cash used to fund our operating activities, we are unaware of any other known trends or any known demands, commitments, events or uncertainties, including collectability of our accounts receivable, that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

Off-Balance Sheet Arrangements

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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We have certain contractual arrangements that create potential risk for us and are not recognized in our Condensed Consolidated Balance Sheets. Discussed below are off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to renew.

Commitments and Contingencies

There have been no material changes to our commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 15, 2012, except for those noted in Legal Proceedings in Part II, Item 1 below

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risks from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 15, 2012.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Attached as exhibits to this Quarterly Report are certifications of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (Exchange Act). This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

We conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act) (Disclosure Controls) as of the end of the period covered by this Report required by Exchange Act Rules 13a-15(b) or 15d-15(b). The controls evaluation was conducted under the supervision and with the participation of our management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report the disclosure controls and procedures were effective at a reasonable assurance level.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within Disclosure Controls, they are included in the scope of our annual controls evaluation.

Limitations on the Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are named from time to time as a party to product liability and contractual lawsuits in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to legal matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that we shall incur a loss, and whether the loss is estimable. As of June 30, 2012, we had accrued $449,000 related to pending product liability and contractual lawsuits.

ITEM 1A. RISK FACTORS

We operate in a rapidly changing economic and technological environment that presents numerous risks, many of which are driven by factors that we cannot control or predict. The following discussion, as well as our discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), highlights some of these risks. The risks described below are not exhaustive and you should carefully consider these risks and uncertainties before investing in our securities.

In the three and six-month periods ended June 30, 2012, our U.S. revenue increased by approximately 38% and 43% respectively, compared to the same periods in 2011. Even though our U.S. revenue has increased in 2012, it continues to be significantly below the pre-2009 levels. If our U.S. revenue does not continue to improve, it could have a material adverse effect on our total revenue, profitability, employee retention and stock price.

In the three and six-month periods ended June 30, 2012, our U.S. revenue increased by approximately 38% and 43% respectively, compared to the same periods in 2011. Even though our U.S. revenue has increased in 2012, it continues to be significantly below the pre-2009 levels due to several factors, some of which are:

● Our Product and Upgrade ASPs were lower than the pre-2009 levels as a result of customers purchasing fewer applications for systems, lower pricing resulting from competitive discounting pressures and the impact of a shift in our product mix towards lower priced systems.

● Historically, we have introduced a new product every year since 2000, with the exception of 2009, and our revenue increases following the introduction of new products. In 2010, we launched GenesisPlus and in 2011, we launched ExcelV. Even though we have introduced these new products and experienced sales increases as a result, there can be no assurance that we will continue to introduce a new product each year or that these products introduced will translate into increased revenue in the long term in the U.S.

● Our U.S. Titan hand piece refill revenue decreased by 16% for the six months ended June 30, 2012, compared to the same period in 2011, and our U.S. Titan hand piece refill revenue is still lower than the levels prior to the second quarter of 2010. That was due to a voluntary recall of certain Titan XL hand pieces in the second quarter of 2010, whereby all customers that had a Titan XL hand piece subject to the recall were provided with a fully refilled Titan XL hand piece. This delayed their purchase of a refill and resulted in a decline of our Titan refill revenue.

If our U.S. revenue does not continue to improve, it could have a material adverse effect on our total revenue, profitability, employee retention and stock price.

We rely heavily on our sales professionals to market and sell our products worldwide. If we are unable to hire, effectively train, manage, improve the productivity of, and retain the sales professionals, our business will be harmed, which would impair our future revenue and profitability.

Our success largely depends on our ability to hire, train, manage and improve the productivity levels of our sales professionals worldwide. Because of our focus on the non-core market in the past, several of our sales professionals do not have established relationships with core market physicians (Dermatologists and Plastic Surgeons) or where those relationships exist, they are not very strong. In addition, we have lost some of our sales professionals in response to the decline in their earnings resulting from the decreases in their commission

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We have been training our existing and recently recruited sales professionals to better understand our product technology and how it can be positioned against our competitors’ products.  These initiatives are intended to improve the productivity of our sales professionals, our revenue and profitability.

Since 2009, our European-sourced revenue has declined significantly every year, compared to its respective prior year. For example, in 2011 our European revenue declined 38%, compared to 2010. Further, we have experienced significant turnover of our European sales team. While we continue to have a direct sales and service organization in France, and have consolidated our operations with the newly acquired aesthetic business of Iridex there, we have restructured the rest of our European operation. We shut down our direct European hub in Switzerland in December 2011, and in March 2012, we decided to shut down our direct sales offices in Spain and the United Kingdom. We have engaged a distributor in Switzerland and are in the process of identifying new distributor partners in Spain and the United Kingdom. As we restructure parts of our European business towards a more distributor focus, there can be no assurance given that these initiatives will result in improved European-sourced revenue or profitability in the future.

Measures we implement in an effort to retain, train and manage our sales professionals, strengthen their relationships with core market physicians, and improve their productivity may not be successful and may instead contribute to instability in our operations, additional departures from our sales organization, or further reduce our revenue and harm our business.

If our revenue does not continue to improve from the 2011 level, or if our cost of revenue and/ or operating expenses increase by a greater percentage than our revenue, our gross margins and operating margins may be adversely impacted, our loss from operations will increase, and our cash used in operating activities will increase, which could reduce our assets and have a material adverse effect on our stock price.

Our gross margin declined to 52% in the six-month period ended June 30, 2012, compared to 56% in the same period of 2011. Our gross margin is impacted by the revenue that we generate and the costs incurred to generate the revenue. Our future revenue may be adversely affected by a number of factors including, the competitive market environment in which we operate, which may result in a decrease in the number of units sold, a decrease in the number of applications per system purchased by customers, a decrease in the average selling prices achieved for our product sales, a shift in our product mix towards products with lower average selling prices, or a shift in our product mix towards products with lower margin (revenue less cost).

Our cost of revenue may also be adversely impacted by various factors such as obsolescence of our inventory, increased expenses associated with repairing defective products covered by our warranty program, utilization of our relatively fixed manufacturing costs, and a shift in our product mix towards products that have a higher cost of manufacturing. We have also been investing significant resources in our research and development activities and using cash in the process. We plan to continue making such investments in order to bring new products to market.

If our revenue does not continue to improve from the 2011 level, or if our cost of revenue increases by a greater percentage than our revenue, or if we are not able to reduce expenses in the event of a decline in revenue, we may continue to generate losses from operations and use cash, which could reduce our assets and have a material adverse effect on our operations and stock price.

The aesthetic equipment market is characterized by rapid innovation. To compete effectively, we must develop and/or acquire new products, market them successfully, and identify new markets for our technology.

We have created products to apply our technology to hair removal, treatment of veins and skin rejuvenation, including the treating of diffuse redness, skin laxity, fine lines, wrinkles, skin texture, pore size and pigmented lesions. In 2011, we launched our vascular laser product – ExcelV – and  began distribution of a Q-switched laser in Japan that Cutera is sourcing from a third party OEM for superficial and deep pigmented lesions (i.e., melasma), skin rejuvenation, laser skin toning and tattoo removal. Currently, these applications represent the majority of offered laser and light-based aesthetic procedures. Since the first quarter of 2010, we have been distributing cosmeceutical products and dermal fillers in the Japanese market. To grow in the future, we must continue to develop and acquire new and innovative aesthetic products and applications, identify new markets, and successfully launch the newly acquired or developed product offerings.

To successfully expand our product offerings, we must, among other things:

● Develop and acquire new products that either add to or significantly improve our current product offerings;

● Convince our existing and prospective customers that our product offerings would be an attractive revenue-generating addition to their practice;

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● Sell our product offerings to a broad customer base;

● Identify new markets and alternative applications for our technology;

● Protect our existing and future products with defensible intellectual property; and

● Satisfy and maintain all regulatory requirements for commercialization.

Historically, product introductions have been a significant component of our financial performance. To be successful in the aesthetics industry, we need to continue to innovate. Our business strategy has therefore been based, in part, on our expectation that we will continue to increase our product offerings. We need to continue to devote substantial research and development resources to make new product introductions, which can be costly and time consuming to our organization.

We also believe that, to increase revenue from sales of new products, we need to continue to develop our clinical support, further expand and nurture relationships with industry thought leaders and increase market awareness of the benefits of our new products. However, even with a significant investment in research and development, we may be unable to continue to develop, acquire or effectively launch and market new products and technologies regularly, or at all. If we fail to successfully commercialize new products, our business may be harmed.

While we attempt to protect our products through patents and other intellectual property, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that compete directly with ours. We expect that any competitive advantage we may enjoy from current and future innovations may diminish over time as companies successfully respond to our, or create their own, innovations. Consequently, we believe that we will have to continuously innovate and improve our products and technology to compete successfully. If we are unable to innovate successfully, our products could become obsolete and our revenue could decline as our customers and prospects purchase our competitors’ products.

Healthcare reform legislation could adversely affect our future profitability and financial condition.

In December 2009, the President and members of Congress passed legislation relating to healthcare reform. Our products are not reimbursed by insurance companies or federal or state governments and some of this legislation will, therefore, not affect us. This legislation, however, does include several aspects that will apply to us, including a tax on our U.S. revenue which is applicable to us beginning in 2013. While we are presently evaluating the full scope of how this legislation will impact our operations, including how to administer this tax, we believe this will adversely affect our future profitability and financial condition.

Demand for our products in any of our markets could be weakened by several factors, including:

● Our ability to develop and market our products to the core market specialties of dermatologists and plastic surgeons;

● Poor financial performance of market segments that try introducing aesthetic procedures to their businesses;

● The inability to differentiate our products from those of our competitors;

● Reduced patient demand for elective aesthetic procedures;

● Failure to build and maintain relationships with opinion leaders within the various market segments;

● An increase in malpractice lawsuits that result in higher insurance costs; and

● The lack of credit financing for some of our potential customers.

If we do not achieve anticipated demand for our products, it could have a material adverse effect on our total revenue, profitability, employee retention and stock price.

We may face problems with the integration of our acquisition of IRIDEX Corporation’s global aesthetic business.

On February 2, 2012, we completed our acquisition of certain assets of IRIDEX Corporation’s (IRIDEX) global aesthetic business.

We cannot be certain that this integration will be successful or that we will realize the anticipated benefits of the acquisition.  In particular, we may not be able to realize the strategic and operational benefits and objectives we had anticipated, including, greater revenue and marketing opportunities.  In addition, the demand for our combined product offerings may fluctuate and we will face competition from new competitors in the market for our products.  Our ability to realize the strategic and operational benefits and objectives of this acquisition may be impacted by several factors including:

● The potential disruption of the company’s ongoing business and diversion of management resources;

● The difficulty of incorporating acquired products, technology and rights into the company’s products and services;

● Unanticipated expenses related to integration of operations;

● Potential periodic impairment of goodwill and intangible assets acquired, if any; and

● Potential inability to retain, integrate and motivate key personnel.

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Any of the above mentioned factors, as well as the inability to realize the long-term anticipated synergies of the acquisition of these assets, may have a material adverse effect on our business, operating results and financial condition.

Macroeconomic political and market conditions, and catastrophic events may adversely affect our business, results of operations, financial condition and stock price.

Our business is influenced by a range of factors that are beyond our control, including:

● General economic and business conditions;

● The overall demand for our products by the core market specialties of dermatologists and plastic surgeons;

● Governmental budgetary constraints or shifts in government spending priorities;

● General political developments;

● Natural disasters, such as the March 2011 earthquake and tsunami in Japan; and

● Currency exchange rate fluctuations.

Macroeconomic developments like the global recession and the debt crisis in the U.S. and certain countries in the European Union, could negatively affect our business, operating results or financial condition which, in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their budgets or be unable to fund product or upgrade application purchases, which could cause customers to delay, decrease or cancel purchases of our products and services or cause customers not to pay us or to delay paying us for previously purchased products and services.

In addition, political unrest in regions like the Middle East, terrorist attacks around the globe and the potential for other hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a climate of economic and political uncertainty that could adversely affect our results of operations and financial condition, including our revenue growth and profitability. For example, the March 2011 earthquake and tsunami, and other collateral events in Japan adversely affected the demand for our products and services in the Japanese market.

Macroeconomic declines, negative political developments, adverse market conditions and catastrophic events may cause a decline in our revenue, negatively affect our operating results, adversely affect our cash flow and could result in a decline in our stock price

To successfully market and sell our products internationally, we must address many issues that are unique to our international business.

International revenue represented 60% of our total revenue for the six months ended June 30, 2012, compared to 63% for the same period in 2011. International revenue is a material component of our business strategy. We depend on third-party distributors and a direct sales force to sell our products internationally, and if they underperform, we may be unable to increase or maintain our level of international revenue.

Since 2009, our European-sourced revenue has declined significantly every year, compared to its respective prior year. For example, in 2011 our European revenue declined 38%, compared to 2010. Further, we have experienced significant turnover of our European sales team. While we continue to have a direct sales and service organization in France, and have consolidated our operations with the newly acquired aesthetic business of Iridex there, we have restructured the rest of our European operation. We shut down our direct European hub in Switzerland in December 2011, and in March 2012, we decided to shut down our direct sales offices in Spain and the United Kingdom. We have engaged a distributor in Switzerland and are in the process of identifying new distributor partners in Spain and the United Kingdom. As we restructure parts of our European business towards a more distributor focus, there can be no assurance given that these initiatives will result in improved European-sourced revenue or profitability in the future.

To grow our business, we will need to improve productivity in current sales territories and expand into new territories. However, direct sales productivity may not improve and distributors may not accept our business or commit the necessary resources to market and sell our products to the level of our expectations. If we are not able to increase or maintain international revenue growth, our total revenue, profitability and stock price may be adversely impacted.

We believe, as we continue to manage our international operations and develop opportunities in additional international territories, our international revenue will be subject to a number of risks, including:

● Difficulties in staffing and managing our foreign operations;

● Export restrictions, trade regulations and foreign tax laws;

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● Fluctuating foreign currency exchange rates;

● Foreign certification and regulatory requirements;

● Lengthy payment cycles and difficulty in collecting accounts receivable;

● Customs clearance and shipping delays;

● Political and economic instability;

● Lack of awareness of our brand in international markets;

● Preference for locally-produced products; and

● Reduced protection for intellectual property rights in some countries.

If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation; and if we were unsuccessful at finding a solution, we may not be able to sell our products in a particular market and, as a result, our revenue may decline.

Our ability to effectively compete and generate additional revenue from new and existing products depend upon our ability to distinguish our company and our products from our competitors and their products, and to develop and effectively market new and existing products. Our success is dependent on many factors, including the following:

● Speed of new and innovative product development;

● Effective strategy and execution of new product launches;

● Identify and develop clinical support for new indications of our existing products;

● Product performance;

● Product pricing;

● Quality of customer support;

● Development of successful distribution channels, both domestically and internationally; and

● Intellectual property protection.

To compete effectively, we have to demonstrate that our new and existing products are attractive alternatives to other devices and treatments, by differentiating our products on the basis of such factors as innovation, performance, brand name, service, and price. This is difficult to do, especially in a crowded aesthetic market. Some of our competitors have newer or different products and more established customer relationships than we do, which could inhibit our market penetration efforts. For example, we have encountered, and expect to continue to encounter, situations where, due to pre-existing relationships, potential customers decided to purchase additional products from our competitors. Potential customers also may need to recoup the cost of products that they have already purchased from our competitors and may decide not to purchase our products, or to delay such purchases.

If we are unable to increase our market penetration or compete effectively, our revenue and profitability will be adversely impacted.

We compete against companies that offer alternative solutions to our products, or have greater resources, a larger installed base of customers and broader product offerings than ours. If we are not able to effectively compete with these companies, it may harm our business.

Our industry is subject to intense competition. Our products compete against similar products offered by public companies, such as Cynosure, Elen (in Italy), Palomar, Solta, and Syneron and as well as private companies such as Alma, Lumenis, Sciton and several other companies. Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources. For example, we acquired the aesthetic business unit of Iridex in February 2012, Solta (previously Thermage) acquired Aesthera in February 2010 and Reliant in December 2008; Syneron acquired Ultrashape in March 2012 and Candela in September 2009; and Cynosure acquired the aesthetic laser business of HOYA ConBio in June 2011. We are likely to compete with new companies in the future. Competition with these companies could result in reduced selling prices, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.

The energy-based aesthetic market faces competition from non energy-based medical products, such as Botox, an injectable compound used to reduce wrinkles, and collagen injections. Other alternatives to the use of our products include electrolysis, a procedure involving the application of electric current to eliminate hair follicles, and chemical peels. We may also face competition from manufacturers of pharmaceutical and other products that have not yet been developed.

If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for our products could be inhibited, resulting in unfavorable operating results and reduced growth potential.

Continued expansion of the global market for laser and light-based aesthetic procedures is a material assumption of our business strategy. Most procedures performed using our products are elective procedures not reimbursable through government or private health insurance, with the costs borne by the patient. The decision to utilize our products may therefore be influenced by a number of factors, including:

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● Consumer disposable income and access to consumer credit, which as a result of the unstable economy, may have been significantly impacted;

● The cost of procedures performed using our products;

● The cost, safety and effectiveness of alternative treatments, including treatments which are not based upon laser or light-based technologies and treatments which use pharmaceutical products;

● The success of our sales and marketing efforts; and

● The education of our customers and patients on the benefits and uses of our products, compared to competitors’ products and technologies.

If, as a result of these factors, there is not sufficient demand for the procedures performed with our products, practitioner demand for our products could be reduced, which could have a material adverse effect on our business, financial condition, revenue and result of operations.

Any defects in the design, material or workmanship of our products may not be discovered prior to shipment to customers, which could materially increase our expenses, adversely impact profitability and harm our business.

The design of our products is complex. To manufacture them successfully, we must procure quality components and employ individuals with a significant degree of technical expertise. If our designs are defective, or the material components used in our products are subject to wearing out, or if suppliers fail to deliver components to specification, or if our employees fail to properly assemble, test and package our products, the reliability and performance of our products will be adversely impacted. As an example, in 2010, we incurred significant expenses for the voluntary recall of our Titan XL hand pieces.

If our products contain defects that cannot be repaired easily, inexpensively, or on a timely basis, we may experience:

● Damage to our brand reputation;

● Loss of customer orders and delay in order fulfillment;

● Increased costs due to product repair or replacement;

● Inability to attract new customers;

● Diversion of resources from our manufacturing and research and development departments into our service department; and

● Legal action.

The occurrence of any one or more of the foregoing could materially increase expenses, adversely impact profitability and harm our business.

Federal regulatory reforms and changes occurring at the U.S. Food and Drug Administration, or FDA, could adversely affect our ability to sell our products profitably and financial condition.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a device. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.

In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. Changes in FDA regulations may lengthen the regulatory approval process for medical devices and require additional clinical data to support regulatory clearance for the sale and marketing of our new products. In addition, it may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market. Either of these changes lengthen the duration to market, increase our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products.

If we fail to obtain or maintain necessary FDA clearances for our products and indications, if clearances for future products and indications are delayed or not issued, if there are federal or state level regulatory changes or if we are found to have violated applicable FDA marketing rules, our commercial operations would be harmed.

Our products are medical devices that are subject to extensive regulation in the United States by the FDA for manufacturing, labeling, sale, promotion, distribution and shipping. Before a new medical device, or a new use of or labeling claim for an existing product, can be marketed in the United States, it must first receive either 510(k) clearance or pre-marketing approval from the FDA, unless an exemption applies. Either process can be expensive and lengthy. In the event that we do not obtain FDA clearances or approvals for our products, our ability to market and sell them in the United States and revenue derived from there may be adversely affected.

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Medical devices may be marketed in the United States only for the indications for which they are approved or cleared by the FDA. For example, up until April 2011 our recently introduced GenesisPlus product had a number of general indications for use in the U.S. that allowed us to market the product in the U.S., however we could only market it internationally for the treatment of toenail fungus as it has a CE Mark approval.  In April 2011, we received FDA clearance to market GenesisPlus in the U.S. for the treatment of toenail fungus. Another example is our Pearl Fractional product which is cleared only for skin resurfacing in the U.S. and our Titan product only for deep heating for the temporary relief of muscle aches and pains in the U.S. Therefore, we are prevented from promoting or advertising Titan and Pearl Fractional in the United States for any other indications. If we fail to comply with these regulations, it could result in enforcement action by the FDA which could lead to such consequences as warning letters, adverse publicity, criminal enforcement action and/or third-party civil litigation, each of which could adversely affect us.

We have obtained 510(k) clearance for the indications for which we market our products. However, our clearances can be revoked if safety or effectiveness problems develop. We also are subject to Medical Device Reporting regulations, which require us to report to the FDA if our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. Our products are also subject to state regulations, which are, in many instances frequently changing. Changes in state regulations may impede sales. For example, federal regulations allow our products to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result, in some states, non-physicians may legally purchase our products. However, a state could change its regulations at any time, thereby disallowing sales to particular types of end users. We cannot predict the impact or effect of future legislation or regulations at the federal or state levels.

The FDA and state authorities have broad enforcement powers. If we fail to comply with applicable regulatory requirements, it could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:

● Warning letters, fines, injunctions, consent decrees and civil penalties;

● Repair, replacement, recall or seizure of our products;

● Operating restrictions or partial suspension or total shutdown of production;

● Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products;

● Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and

● Criminal prosecution.

 If any of these events were to occur, it could harm our business.

 If we fail to comply with the FDA’s Quality System Regulation and laser performance standards, our manufacturing operations could be halted, and our business would suffer.

We are currently required to demonstrate and maintain compliance with the FDA’s Quality System Regulation, or QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our products involve the use of lasers, our products also are covered by a performance standard for lasers set forth in FDA regulations. The laser performance standard imposes specific record-keeping, reporting, product testing and product labeling requirements. These requirements include affixing warning labels to laser products, as well as incorporating certain safety features in the design of laser products. The FDA enforces the QSR and laser performance standards through periodic unannounced inspections. We had a full quality system audit in 2008 and an FDA audit of compliance with laser performance standards in 2010 and a full quality system audit plus laser performance standard audit in August 2011. There were no significant findings as a result of these audits and our responses have been accepted by the FDA. Our failure to take satisfactory corrective action in response to an adverse QSR inspection or our failure to comply with applicable laser performance standards could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our products, civil or criminal penalties, or other sanctions, such as those described in the preceding paragraph, which would cause our sales and business to suffer.

If we modify one of our FDA-approved devices, we may need to seek re-approval, which, if not granted, would prevent us from selling our modified products or cause us to redesign our products.

Any modifications to an FDA-cleared device that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use would require a new 510(k) clearance or possibly a pre-market approval. We may not be able to obtain additional 510(k) clearance or pre-market approvals for new products or for modifications to, or additional indications for, our existing products in a timely fashion, or at all. Delays in obtaining future clearance would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and future profitability.

We have made modifications to our devices in the past and may make additional modifications in the future that we believe do not or will not require additional clearance or approvals. If the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the modified devices, which could harm our operating results and require us to redesign our products.

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We may be unable to obtain or maintain international regulatory qualifications or approvals for our current or future products and indications, which could harm our business.

Sales of our products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. In addition, exports of medical devices from the United States are regulated by the FDA. Complying with international regulatory requirements can be an expensive and time-consuming process and approval is not certain. The time required for obtaining clearance or approvals, if required by other countries, may be longer than that required for FDA clearance or approvals, and requirements for such clearances or approvals may significantly differ from FDA requirements. We may be unable to obtain or maintain regulatory qualifications, clearances or approvals in other countries. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals or qualifications. If we experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the United States, or if we fail to receive those qualifications, clearances or approvals, we may be unable to market our products or enhancements in international markets effectively, or at all, which could have a material adverse effect on our business and growth strategy.

Product liability suits could be brought against us due to a defective design, material or workmanship or misuse of our products and could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.

If our products are defectively designed, manufactured or labeled, contain defective components or are misused, we may become subject to substantial and costly litigation by our customers or their patients. Misusing our products or failing to adhere to operating guidelines could cause significant eye and skin damage, and underlying tissue damage. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. We have been involved, and may in the future be involved, in litigation related to the use of our products. Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. We may not have sufficient insurance coverage for all future claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce product sales. In addition, we historically experienced steep increases in our product liability insurance premiums as a percentage of revenue. If our premiums continue to rise, we may no longer be able to afford adequate insurance coverage.

 If customers are not trained and / or our products are used by non-physicians, it could result in product misuse and adverse treatment outcomes, which could harm our reputation, result in product liability litigation, distract management, result in additional costs, all of which could harm our business.

Because we do not require training for users of our products, and sell our products at times to non-physicians, there exists an increased potential for misuse of our products, which could harm our reputation and our business. U.S. federal regulations allow us to sell our products to or on the order of “licensed practitioners.” The definition of “licensed practitioners” varies from state to state. As a result, our products may be purchased or operated by physicians with varying levels of training, and in many states, by non-physicians, including nurse practitioners, chiropractors and technicians. Outside the United States, many jurisdictions do not require specific qualifications or training for purchasers or operators of our products. We do not supervise the procedures performed with our products, nor do we require that direct medical supervision occur. We and our distributors generally offer but do not require product training to the purchasers or operators of our products. In addition, we sometimes sell our systems to companies that rent our systems to third parties and that provide a technician to perform the procedures. The lack of training and the purchase and use of our products by non-physicians may result in product misuse and adverse treatment outcomes, which could harm our reputation and our business, and, in the event these result in product liability litigation, distract management and subject us to liability, including legal expenses.

In 2010 and 2011 we entered into strategic alliances to distribute third party products internationally. To successfully market and sell these products, we must address many issues that are unique to these businesses and could reduce our available cash reserves and negatively impact our profitability.

In 2010 and 2011, we entered into distribution arrangements pursuant to which we utilize our sales force and distributors to sell products manufactured by other companies. Commencing in the fourth quarter of 2011, we began to distribute in Japan a Q-switched laser product manufactured by a third party OEM. In the first quarter of 2010, we entered into an agreement with Obagi to distribute certain of their proprietary cosmeceuticals, or skin care products, in Japan. This agreement requires us to purchase an annual minimum dollar amount of their product. The minimum purchase requirement for 2012 is $2.0 million. If we do not make these minimum purchases, we could lose exclusivity for distributing Obagi products to physicians in Japan. Finally, we also have an agreement with Merz Aesthetics to distribute their Radiesse® dermal filler product in Japan.

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Each of these distribution agreements presents its own unique risks and challenges. For example, to sell products in partnership with Obagi we need to invest in creating a sales structure that is experienced in the sale of cosmeceuticals and not in capital equipment. We need to commit resources to training this sales force, obtaining regulatory licenses in Japan and developing new marketing materials to promote the sale of Obagi products. For each of these distribution arrangements, until we can develop our own experienced sales force, we may need to pay third party distributors to sell the products which will result in higher fees and lower margins than if we sell direct to customers. In addition, the minimum commitments and other costs of distributing products manufactured by these companies may exceed the incremental revenue that we derive from the sale of their products thereby reducing our available cash reserves and negatively impacting our profitability.

Adverse conditions in the global banking industry and credit markets may adversely impact the value of our marketable investments or impair our liquidity.

We invest our excess cash primarily in money market funds and in highly liquid debt instruments of the U.S. government and its agencies and U.S. municipalities, in commercial paper and high grade corporate debt. As of June 30, 2012, our balance in marketable investments was $62.8 million. The longer the duration of a security, the more susceptible it is to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. For example, assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investment portfolio as of June 30, 2012 would have potentially decreased by approximately $521,000, resulting in an unrealized loss that would subsequently adversely impact our earnings. As a result, changes in the market interest rates will affect our future net income (loss).

We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit, hire, train and retain these employees, our ability to manage and expand our business will be harmed, which would impair our future revenue and profitability.

Our success largely depends on the skills, experience and efforts of our officers and other key employees. Except for Change of Control and Severance Agreements for our executive officers, we do not have employment contracts with any of our officers or other key employees. Any of our officers and other key employees may terminate their employment at any time. We do not have a succession plan in place for each of our officers and key employees. In addition, we do not maintain “key person” life insurance policies covering any of our employees. The loss of any of our senior management team members could weaken our management expertise and harm our business.

Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees are critical factors in determining whether we will be successful in the future. We may not be able to meet our future hiring needs or retain existing personnel. We may face particularly significant challenges and risks in hiring, training, managing and retaining engineering and sales and marketing employees. Failure to attract, train and retain personnel, particularly technical and sales and marketing personnel, would materially harm our ability to compete effectively and grow our business.

The price of our common stock may fluctuate substantially due to several factors, some of which are discussed below. Further, we have a limited number of shares of common stock outstanding, a large portion of which is held by a small number of investors, which could result in the increase in volatility of our stock price.

 As of December 31, 2011, approximately 45% of our outstanding shares of common stock were held by 10 institutional investors. As a result of our relatively small public float, our common stock may be less liquid than the stock of companies with broader public ownership. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our shares than would be the case if our public float were larger. The public market price of our common stock has in the past fluctuated substantially and, due to the current concentration of stockholders, it may continue to do so in the future. The market price for our common stock could also be affected by a number of other factors, including:

● Litigation surrounding executive compensation has increased with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. If we are involved in a lawsuit related to compensation matters or any other matters not covered by our D&O insurance, there could be material expenses involved, fines, or remedial actions which could negatively affect our stock price;

● The general market conditions unrelated to our operating performance;

● Sales of large blocks of our common stock, including sales by our executive officers, directors and our large institutional investors;

● Quarterly variations in our, or our competitors’, results of operations;

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● Changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ estimates;

● The announcement of new products or service enhancements by us or our competitors;

● The announcement of the departure of a key employee or executive officer by us or our competitor;

● Regulatory developments or delays concerning our, or our competitors’ products; and

● The initiation of litigation by us or against us.

Actual or perceived instability in our stock price could reduce demand from potential buyers of our stock, thereby causing our stock price to either remain depressed or to decline further.

We may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.

Our competitors or other patent holders may assert that our present or future products and the methods we employ are covered by their patents. In addition, we do not know whether our competitors own or will obtain patents that they may claim prevent, limit or interfere with our ability to make, use, sell or import our products. Although we may seek to resolve any potential future claims or actions, we may not be able to do so on reasonable terms, or at all. If, following a successful third-party action for infringement, we cannot obtain a license or redesign our products, we may have to stop manufacturing and selling the applicable products and our business would suffer as a result. In addition, a court could require us to pay substantial damages, and prohibit us from using technologies essential to our products, any of which would have a material adverse effect on our business, results of operations and financial condition.

We may become involved in litigation not only as a result of alleged infringement of a third party’s intellectual property rights but also to protect our own intellectual property. For example, we have been, and may hereafter become, involved in litigation to protect the trademark rights associated with our company name or the names of our products. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and could divert management’s attention from our core business.

Any acquisitions that we make could disrupt our business and harm our financial condition.

From time to time we evaluate potential strategic acquisitions of complementary businesses, products or technologies. We may also consider joint ventures and other collaborative projects. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate any businesses, products or technologies that we acquire. Furthermore, the integration of any acquisition and management of any collaborative project may divert management’s time and resources from our core business and disrupt our operations and we may incur significant legal, accounting and banking fees in connection with such a transaction. In addition, if we purchase a company that is not profitable, our cash balances may be reduced or depleted. We do not have any experience as a team with acquiring companies or products. If we decide to expand our product offerings beyond laser and light-based products, we may spend time and money on projects that do not increase our revenue. Any cash acquisition we pursue would diminish our available cash balances to us for other uses, and any stock acquisition could be dilutive to our stockholders.

While we from time to time evaluate potential acquisitions of businesses, products and technologies, and anticipate continuing to make these evaluations, we have no present understandings, commitments or agreements with respect to any material acquisitions or collaborative projects.

Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

Many of the components and materials that comprise our products are currently manufactured by a limited number of suppliers. A supply interruption or an increase in demand beyond our current suppliers’ capabilities could harm our ability to manufacture our products until a new source of supply is identified and qualified. Our reliance on these suppliers subjects us to a number of risks that could harm our business, including:

● Interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;

● Delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a component;

● A lack of long-term supply arrangements for key components with our suppliers;

● Inability to obtain adequate supply in a timely manner, or on reasonable terms;

● Inability to redesign one or more components in our systems in the event that a supplier discontinues manufacturing such components and we are unable to source it from other suppliers on reasonable terms;

● Difficulty locating and qualifying alternative suppliers for our components in a timely manner;

● Production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; and

● Delay in supplier deliveries.

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Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

Intellectual property rights may not provide adequate protection for some or all of our products, which may permit third parties to compete against us more effectively.

We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and products. At June 30, 2012, we had 20 issued U.S. patents. Some of our components, such as our laser module, electronic control system and high-voltage electronics, are not, and in the future may not be, protected by patents. Additionally, our patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we obtain may be challenged, invalidated or legally circumvented by third parties. Consequently, competitors could market products and use manufacturing processes that are substantially similar to, or superior to, ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. Moreover, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States.

The absence of complete intellectual property protection exposes us to a greater risk of direct competition. Competitors could purchase one of our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, design around our protected technology, or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected against competitors’ products and methods, our competitive position and our business could be adversely affected.

We offer credit terms to some qualified customers and also to leasing companies to finance the purchase of our products. In the event that any of these customers default on the amounts payable to us, our earnings may be adversely affected.

While we qualify customers to whom we offer credit terms (generally net 30 to 90 days), we cannot provide any assurance that the financial position of these customers will not change adversely before we receive payment. Our general and administrative expenses and earnings are negatively impacted by customer defaults and cause an increase in the allowance for doubtful accounts. In the event that there is a default by any customers to whom we have provided credit terms in the future, we may recognize a bad debt charge in our general and administrative expenses and this could negatively affect our earnings and results of operations.

We are subject to fluctuations in the exchange rate of the U.S. dollar and foreign currencies.

As a result of recent fluctuations in currency markets and the strong dollar relative to many other major currencies, our products priced in U.S. dollars may be cheaper or more expensive relative to products of our foreign competitors, which could result in volatility in our revenue. We do not actively hedge our exposure to currency rate fluctuations. While we transact business primarily in U.S. Dollars, and a significant proportion of our revenue is denominated in U.S. Dollars, a portion of our costs and revenue is denominated in other currencies, such as the Euro, Japanese Yen, Australian Dollar, Canadian Dollar and British Pound Sterling. As a result, changes in the exchange rates of these currencies to the U.S. Dollar will affect our results from operations.

 The expense and potential unavailability of insurance coverage for our customers could adversely affect our ability to sell our products, and therefore our financial condition.

Some of our customers and prospective customers have had difficulty in procuring or maintaining liability insurance to cover their operation and use of our products. Medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our products and potential customers may opt against purchasing laser and light based products due to the cost or inability to procure insurance coverage. The unavailability of insurance coverage for our customers and prospects could adversely affect our ability to sell our products, and that could harm our financial condition.

Anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that could discourage a takeover.

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Our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that might enable our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial block of our common stock. These provisions include:

● A classified board of directors;

● Advance notice requirements to stockholders for matters to be brought at stockholder meetings;

● Limitations on stockholder actions by written consent; and

● The right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.

These provisions, as well as Change of Control and Severance Agreements entered into with each of our executive officers, might discourage, delay or prevent a change in control of our company or a change in our management. The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not sell any equity securities during the period covered by this report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit No.	Description
3.2(1)	Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
3.4(1)	Bylaws of the Registrant.
4.1(2)	Specimen Common Stock certificate of the Registrant.
10.14(3)	Cutera, Inc. 2004 Equity Incentive Plan, as amended by its Board of Directors on April 25, 2008.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.ins	Instance Document
101.sch	XBRL Taxonomy Extension Schema Document
101.cal	XBRL Taxonomy Extension Calculation Linkbase Document
101.lab	XBRL Taxonomy Extension Label Linkbase Document
101.pre	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference from our Registration Statement on Form S-1 (Registration No. 333-111928) which was declared effective on March 30, 2004.

(2) Incorporated by reference from our Annual Report on Form 10-K filed with the SEC on March 25, 2005.

(3) Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on April 28, 2008.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Brisbane, State of California, on the 6th day of August, 2012.

CUTERA, INC.

/S/ RONALD J. SANTILLI

Ronald J. Santilli

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kevin P. Connors, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cutera, 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 annual 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 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 registrant’s board of directors:

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 6, 2012	/S/ KEVIN P. CONNORS
	Kevin P. Connors
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ronald J. Santilli, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cutera, 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 annual 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 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 auditor and the audit committee of registrant’s board of:

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 6, 2012	/S/ RONALD J. SANTILLI
	Ronald J. Santilli
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin P. Connors, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

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

Date: August 6, 2012	/S/ KEVIN P. CONNORS
	Kevin P. Connors
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

I, Ronald J. Santilli, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

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

Date: August 6, 2012	/S/ RONALD J. SANTILLI
	Ronald J. Santilli
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Taxes [Abstract]
Deferred Tax Assets, Valuation Allowance, Percentage (in hundredths)			100.00%
Income tax provision	$ 89	$ (208)	$ 186	$ (176)

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Acquisition, Finite-Lived Intangible Assets Amortization Period (Details) (Iridexs global aesthetics business unit [Member])	6 Months Ended
	Jun. 30, 2012
Customer Relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life of acquired intangible assets	5 years
Other Intangible Assets [Member] | Minimum [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life of acquired intangible assets	11 months
Other Intangible Assets [Member] | Maximum [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life of acquired intangible assets	5 years

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Warranty (Tables)

6 Months Ended

Jun. 30, 2012

Warranty [Abstract]

Changes in product warranty accrual

The following table provides the changes in the product warranty accrual for the six-month period ended June 30, 2012 (in thousands):

Beginning Balance - December 31, 2011	$	1,121
Add: Accruals for warranties issued during the period		1,743
Add: Warranties assumed with business acquisition		310
Less: Settlements made during the period		(1,935	)
Ending Balance -June 30, 2012	$	1,239

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Stock-based Compensation Expense (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 788	$ 1,325	$ 1,526	$ 2,211
Number of shares of common stock issued (in shares)			176,283
Cost of revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	168	183	311	326
Sales and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	160	177	300	415
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	147	197	293	340
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 313	$ 768	$ 622	$ 1,130

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 3. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

● Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

● Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of June 30, 2012, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

June 30, 2012	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	12,919		-		-	$	12,919
Commercial paper		-		2,625		-		2,625
Short-term marketable investments:
U.S. government notes		-		1,602		-		1,602
U.S. government agencies		-		32,415		-		32,415
Municipal securities		-		5,770		-		5,770
Commercial paper		-		3,927		-		3,927
Corporate debt securities		-		19,080		-		19,080
Long-term investments:
Available-for-sale ARS		-		-		840		840
Total assets at fair value	$	12,919	$	65,419	$	840	$	79,178

As of December 31, 2011, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2011	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	7,318		-		-	$	7,318
Commercial paper		-		4,549		-		4,549
Short-term marketable investments:
U.S. government notes		-		3,665		-		3,665
U.S. government agencies		-		41,565		-		41,565
Municipal securities		-		6,134		-		6,134
Commercial paper		-		4,747		-		4,747
Corporate debt securities		-		18,555		-		18,555
Long-term investments:
Available-for-sale ARS		-		-		3,027		3,027
Total assets at fair value	$	7,318	$	79,215	$	3,027	$	89,560

The Company's Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining maturity of the Company's Level 2 investments as of June 30, 2012 is less than 36 months and all of these investments are rated by S&P and Moody's at A or better except for one security with a fair value of $450,000 which was rated as A when purchased but was downgraded and rated as BBB+.

At June 30, 2012, observable market information was not available to determine the fair value of the Company's ARS investments. Therefore, the fair value was based on broker-provided valuation models that relied on Level 3 inputs including those that are based on expected cash flow streams and collateral values, assessments of counterparty credit quality, default risk underlying the security, market discount rates and overall capital market liquidity. The expected future cash flows of the ARS were discounted using a risk adjusted discount rate that compensated for the illiquidity. Projected future cash flows over the economic life of the ARS (of approximately 12.5 years) were modeled based on the contractual penalty rates for the security added to a tax adjusted LIBOR interest rate curve. The discount rates that were applied to the cash flows were based on a premium over the projected yield curve and included an adjustment for credit, illiquidity, and other risk factors. The valuation of the Company's ARS investment is subject to uncertainties that are difficult to predict. Factors that may impact the valuation in the future include changes to credit ratings of the security, as well as to the underlying assets supporting that security, rates of default of the underlying assets, underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. This financial instrument is classified within Level 3 of the fair value hierarchy.

The table presented below summarizes the change in carrying value associated with Level 3 financial assets, which represents the Company's investment in long term ARS, for the three months ended June 30, 2012 (in thousands):

Balance at December 31, 2011	$	3,027
Total gains and losses included in other comprehensive loss		513
Settlements		(2,700	)
Balance at June 30, 2012	$	840

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Cash and Cash Equivalents, Marketable Securities and Long-Term Investments (Details) (USD $)																	6 Months Ended	42 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2010	Jun. 30, 2012 U.S. Government Notes [Member]	Dec. 31, 2011 U.S. Government Notes [Member]	Jun. 30, 2012 U.S. Government Agencies [Member]	Dec. 31, 2011 U.S. Government Agencies [Member]	Jun. 30, 2012 Municipal Securities [Member]	Dec. 31, 2011 Municipal Securities [Member]	Jun. 30, 2012 Commercial Paper, Not Included with Cash and Cash Equivalents [Member]	Dec. 31, 2011 Commercial Paper, Not Included with Cash and Cash Equivalents [Member]	Jun. 30, 2012 Corporate Debt Securities [Member]	Dec. 31, 2011 Corporate Debt Securities [Member]	Jun. 30, 2012 Total Marketable Investments [Member]	Dec. 31, 2011 Total Marketable Investments [Member]	Jun. 30, 2012 Long-Term Investment in ARS [Member]	Jun. 30, 2012 Long-Term Investment in ARS [Member]	Dec. 31, 2011 Long-Term Investment in ARS [Member]	Jun. 30, 2012 Cash [Member]	Dec. 31, 2011 Cash [Member]	Jun. 30, 2012 Money Market Funds [Member]	Dec. 31, 2011 Money Market Funds [Member]	Jun. 30, 2012 Commercial Paper [Member]	Dec. 31, 2011 Commercial Paper [Member]
Cash and Cash Equivalents [Line Items]
Cash and Cash Equivalents, Amortized Cost	$ 17,788,000	$ 14,020,000	$ 17,483,000	$ 12,519,000																$ 2,244,000	$ 2,153,000	$ 12,919,000	$ 7,318,000	$ 2,625,000	$ 4,549,000
Cash and Cash Equivalents, Fair Market Value	17,788,000	14,020,000																		2,244,000	2,153,000	12,919,000	7,318,000	2,625,000	4,549,000
Schedule of Available-for-sale Securities [Line Items]
Amortized cost					1,600,000	3,655,000	32,376,000	41,535,000	5,733,000	6,091,000	3,926,000	4,747,000	19,072,000	18,574,000	62,707,000	74,602,000	1,200,000	1,200,000	3,900,000
Gross unrealized gains	105,000	114,000			2,000	10,000	43,000	44,000	38,000	44,000	1,000	1,000	21,000	15,000	105,000	114,000	0	0	0
Gross unrealized losses	(378,000)	(923,000)			0	0	(4,000)	(14,000)	(1,000)	(1,000)	0	(1,000)	(13,000)	(34,000)	(18,000)	(50,000)	(360,000)	(360,000)	(873,000)
Fair market value	66,259,000				1,602,000	3,665,000	32,415,000	41,565,000	5,770,000	6,134,000	3,927,000	4,747,000	19,080,000	18,555,000	62,794,000	74,666,000	840,000	840,000	3,027,000
ARS redeemed at full par value																		12,200,000
Maturity date																	Dec. 31, 2041
Estimated fair value of marketable investments and long-term investments classified by contractual maturity date [Abstract]
Due in less than one year	33,044,000
Due in 1 to 3 years	32,375,000
Due in 3 to 5 years	0
Due in 5 to 10 years	0
Due in greater than 10 years	840,000
Total	66,259,000				1,602,000	3,665,000	32,415,000	41,565,000	5,770,000	6,134,000	3,927,000	4,747,000	19,080,000	18,555,000	62,794,000	74,666,000	840,000	840,000	3,027,000
Total cash, cash equivalents, marketable investments and long-term investments, amortized cost	81,695,000	92,522,000
Total cash, cash equivalents, marketable investments and long-term investments, fair market value	$ 81,422,000	$ 91,713,000

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Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Net Loss Per Share [Abstract]

Antidilutive securities excluded from computation of diluted net loss per common share

The following number of shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Options to purchase common stock		3,463		3,520		3,564		3,430
Restricted stock units		51		65		53		65
Employee stock purchase plan shares		53		46		53		46
Total		3,567		3,631		3,670		3,541

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012 Investment in Long-Term ARS [Member]	Jun. 30, 2012 Minimum [Member]	Jun. 30, 2012 Maximum [Member]	Jun. 30, 2012 Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member]	Jun. 30, 2012 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 1 [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 1 [Member]	Jun. 30, 2012 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 2 [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 2 [Member]	Jun. 30, 2012 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 3 [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Fair Value, Inputs, Level 3 [Member]
Cash equivalents:
Money market funds				$ 12,919	$ 7,318	$ 12,919	$ 7,318	$ 0	$ 0	$ 0	$ 0
Commercial paper				2,625	4,549	0	0	2,625	4,549	0	0
Short-term marketable investments:
U.S. government notes				1,602	3,665	0	0	1,602	3,665	0	0
U.S. government agencies				32,415	41,565	0	0	32,415	41,565	0	0
Municipal securities				5,770	6,134	0	0	5,770	6,134	0	0
Commercial paper				3,927	4,747	0	0	3,927	4,747	0	0
Corporate debt securities				19,080	18,555	0	0	19,080	18,555	0	0
Long-term investments:
Available-for-sale ARS				840	3,027	0	0	0	0	840	3,027
Total assets at fair value				79,178	89,560	12,919	7,318	65,419	79,215	840	3,027
Economic life of ARS		10 years	12 years 6 months
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance, beginning of period	3,027
Total gains or losses included in other comprehensive loss	513
Settlements	(2,700)
Balance, end of period	$ 840

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Inventories [Abstract]
Raw materials	$ 7,533	$ 6,587
Finished goods	5,189	4,142
Total	$ 12,722	$ 10,729

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Cash and Cash Equivalents, Marketable Securities and Long-Term Investments

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents, Marketable Securities and Long-Term Investments [Abstract]

Cash and Cash Equivalents, Marketable Securities and Long-Term Investments

Note 2. Cash and Cash Equivalents, Marketable Securities and Long-Term Investments

The Company considers all highly liquid investments, with an original maturity of three months or less at the time of purchase, to be cash equivalents. Investments in debt securities are accounted for as "available-for-sale" securities, carried at fair value with unrealized gains and losses reported in other comprehensive loss, held for use in current operations and classified in current assets as "Marketable investments" and in long term assets as "Long-term investments."

The following tables summarize unrealized gains and losses related to our marketable investments and long-term investments, both designated as available-for-sale (in thousands):

June 30, 2012	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,244		$	-	$	-		$	2,244
Money market funds		12,919			-		-			12,919
Commercial paper		2,625			-		-			2,625
Total cash and cash equivalents		17,788			-		-			17,788
Marketable securities:
U.S. government notes		1,600			2		-			1,602
U.S. government agencies		32,376			43		(4	)		32,415
Municipal securities		5,733			38		(1	)		5,770
Commercial paper		3,926			1		-			3,927
Corporate debt securities		19,072			21		(13	)		19,080
Total marketable investments		62,707			105		(18	)		62,794
Long-term investment in auction rate securities		1,200			-		(360	)		840
Total cash, cash equivalents, marketable investments and long-term investments	$	81,695		$	105	$	(378	)	$	81,422

December 31, 2011	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,153		$	-	$	-		$	2,153
Money market funds		7,318			-		-			7,318
Commercial paper		4,549			-		-			4,549
Total cash and cash equivalents		14,020			-		-			14,020
Marketable securities:
U.S. government notes		3,655			10		-			3,665
U.S. government agencies		41,535			44		(14	)		41,565
Municipal securities		6,091			44		(1	)		6,134
Commercial paper		4,747			1		(1	)		4,747
Corporate debt securities		18,574			15		(34	)		18,555
Total marketable investments		74,602			114		(50	)		74,666
Long-term investment in auction rate securities		3,900			-		(873	)		3,027
Total cash, cash equivalents, marketable investments and long-term investments	$	92,522		$	114	$	(923	)	$	91,713

As of June 30, 2012 and December 31, 2011, the total gross unrealized losses were $378,000 and $923,000 respectively and were primarily related to long-term investments in auction rate securities (ARS), which were in an unrealized loss position for 12 months or greater. No other securities were in unrealized loss positions for more than 12 months.  The unrealized losses in the ARS securities are not attributed to changes in credit risk and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

Since February 2008, uncertainties in the credit markets affected the majority of ARS investments and auctions for the Company's investments in these securities have failed to settle on their respective settlement dates. However, since 2009 $12.2 million of ARS were redeemed at full par value. The maturity date for the one remaining ARS investment in the Company's portfolio is 2041.

The following table summarizes the estimated fair value of our securities available-for-sale and classified as cash and cash equivalents, marketable investments and long-term investments classified by the contractual maturity date of the security as of June 30, 2012 (in thousands):

	Amount
Due in less than one year	$	33,044
Due in 1 to 3 years		32,375
Due in 3 to 5 years		-
Due in 5 to 10 years		-
Due in greater than 10 years		840
	$	66,259

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Acquisition (Details) (Iridexs global aesthetics business unit [Member], USD $)	Jun. 30, 2012	Feb. 02, 2012
Business Acquisition [Line Items]
Purchase price paid		$ 5,091,000
Net tangible and intangible assets acquired	4,800,000
Assets (liabilities acquired)
Inventory		1,552,000
Goodwill		1,339,000
Deferred service revenue		(780,000)
Accrued warranty liability		(310,000)
Total		5,091,000
Customer Relationships [Member]
Assets (liabilities acquired)
Intangible assets		2,510,000
Other Intangible Assets [Member]
Assets (liabilities acquired)
Intangible assets		$ 780,000

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Commitments and Contingencies (Details) (USD $)	Jun. 30, 2012
Commitments and Contingencies [Abstract]
Estimated Litigation Liability	$ 449,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 17,788	$ 14,020
Marketable investments	62,794	74,666
Accounts receivable, net	6,203	5,193
Inventories	12,722	10,729
Deferred tax asset	52	55
Other current assets and prepaid expenses	1,443	1,432
Total current assets	101,002	106,095
Property and equipment, net	946	853
Long-term investments	840	3,027
Deferred tax asset, net of current portion	463	446
Intangibles, net	3,186	446
Goodwill	1,339	0
Other long-term assets	539	486
Total assets	108,315	111,353
Current liabilities:
Accounts payable	2,199	2,573
Accrued liabilities	9,382	9,262
Deferred revenue	6,285	5,185
Total current liabilities	17,866	17,020
Deferred rent	1,400	1,448
Deferred revenue, net of current portion	905	840
Income tax liability	469	478
Total liabilities	20,640	19,786
Commitments and contingencies (Note 12)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; authorized: 5,000,000 shares; none issued and outstanding	0	0
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 14,124,678 and 13,948,395 shares at June 30, 2012 and December 31, 2011, respectively	14	14
Additional paid-in capital	98,044	95,719
Accumulated deficit	(10,058)	(3,325)
Accumulated other comprehensive loss	(325)	(841)
Total stockholders' equity	87,675	91,567
Total liabilities and stockholders' equity	$ 108,315	$ 111,353

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net loss	$ (6,733)	$ (6,311)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	1,525	2,211
Tax benefit from stock-based compensation	0	16
Excess tax benefit related to stock-based compensation	0	(16)
Depreciation and amortization	768	319
Other	0	(35)
Changes in assets and liabilities:
Accounts receivable	(1,057)	936
Inventories	(441)	(1,853)
Other current assets and prepaid expenses	503	1,439
Other long-term assets	(53)	0
Accounts payable	(374)	884
Accrued liabilities	(241)	675
Deferred rent	3	(6)
Deferred revenue	385	(548)
Income tax liability	(9)	17
Net cash provided by (used in) operating activities	(5,724)	(2,272)
Cash flows from investing activities:
Acquisition of property and equipment	(311)	(397)
Business acquisition	(5,091)	0
Proceeds from sales of marketable and long-term investments	17,795	10,441
Proceeds from maturities of marketable investments	19,835	28,436
Purchase of marketable investments	(23,536)	(32,125)
Net cash provided by investing activities	8,692	6,355
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan	800	865
Excess tax benefit related to stock-based compendation	0	16
Net cash provided by financing activities	800	881
Net increase (decrease) in cash and cash equivalents	3,768	4,964
Cash and cash equivalents at beginning of period	14,020	12,519
Cash and cash equivalents at end of period	$ 17,788	$ 17,483

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Warranty (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Warranty [Abstract]
Period of warranty	1 year
Changes in product warranty accrual [Roll forward]
Beginning Balance	$ 1,121
Add: Accruals for warranties issued during the period	1,743
Add: Warranties assumed with business acquisition	310
Less: Settlements made during the period	(1,935)
Ending Balance	$ 1,239

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Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Inventories

Inventories consist of the following (in thousands):

	June 30, 2012		December 31, 2011
Raw materials	$	7,533	$	6,587
Finished goods		5,189		4,142
Total	$	12,722	$	10,729

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Deferred Service Contract Revenue (Details) (Service Contract [Member], USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Service Contract [Member]
Changes in deferred service contract revenue [Roll forward]
Beginning Balance	$ 5,838,000	$ 6,765,000
Add: Payments received	6,033,000	4,226,000
Add: Contract revenue assumed with business acquisition	780,000	0
Less: Revenue recognized	(5,645,000)	(4,749,000)
Ending Balance	7,006,000	6,242,000
Costs incurred under service contracts	$ 3,600,000	$ 2,300,000

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Components of intangible assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006; a technology sublicense acquired in 2002; and, intangible assets and goodwill related to the acquisition of Iridex's aesthetic business unit. The components of intangible assets were as follows (in thousands):

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	862	$	356
Technology sublicense		538		538		-
Customer relationship intangible related to acquisition		2,510		209		2,301
Other identified intangible assets related to acquisition		780		251		529
Goodwill		1,339		-		1,339
Total	$	6,385	$	1,860	$	4,525

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	793	$	425
Technology sublicense		538		517		21
Total	$	1,756	$	1,310	$	446

Remaining estimated annual amortization expense

Based on intangible assets recorded at June 30, 2012, and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):

Fiscal Year Ending December 31,	Amount
2012 (remainder)	$	620
2013		696
2014		696
2015		569
2016		558
Thereafter		47
Total	$	3,186

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Description of Operations and Principles of Consolidation.

Cutera, Inc. (Cutera or the Company) is a global provider of laser and light-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets the CoolGlide, Xeo, Solera, GenesisPlus and ExcelV product platforms for use by physicians and other qualified practitioners to allow its customers to offer safe and effective aesthetic treatments to their customers. The Xeo and Solera platforms offer multiple hand pieces and applications, which allow customers to upgrade their systems (Upgrade revenue). In addition to systems and Upgrade revenue, the Company generates revenue from the sale of post warranty service contracts, providing services for products that are out of warranty, and Titan hand piece refills.  In Japan the Company also distributes third party manufactured dermal fillers, cosmeceuticals and a Q-switched laser system called myQ.

In February 2012, the Company acquired the global aesthetic business unit of IRIDEX Corporation (or Iridex), which included various laser systems (such as the VariLite and Gemini) and an installed base of customers, whose products will be serviced by the Company.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries in Australia, Canada, France, Japan, Spain, and the United Kingdom that market, sell and service its products outside of the United States. Effective March 31, 2012, the Company decided to discontinue its direct operations in Spain and the United Kingdom and instead plans on seeking a distributor to market its products in these countries. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all inter-company transactions and balances have been eliminated.

Unaudited Interim Financial Information

The financial information filed is unaudited. The Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The December 31, 2011 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (GAAP). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The Condensed Consolidated Financial Statements should be read in conjunction with the Company's financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission, or SEC, on March 15, 2012.

Use of Estimates

The preparation of interim Condensed Consolidated Financial Statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported and disclosed in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates these estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, provision for excess and obsolete inventories, fair values of marketable and long-term investments, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Stockholders' equity:
Convertible preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Convertible preferred stock, authorized (in shares)	5,000,000	5,000,000
Convertible preferred stock, issued (in shares)	0	0
Convertible preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	14,124,678	13,948,395
Common stock, outstanding (in shares)	14,124,678	13,948,395

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 11. Income Taxes

The Company's income tax provision for the three and six-month periods ended June 30, 2012 and 2011 was primarily related to income taxes of the Company's non-U.S. operations. The Company recorded a 100% valuation allowance against its U.S. deferred tax assets and as such did not record any income tax benefit related to its U.S. loss for the three and six-month periods ended June 30, 2012 and 2011.

For the three and six months ended June 30, 2012, the Company's income tax provision was $89,000 and $186,000, compared to a benefit of $208,000 and $176,000 for the three and six months ended June 30, 2011. The income tax benefit for the three and six-month periods ended June 30, 2011 was primarily related to the carryback of fiscal year 2010 federal losses to obtain a $246,000 refund of alternative minimum taxes paid for fiscal year 2008, reduced by the tax impact of the Company's non-U.S. operations.

The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. As of June 30, 2012 and December 31, 2011, the Company had a 100% valuation allowance against its U.S. deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considered available positive and negative evidence giving greater weight to its recent cumulative losses and its ability to carry-back losses against prior taxable income and lesser weight to its projected financial results due to the challenges of forecasting future periods. The Company also considered, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

As of June 30, 2012, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined and disclosed pursuant to FASB ASC Topic 740 as of December 31, 2011.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	CUTERA INC
Entity Central Index Key	0001162461
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		14,125,094
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 12. Commitments and Contingencies

Purchase Commitments

The Company maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous supply for key components. The Company's liability in these purchase commitments is generally restricted to a forecasted time-horizon as agreed between the parties. These forecasted time-horizons can vary among different suppliers. The Company's open inventory purchase commitments with its suppliers were not significant at June 30, 2012.

Litigation and Litigation Settlements

The Company is named from time to time as a party to product liability and contractual lawsuits in the normal course of business. The Company routinely assesses the likelihood of any adverse judgments or outcomes related to legal matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that the Company shall incur a loss, and whether the loss is estimable. As of June 30, 2012, the Company had accrued $449,000 related to pending product liability and contractual lawsuits.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net revenue:
Products	$ 15,156	$ 11,301	$ 27,010	$ 19,594
Service	4,435	3,594	8,308	6,922
Total net revenue	19,591	14,895	35,318	26,516
Cost of Revenue:
Products	6,968	4,210	12,619	7,498
Service	2,306	2,266	4,500	4,202
Total cost of revenue	9,274	6,476	17,119	11,700
Gross profit	10,317	8,419	18,199	14,816
Operating expenses:
Sales and marketing	7,112	6,348	14,549	12,294
Research and development	1,872	2,346	4,088	4,476
General and administrative	2,854	2,588	6,349	4,916
Total operating expenses	11,838	11,282	24,986	21,686
Loss from operations	(1,521)	(2,863)	(6,787)	(6,870)
Interest and other income, net	144	199	240	383
Loss before income taxes	(1,377)	(2,664)	(6,547)	(6,487)
(Benefit) provision for income taxes	89	(208)	186	(176)
Net loss	$ (1,466)	$ (2,456)	$ (6,733)	$ (6,311)
Net loss per share:
Basic and diluted (in dollars per share)	$ (0.1)	$ (0.18)	$ (0.48)	$ (0.46)
Weighted-average number of shares used in per share calculations:
Basic and diluted (in shares)	14,095	13,765	14,027	13,716

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6. Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006; a technology sublicense acquired in 2002; and, intangible assets and goodwill related to the acquisition of Iridex's aesthetic business unit. The components of intangible assets were as follows (in thousands):

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	862	$	356
Technology sublicense		538		538		-
Customer relationship intangible related to acquisition		2,510		209		2,301
Other identified intangible assets related to acquisition		780		251		529
Goodwill		1,339		-		1,339
Total	$	6,385	$	1,860	$	4,525

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization Amount		Net Carrying Amount
Patent sublicense	$	1,218	$	793	$	425
Technology sublicense		538		517		21
Total	$	1,756	$	1,310	$	446

Amortization expense for intangible assets was $549,000 and $96,000 for the six-month periods ended June 30, 2012 and 2011 respectively.

Based on intangible assets recorded at June 30, 2012, and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):

Fiscal Year Ending December 31,	Amount
2012 (remainder)	$	620
2013		696
2014		696
2015		569
2016		558
Thereafter		47
Total	$	3,186

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Acquisition

6 Months Ended

Jun. 30, 2012

Acquisition [Abstract]

Acquisition

Note 5. Acquisition

On February 2, 2012, Cutera acquired certain assets and liabilities of Iridex's global aesthetics business unit for $5.1 million in cash. This business is engaged in developing, manufacturing, marketing and servicing laser-based medical systems and delivery devices. The business purpose of this transaction was to acquire access to an expanded installed base of customers, add to Cutera's product offerings and acquire a recurring stream of service revenue. This acquisition was considered a business combination for accounting purposes, and as such, in addition to valuing all the assets, the Company recorded goodwill associated with the expected synergies from leveraging the customer relationships and integrating new product offerings into the Company's business.

The fair values of the assets acquired were determined to be $4.8 million of net tangible and intangible assets and $1.3 million of goodwill. The customer relationship intangible assets are being amortized over 5 years from the date of acquisition on a straight-line basis. Other intangible assets are being amortized over 11 months to 5 years on a straight-line basis.

The recorded purchase price amounts are preliminary and subject to change as the Company is awaiting additional information related to inventory valuation and experience with respect to inventory usage.

The following table summarizes the fair value as of February 2, 2012 of the net assets acquired (in thousands):

Purchase price paid	$	5,091
Assets (liabilities acquired)
Inventory		1,552
Customer relationship intangible assets		2,510
Other identified intangible assets		780
Goodwill		1,339
Deferred service revenue		(780	)
Accrued warranty liability		(310	)
Total	$	5,091

Disclosure of the amounts of revenue and earnings of the asset and liabilities of the acquired Iridex aesthetics business is not practicable because the acquired business has been immediately integrated into Cutera's operations.

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Acquisition (Tables)

6 Months Ended

Jun. 30, 2012

Acquisition [Abstract]

Fair value of net assets acquired

The following table summarizes the fair value as of February 2, 2012 of the net assets acquired (in thousands):

Purchase price paid	$	5,091
Assets (liabilities acquired)
Inventory		1,552
Customer relationship intangible assets		2,510
Other identified intangible assets		780
Goodwill		1,339
Deferred service revenue		(780	)
Accrued warranty liability		(310	)
Total	$	5,091

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Description of Operations and Principles of Consolidation.

Description of Operations and Principles of Consolidation.

Cutera, Inc. (Cutera or the Company) is a global provider of laser and light-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets the CoolGlide, Xeo, Solera, GenesisPlus and ExcelV product platforms for use by physicians and other qualified practitioners to allow its customers to offer safe and effective aesthetic treatments to their customers. The Xeo and Solera platforms offer multiple hand pieces and applications, which allow customers to upgrade their systems (Upgrade revenue). In addition to systems and Upgrade revenue, the Company generates revenue from the sale of post warranty service contracts, providing services for products that are out of warranty, and Titan hand piece refills.  In Japan the Company also distributes third party manufactured dermal fillers, cosmeceuticals and a Q-switched laser system called myQ.

In February 2012, the Company acquired the global aesthetic business unit of IRIDEX Corporation (or Iridex), which included various laser systems (such as the VariLite and Gemini) and an installed base of customers, whose products will be serviced by the Company.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries in Australia, Canada, France, Japan, Spain, and the United Kingdom that market, sell and service its products outside of the United States. Effective March 31, 2012, the Company decided to discontinue its direct operations in Spain and the United Kingdom and instead plans on seeking a distributor to market its products in these countries. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all inter-company transactions and balances have been eliminated.

Use of Estimates

Use of Estimates

The preparation of interim Condensed Consolidated Financial Statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported and disclosed in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates these estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, provision for excess and obsolete inventories, fair values of marketable and long-term investments, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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Stock-based Compensation Expense

6 Months Ended

Jun. 30, 2012

Stock-based Compensation Expense [Abstract]

Stock-based Compensation Expense

Note 9. Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the three and six-month periods ended June 30, 2012 and 2011 was as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Cost of revenue	$	168	$	183	$	311	$	326
Sales and marketing		160		177		300		415
Research and development		147		197		293		340
General and administrative		313		768		622		1,130
Total stock-based compensation expense	$	788	$	1,325	$	1,526	$	2,211

Under the 2004 Equity Incentive Plan, the Company issued 176,283 shares of common stock, during the six-month period ended June 30, 2012, in conjunction with stock options exercised, restricted stock units released and purchases associated with the Employee Stock Purchase Plan.

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Warranty

6 Months Ended

Jun. 30, 2012

Warranty [Abstract]

Warranty

Note 7. Warranty

The Company provides a standard one-year warranty on all systems. Warranty coverage provided is for labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost of the standard warranty coverage as a charge to costs of revenue when revenue is recognized. The estimated warranty cost is based on historical product performance. To determine the estimated warranty reserve, the Company utilizes actual service records to calculate the average service expense per system and applies this to the equivalent number of units exposed under warranty. The Company updates these estimated charges every quarter.

The following table provides the changes in the product warranty accrual for the six-month period ended June 30, 2012 (in thousands):

Beginning Balance - December 31, 2011	$	1,121
Add: Accruals for warranties issued during the period		1,743
Add: Warranties assumed with business acquisition		310
Less: Settlements made during the period		(1,935	)
Ending Balance -June 30, 2012	$	1,239

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Deferred Service Contract Revenue

6 Months Ended

Jun. 30, 2012

Deferred Service Contract Revenue [Abstract]

Deferred Service Contract Revenue

Note 8. Deferred Service Contract Revenue

Service contract revenue is recognized on a straight-line basis over the period of the applicable extended warranty contract.

The following table provides changes in deferred service contract revenue for the six-month period ended June 30, 2012 and 2011 (in thousands):

	June 30
	2012			2011
Beginning Balance	$	5,838			$	6,765
Add:           Payments received		6,033				4,226
Add:           Contract revenue assumed with business acquisition		780				-
Less:           Revenue recognized		(5,645	)			(4,749	)
Ending Balance	$	7,006			$	6,242

Costs incurred under service contracts were $3.6 million for the six-month period ended June 30, 2012 and $2.3 million for the six-month period ended June 30, 2011 and are recognized as incurred.

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Net Loss Per Share

6 Months Ended

Jun. 30, 2012

Net Loss Per Share [Abstract]

Net Loss Per Share

Note 10. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the year. Diluted net loss per common share is the same as basic net loss per common share, as the effect of the potential common stock equivalents is anti-dilutive and as such is excluded from the calculations of the diluted net loss per share.

The following number of shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Options to purchase common stock		3,463		3,520		3,564		3,430
Restricted stock units		51		65		53		65
Employee stock purchase plan shares		53		46		53		46
Total		3,567		3,631		3,670		3,541

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Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization Amount	$ 1,860		$ 1,310
Net Carrying Amount	3,186
Goodwill, gross	1,339
Goodwill, net	1,339		0
Total intangible assets, gross	6,385		1,756
Total intangible assets, net	4,525		446
Amortization expense for intangible assets	549,000	96,000
Remaining estimated annual amortization expense [Abstract]
2012 (remainder)	620
2013	696
2014	696
2015	569
2016	558
Thereafter	47
Total	3,186
Patent sublicense [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,218		1,218
Accumulated Amortization Amount	862		793
Net Carrying Amount	356		425
Remaining estimated annual amortization expense [Abstract]
Total	356		425
Technology sublicense [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	538		538
Accumulated Amortization Amount	538		517
Net Carrying Amount	0		21
Remaining estimated annual amortization expense [Abstract]
Total	0		21
Customer relationship intangible related to acquisition [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	2,510
Accumulated Amortization Amount	209
Net Carrying Amount	2,301
Remaining estimated annual amortization expense [Abstract]
Total	2,301
Other identified intangible assets related to acquisition [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	780
Accumulated Amortization Amount	251
Net Carrying Amount	529
Remaining estimated annual amortization expense [Abstract]
Total	$ 529

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments [Abstract]

Financial assets measured and recognized at fair value on a recurring basis and classified under appropriate level of fair value hierarchy

As of June 30, 2012, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

June 30, 2012	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	12,919		-		-	$	12,919
Commercial paper		-		2,625		-		2,625
Short-term marketable investments:
U.S. government notes		-		1,602		-		1,602
U.S. government agencies		-		32,415		-		32,415
Municipal securities		-		5,770		-		5,770
Commercial paper		-		3,927		-		3,927
Corporate debt securities		-		19,080		-		19,080
Long-term investments:
Available-for-sale ARS		-		-		840		840
Total assets at fair value	$	12,919	$	65,419	$	840	$	79,178

As of December 31, 2011, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2011	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	7,318		-		-	$	7,318
Commercial paper		-		4,549		-		4,549
Short-term marketable investments:
U.S. government notes		-		3,665		-		3,665
U.S. government agencies		-		41,565		-		41,565
Municipal securities		-		6,134		-		6,134
Commercial paper		-		4,747		-		4,747
Corporate debt securities		-		18,555		-		18,555
Long-term investments:
Available-for-sale ARS		-		-		3,027		3,027
Total assets at fair value	$	7,318	$	79,215	$	3,027	$	89,560

The Company's Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining maturity of the Company's Level 2 investments as of June 30, 2012 is less than 36 months and all of these investments are rated by S&P and Moody's at A or better except for one security with a fair value of $450,000 which was rated as A when purchased but was downgraded and rated as BBB+.

Change in carrying value associated with Level 3 financial assets

The table presented below summarizes the change in carrying value associated with Level 3 financial assets, which represents the Company's investment in long term ARS, for the three months ended June 30, 2012 (in thousands):

Balance at December 31, 2011	$	3,027
Total gains and losses included in other comprehensive loss		513
Settlements		(2,700	)
Balance at June 30, 2012	$	840

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Deferred Service Contract Revenue (Tables)

6 Months Ended

Jun. 30, 2012

Deferred Service Contract Revenue [Abstract]

Changes in deferred service contract revenue

The following table provides changes in deferred service contract revenue for the six-month period ended June 30, 2012 and 2011 (in thousands):

	June 30
	2012			2011
Beginning Balance	$	5,838			$	6,765
Add:           Payments received		6,033				4,226
Add:           Contract revenue assumed with business acquisition		780				-
Less:           Revenue recognized		(5,645	)			(4,749	)
Ending Balance	$	7,006			$	6,242

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) [Abstract]
Net loss	$ (1,466)	$ (2,456)	$ (6,733)	$ (6,311)
Other comprehensive income:
Net change in unrealized gain on available-for sale-securities	373	510	536	690
Provision for income taxes related to items of other comprehensive income	(17)	68	20	68
Other comprehensive income, net of tax	390	442	516	622
Comprehensive loss	$ (1,076)	$ (2,014)	$ (6,217)	$ (5,689)

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Inventories

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Inventories

Note 4. Inventories

Inventories consist of the following (in thousands):

	June 30, 2012		December 31, 2011
Raw materials	$	7,533	$	6,587
Finished goods		5,189		4,142
Total	$	12,722	$	10,729

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Stock-based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2012

Stock-based Compensation Expense [Abstract]

Stock-based compensation expense by department

Stock-based compensation expense by department recognized during the three and six-month periods ended June 30, 2012 and 2011 was as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Cost of revenue	$	168	$	183	$	311	$	326
Sales and marketing		160		177		300		415
Research and development		147		197		293		340
General and administrative		313		768		622		1,130
Total stock-based compensation expense	$	788	$	1,325	$	1,526	$	2,211

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Net Loss Per Share (Details) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per common share (in shares)	3,567	3,631	3,670	3,541
Options to purchase common stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per common share (in shares)	3,463	3,520	3,564	3,430
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per common share (in shares)	51	65	53	65
Employee stock purchase plan shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per common share (in shares)	53	46	53	46

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Cash and Cash Equivalents, Marketable Securities and Long-Term Investments (Tables)

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents, Marketable Securities and Long-Term Investments [Abstract]

Unrealized gains and losses related to marketable investments and long-term investments

The following tables summarize unrealized gains and losses related to our marketable investments and long-term investments, both designated as available-for-sale (in thousands):

June 30, 2012	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,244		$	-	$	-		$	2,244
Money market funds		12,919			-		-			12,919
Commercial paper		2,625			-		-			2,625
Total cash and cash equivalents		17,788			-		-			17,788
Marketable securities:
U.S. government notes		1,600			2		-			1,602
U.S. government agencies		32,376			43		(4	)		32,415
Municipal securities		5,733			38		(1	)		5,770
Commercial paper		3,926			1		-			3,927
Corporate debt securities		19,072			21		(13	)		19,080
Total marketable investments		62,707			105		(18	)		62,794
Long-term investment in auction rate securities		1,200			-		(360	)		840
Total cash, cash equivalents, marketable investments and long-term investments	$	81,695		$	105	$	(378	)	$	81,422

December 31, 2011	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	2,153		$	-	$	-		$	2,153
Money market funds		7,318			-		-			7,318
Commercial paper		4,549			-		-			4,549
Total cash and cash equivalents		14,020			-		-			14,020
Marketable securities:
U.S. government notes		3,655			10		-			3,665
U.S. government agencies		41,535			44		(14	)		41,565
Municipal securities		6,091			44		(1	)		6,134
Commercial paper		4,747			1		(1	)		4,747
Corporate debt securities		18,574			15		(34	)		18,555
Total marketable investments		74,602			114		(50	)		74,666
Long-term investment in auction rate securities		3,900			-		(873	)		3,027
Total cash, cash equivalents, marketable investments and long-term investments	$	92,522		$	114	$	(923	)	$	91,713

Estimated fair value of marketable investments and long-term investments classified by contractual maturity date

The following table summarizes the estimated fair value of our securities available-for-sale and classified as cash and cash equivalents, marketable investments and long-term investments classified by the contractual maturity date of the security as of June 30, 2012 (in thousands):

	Amount
Due in less than one year	$	33,044
Due in 1 to 3 years		32,375
Due in 3 to 5 years		-
Due in 5 to 10 years		-
Due in greater than 10 years		840
	$	66,259