10-K

Table Of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2014

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 Number)

3240 Bayshore Blvd.

Brisbane, California 94005

(415) 657-5500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share	The NASDAQ Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☒

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 than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition 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  ☒ Non-accelerated filer (Do not check if a smaller reporting company)  ☐ Smaller reporting company  ☐

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

The aggregate market value of the registrant’s common stock, held by non-affiliates of the registrant as of June 30, 2014 (which is the last business day of registrant’s most recently completed second fiscal quarter) based upon the closing price of such stock on the NASDAQ Global Select Market on June 30, 2014, was approximately $85 million. For purposes of this disclosure, shares of common stock held by entities and individuals who own 5% or more of the outstanding common stock and shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be “affiliates” as that term is defined under the Rules and Regulations of the Securities Exchange Act of 1934. This determination of affiliate status is not necessarily conclusive.

The number of shares of Registrant’s common stock issued and outstanding as of February 28, 2015 was 14,685,960.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the registrant’s definitive proxy statement for the 2015 Annual Meeting of Stockholders.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	29
Item 4.	Mine Safety Disclosures	29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	75
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	76
Item 11.	Executive Compensation	76
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	76
Item 13.	Certain Relationships and Related Transactions, and Director Independence	76
Item 14.	Principal Accounting Fees and Services	76
PART IV
Item 15.	Exhibits, Financial Statement Schedules	77

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PART I

ITEM 1. BUSINESS

We are a global medical device company headquartered in Brisbane, California specializing in the design, development, manufacture, marketing and servicing of laser and other energy based aesthetics systems for practitioners worldwide. We offer easy-to-use products based on the following key product platforms: xeo^®, Genesis Plus^TM, excel V^TM, truSculpt^TM, excel HR^TM and enlighten^TM — each of which enables physicians and other qualified practitioners to perform safe and effective aesthetic procedures for their customers. Each of our laser and other energy-based platforms consists of one or more hand pieces and a console that incorporates a universal graphical user interface, a laser or other energy-based module, control system software and high voltage electronics. However, depending on the application, the laser or other energy-based module is sometimes instead contained in the hand piece itself.

Our trademarks include: "Cutera," “CoolGlide,”“enlighten,” “excel HR”, “excel V,” “Genesis Plus,”“solera,” “titan,” “truSculpt,” and “xeo.” Our logo and our other trade names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this annual report on Form 10-K are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this annual report on Form 10-K appear without the ™ or ^® symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and trade names.

A description of each of our hand pieces, and the aesthetic conditions they are designed to treat, is contained in the section below entitled “Products” and a summary of the features of our primary products is as follows:

● xeo- In 2003, we introduced the xeo platform, which can combine pulsed light and laser applications in a single system. The xeo is a multi-application platform on which a customer can purchase hand piece applications for the removal of unwanted hair, treatment of vascular lesions, and skin rejuvenation by treating discoloration, improving texture, reducing pore size, and treating fine lines and laxity. This multi-application platform represents the largest contributor to our Product revenue.

● Genesis Plus- In 2010, we introduced the Genesis Plus platform, which is a dedicated laser system for performing aesthetic skin procedures and for the temporary increase of clear nail in patients with onychomycosis, or toenail fungus. This system features a hand piece that includes real time temperature monitoring of the treatment area, as well as a non-contact distance gauge using dual aiming beams that enhances ease of use. In addition, this system can be used to treat patients with skin concerns such as fine wrinkles, diffuse redness and rosacea.

● excel V- In February 2011, we introduced our excel V platform, a high-performance, vascular platform designed specifically for the core-market of Dermatologists and Plastic Surgeons. This platform provides a combination of the 532 nanometer, or “nm” green laser with Cutera’s^® award-winning 1064 nm Nd:YAG technology, to provide a single, compact and efficient system that treats the entire range of cosmetic vascular conditions, without the need for costly consumables.

● truSculpt- In August 2012, we commenced shipments of our truSculpt platform with a 25cm² hand piece. truSculpt is a high-powered radio frequency (“RF”) platform designed for the non-invasive body contouring market. This system is designed to treat all body areas and with its unique electrode design is able to achieve comfortable, uniform heating of the subcutaneous fat. In the fourth quarter of 2012, we commenced shipping a larger 40cm² hand piece that enables faster treatments of larger areas. In the third quarter of 2013, we commenced shipping a smaller 16 cm² hand piece.

● excel HR- In June 2014, we introduced our excel HR platform, a premium hair removal solution for all skin types, combining Cutera’s proven long-pulse 1064 nm Nd:YAG laser and a high-power 755 nm Alexandrite laser with sapphire contact cooling.

● enlighten- In December 2014, we introduced our enlighten platform,a dual wavelength (1064 nm + 532 nm) and dual pulse duration (750 picosecond, or “ps,” and 2 nanosecond, or “ns”) laser system for tattoo removal and the treatment of benign pigmented lesions.

Other than the above mentioned six primary systems, we continue to generate revenue from our legacy products such as CoolGlide^®, solera^®, and a third-party sourced system called myQ^TM for the Japanese market.

We offer our customers the ability to select the systems and applications that best fit their practice and to subsequently upgrade their systems to add new applications. This upgrade path allows our customers to cost-effectively build their aesthetic practices and provides us with a source of incremental revenue.

In addition to systems and upgrades, we generate revenue from the sale of post warranty services, Titan hand piece refills, and Dermal fillers and cosmeceuticals.

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The Structure of Skin and Conditions that Affect Appearance

The skin is the body’s largest organ and is comprised of two layers called the epidermis and dermis. The epidermis is the outer layer, and serves as a protective barrier for the body. It contains cells that determine pigmentation, or skin color. The underlying layer of skin, the dermis, contains hair follicles and large and small blood vessels that are found at various depths below the epidermis. Collagen, also found within the dermis, provides strength and flexibility to the skin.

Many factors, including advancing age, smoking, and sun damage, can result in aesthetically unpleasant changes in the appearance of the skin. These changes can include:

● Undesirable hair growth;

● Enlargement or swelling of blood vessels due to circulatory changes that become visible at the skin’s surface in the form of unsightly veins;

● Deterioration of collagen, leading to uneven texture, increased pore size, wrinkles and skin laxity;

● Uneven pigmentation or sun spots due to long-term sun exposure.

In addition to these skin conditions, people seek removal of unwanted tattoos as well as removal of fat in certain body areas in order to improve their appearance and confidence.

The Market for Non-Surgical Aesthetic Procedures

The market for non-surgical aesthetic procedures has grown significantly over the past several years. The American Society of Plastic Surgeons estimates that in 2013 there were over 13.4 million minimally-invasive aesthetic procedures performed in North America, a 3% increase over 2012 and a 144% increase over 2000.

We believe there are several factors contributing to the growth of these aesthetic procedures:

● Aging of the U.S. Population- The “baby boomer” demographic segment ─ ages 50 to 68 in 2014 ─ represented approximately 76 million people, or nearly 25%, of the U.S. population in 2014. The size and wealth of this aging segment, and its desire to retain a youthful appearance, has contributed to the growth in demand for aesthetic procedures.

● Broader Range of Safe and Effective Treatments- Technical developments have led to safe, effective, easy-to-use and low-cost treatments with fewer side effects, resulting in broader adoption of aesthetic procedures by practitioners. In addition, technical developments have enabled practitioners to offer a broader range of treatments. These technical developments have reduced the required treatment and recovery times, which in turn have led to greater patient demand.

● Broader Base of Customers- Managed care and government payer reimbursement restrictions in the U.S., and similar payment related constraints outside the U.S., may help motivate qualified practitioners from differing specialties to establish or expand their elective aesthetic practices with procedures that are paid for directly by patients. As a result, in addition to the core users such as dermatologists and plastic surgeons, many other non-core practitioners, such as gynecologists, family practitioners, primary care physicians, physicians offering aesthetic treatments in non-medical offices, and other qualified practitioners are offering aesthetic procedures.

● Wide acceptance of aesthetic procedures and increased focus on body image and appearance- According to an ASAPS survey in 2010, 51% of Americans (including 53% of women and 49% of men) approved of cosmetic surgery, and 67% of Americans responded that they would not be embarrassed if their friends or family knew they had undergone a cosmetic procedure. Broader social acceptance of aesthetic treatments, and reduced average cost of treatments resulting from competition, have also driven the growth in aesthetic procedures.

Non-Surgical Aesthetic Procedures for Improving the Skin’s Appearance and Their Limitations

Many alternative therapies are available for improving a person’s appearance by treating specific structures within the skin. These procedures utilize injections or abrasive agents to reach different depths of the dermis and the epidermis. In addition, non-invasive and minimally-invasive treatments have been developed that employ laser and other energy-based technologies to achieve similar therapeutic results. Some of these more common therapies and their limitations are described below.

Hair Removal- Techniques for hair removal include waxing, depilatories, tweezing, shaving, electrolysis and laser and other energy-based hair removal. The only techniques that provide a long-lasting solution are electrolysis and other energy-based hair removal. Electrolysis is usually painful, time-consuming and expensive for large areas, but is the most common method for removing light-colored hair. During electrolysis, an electrologist inserts a needle directly into a hair follicle and activates an electric current in the needle. Since electrolysis only treats one hair follicle at a time, the treatment of an area as small as an upper lip may require numerous visits and many hours of treatment. In addition, electrolysis can cause blemishes and infection related to needle use.

Leg and Facial Veins- Current aesthetic treatment methods for leg and facial veins include sclerotherapy and laser and other energy-based treatments. With these treatments, patients seek to eliminate visible veins and improve overall skin appearance. Sclerotherapy requires a skilled practitioner to inject a saline or detergent-based solution into the target vein, which breaks down the vessel causing it to collapse and be absorbed into the body. The need to correctly position the needle on the inside of the vein makes it difficult to treat smaller veins, which limits the treatment of facial vessels and small leg veins. The American Society of Plastic Surgeons estimates that approximately 321,000 sclerotherapy procedures were performed in 2013.

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Skin Rejuvenation- Skin rejuvenation treatments include a broad range of popular alternatives, including Botox and collagen injections, chemical peels, microdermabrasions, radio frequency treatments and lasers and other energy-based treatments. With these treatments, patients hope to improve overall skin tone and texture, reduce pore size, tighten skin and remove other signs of aging, including mottled pigmentation, diffuse redness and wrinkles. All of these procedures are temporary solutions and must be repeated within several weeks or months to sustain their effect, thereby increasing the cost and inconvenience to patients. For example, the body absorbs Botox and collagen and patients require supplemental injections every three to six months to maintain the benefits of these treatments.

Some skin rejuvenation treatments, such as chemical peels and microdermabrasion, can have undesirable side effects. Chemical peels use acidic or caustic solutions to peel away the epidermis, and microdermabrasion generally utilizes sand crystals to resurface the skin. These techniques can lead to stinging, redness, irritation and scabbing. In addition, more serious complications, such as changes in skin color, can result from deeper chemical peels. Patients that undergo these deep chemical peels are also advised to avoid exposure to the sun for several months following the procedure. The American Society of Plastic Surgeons estimates that in 2013, approximately 6.3 million injections of Botulinum Toxin and 2.24 million injections of collagen and other soft-tissue fillers were administered; and 1.16 million chemical peels and 970,000 microdermabrasion procedures were performed.

In radio frequency tissue tightening, energy is applied to heat the dermis of the skin with the goal of shrinking and tightening collagen fibers. This approach may result in a more subtle and incremental change to the skin than a surgical facelift. Drawbacks to this approach may include surface irregularities that may however resolve over time, and the risk of burning the treatment area.

Laser and other energy-based non-surgical treatments for hair removal, veins, skin rejuvenation and body contouring are discussed in the following section and in the section entitled “Our Applications and Procedures” below.

Laser and Other Energy-Based Aesthetic Treatments

Laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. The development of safe and effective aesthetic treatments has created a well-established market for these procedures.

Ablative skin resurfacing is a method of improving the appearance of the skin by removing the outer layers of the skin. Ablative skin resurfacing procedures are considered invasive or minimally invasive, depending on how much of the epidermis is removed during a treatment. Non-ablative skin resurfacing is a method of improving the appearance of the skin by treating the underlying structure of the skin without damaging the outer layers of the skin. Practitioners can use laser and other energy-based technologies to selectively target hair follicles, veins or collagen in the dermis, as well as cells responsible for pigmentation in the epidermis, without damaging surrounding tissue. Practitioners can also use these technologies to safely remove portions of the epidermis and deliver heat to the dermis as a means of generating new collagen growth.

Safe and effective laser and energy-based treatments require an appropriate combination of the following four parameters:

● Energy Level- the amount of light or radio frequency emitted to heat a target;

● Pulse Duration- the time interval over which the energy is delivered;

● Spot Size or Electrode Size- the diameter of the energy beam, which affects treatment depth and area; and

● Wavelength or Frequency- the position in the electromagnetic spectrum which impacts the absorption and therefore the effective depth of the energy delivered.

For example, in the case of hair removal, by utilizing the correct combination of these parameters, a practitioner can use a laser or other light source to selectively target melanin within the hair follicle to absorb the laser energy and destroy the follicle, without damaging other delicate structures in the surrounding tissue. Wavelength and spot size permit the practitioner to target melanin in the base of the hair follicle, which is found in the dermis. The combination of pulse duration and energy level may vary, depending upon the thickness of the targeted hair follicle. A shorter pulse length with a high energy level is optimal to destroy fine hair, whereas coarse hair is best treated with a longer pulse length with lower energy levels. If treatment parameters are improperly set, non-targeted structures within the skin may absorb the energy thereby eliminating or reducing the therapeutic effect. In addition, improper setting of the treatment parameters or failure to protect the surface of the skin may cause burns, which can result in blistering, scabbing and skin discoloration.

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Technology and Design of Our Systems

Our unique xeo, Genesis Plus, excel V, truSculpt, excel HR and enlighten platforms provide the long-lasting benefits of laser and other energy-based aesthetic treatments. Our technology allows for a combination of a wide variety of applications available in a single system. Key features of our solutions include:

● Multiple Applications Available in a Single System- Our platforms feature multiple-applications that enable practitioners to perform a variety of aesthetic procedures using a single device. These procedures include hair removal, vascular treatments and skin rejuvenation ─ including the treatment of discoloration, laxity, fine lines, pore size reduction, and uneven texture. Because practitioners can use our systems for multiple indications, the cost of a unit may be spread across a potentially greater number of patients and procedures and therefore may be more rapidly recovered.

● Technology and Design Leadership- We offer innovative laser and other energy-based solutions for the aesthetic market. Our laser technology combines long wavelength, adjustable energy levels, variable spot sizes and a wide range of pulse durations, allowing practitioners to customize treatments for each patient and condition. Our proprietary pulsed light hand pieces for the treatment of discoloration, hair removal and vascular treatments optimize the wavelength used for treatments and incorporate a monitoring system to increase safety. Our Titan hand pieces utilize a novel light source that had not been previously used for aesthetic treatments. Our Pearl and Pearl Fractional hand pieces, with proprietary YSGG technology, represent the first application of the 2790 nm wavelength for minimally-invasive cosmetic dermatology. Further, our Genesis Plus platform performs aesthetic skin procedures and temporarily increases clear nail in patients with onychomycosis. The Genesis Plus platform contains a hand piece that includes real time temperature monitoring of the treatment area, as well as a non-contact distance gauge using dual aiming beams, for improving the clinical result of the treatment. excel V is a stand-alone laser device that combines a new high power green laser with Cutera's award winning Nd:YAG technology, to provide a system that treats the entire range of cosmetic vascular conditions, without the need for costly consumables. truSculpt is a mono-polar radio frequency platform and has a unique electrode design that delivers high-powered energy at 1 MHz for the deep and uniform heating of the subcutaneous fat tissues at sustained therapeutic temperatures. This system includes real-time skin temperature sensing and a large 40cm² surface area for faster treatments over large areas of the body.

● Upgradeable Platform- We have designed some of our products to allow our customers to cost-effectively upgrade to our multi-application systems (solera and xeo), which provide our customers with the option to add additional applications to their existing systems and provides us with a source of incremental revenue. We believe that product upgradeability allows our customers to take advantage of our latest product offerings and provide additional treatment options to their patients, thereby expanding the opportunities for their aesthetic practices.

● Treatments for Broad Range of Skin Types and Conditions- Our products remove hair safely and effectively on patients of all skin types, including harder-to-treat patients with dark or tanned skin. In addition, the wide parameter range of our systems allows practitioners to effectively treat patients with both fine and coarse hair. Practitioners may use our products to treat spider and reticular veins (unsightly small veins in the leg) and small facial veins; perform skin rejuvenation procedures for discoloration, texture, pore size, fine lines, and laxity on any type of skin; and treat toenail fungus. The ability to customize treatment parameters enables practitioners to offer safe and effective therapies to a broad base of their patients.

● Ease of Use- We design our products to be easy to use. Our proprietary hand pieces are lightweight and ergonomic, minimizing user fatigue, and allow for clear views of the treatment area, reducing the possibility of unintended damage and increasing the speed of application. Our control console contains a universal graphical user interface with three simple, independently adjustable controls from which to select a wide range of treatment parameters to suit each patient’s profile. The clinical navigation user interface on the xeo platform provides recommended clinical treatment parameter ranges based on patient criteria entered. And our Pearl and Pearl Fractional hand pieces include a scanner with multiple scan patterns to allow simple and fast treatments of the face. Risks involved in the use of our products include risks common to other laser and other energy-based aesthetic procedures, including the risk of burns, blistering and skin discoloration.

Strategy

Our goal is to maintain and expand our position as a leading, worldwide, provider of energy-based aesthetic devices and complementary aesthetic products by executing the following strategies:

● Continue to Expand our Product Offering- Though we believe that our current portfolio of products is comprehensive, our research and development group has a pipeline of potential products under development that we expect to commercialize in the future. We launched GenesisPlus in 2010, excel V in 2011, truSculpt in 2012, the ProWave LX and truSculpt 16 cm² hand pieces in 2013 and excel HR and enlighten in 2014. Such products will allow us to leverage our existing customer call points and provide us with new customer call points which will enhance the productivity of our distribution channels.

● Increasing Revenue and Improving Productivity- We believe that the market for aesthetic systems will continue to offer growth opportunities. We continue to build brand recognition, add additional products to our international distribution channel, and are focused on enhancing our global distribution network, all of which we expect will increase our revenue.

● Increasing Focus on Practitioners with Established Medical Offices- We believe there is growth opportunity in targeting our products to a broad customer base. However, in response to the 2009 to 2010 global recession, we shifted our focus to core practitioners and physicians with established medical offices. We believe that our customers’ success is largely dependent upon having an existing medical practice, in which our systems provide incremental revenue sources to augment their practice revenue. The success of our excel V platform has resulted from strong adoption by core customers in dermatology and plastic and reconstructive surgery.

● Leveraging our Installed Base - With the introduction of excel V, truSculpt, and now excel HR and enlighten, we are able to effectively offer additional platforms into our existing installed base. In addition, each of these platforms allows for potential future upgrades to offer additional indications or capabilities. We believe this program aligns our interest in generating revenue with our customers’ interest in improving the return on their investment by expanding the range of applications that can be performed in their practice.

● Generating Revenue from Services and Refillable Hand Pieces- Our Titan and pulsed-light hand pieces are refillable products, which provide us with a source of recurring revenue from our existing customers. We offer post-warranty services to our customers either through extended service contracts to cover preventive maintenance or through direct billing for parts and labor. These post-warranty services serve as additional sources of recurring revenue.

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Products

Our CoolGlide, xeo, solera, Genesis Plus, excel V, truSculpt, myQ, excel HR and enlighten platforms allow for the delivery of multiple laser and energy-based aesthetic applications from a single system. With our xeo and solera platforms, practitioners can purchase customized systems with a variety of our multi-technology applications.

The following table lists our currently offered products and each checked box represents the applications that were included in the product in the years noted. In the fourth quarter of 2014, we discontinued the manufacture and sale of the VariLite product, but continue to provide services for this product to our existing installed base of customers.

Applications:				Hair  Removal:	Vascular  Lesions:	Skin Rejuvenation				Non Invasive Body Contouring:
System Platforms:	Products:	Year:	Energy  Source:			Dyschromia:	Texture,  Lines and  Wrinkles:	Skin  Laxity:	Melasma &Tattoo Removal:
CoolGlide	CV	2000	a	x
	Excel	2001	a	x	x
	Vantage	2002	a	x	x		x
xeo	Nd:YAG	2003	a	x	x		x
	OPS600	2003	b			x
	LP560	2004	b			x
	Titan S	2004	c					x
	ProWave 770	2005	b	x
	AcuTip 500	2005	b		x
	Titan V/XL	2006	c					x
	LimeLight	2006	b			x
	Pearl	2007	d			x	x
	Pearl Fractional	2008	d				x
	ProWave LX	2013	b	x
solera	Titan S	2004	c					x
	ProWave 770	2005	b	x
	OPS 600	2005	b			x
	LP560	2005	b			x
	AcuTip 500	2005	b		x
	Titan V/XL	2006	c					x
	LimeLight	2006	b			x
GenesisPlus		2010	a				x
excel V		2011	e		x	x	x
myQ		2011	e						x
truSculpt		2012	g							x
excel HR		2014	h	x
enlighten		2014	e						x

Energy Source: a. 1064nm Nd:YAG laser; b. flashlamp; c. Infrared laser; d. 2790 nm YSGG laser; e. combined frequency-doubled 532 nm and 1064 nm Nd:YAG laser; f. Combined frequency-doubled 532 nm and 940 nm diode laser; g. Radio frequency at 1 MHz; h. combined frequency 755 nm Alexandrite laser and 1064 nm Nd:YAG laser

Each of our products consists of a control console and one or more hand pieces, depending on the model.

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Control Console

Our control console includes a universal graphical user interface, control system software and high voltage electronics. All CoolGlide systems, Genesis Plus, excel V and some models of the xeo platform, include our laser module which consists of electronics, a visible aiming beam, a focusing lens, and an Nd:YAG and/or flashlamp laser that functions at wavelengths that permit penetration over a wide range of depths and is effective across all skin types. The interface allows the practitioner to set the appropriate laser or flashlamp parameters for each procedure through a user-friendly format. The control system software ensures that the operator’s instructions are properly communicated from the graphic user interface to the other components within the system. Our high voltage electronics produce over 10,000 watts of peak laser energy, which permits therapeutic effects at short pulse durations. Our solera console platform comes in two configurations—Opus and Titan—both of which include a universal graphical user interface, control system software and high voltage electronics. The solera Opus console is designed specifically to drive our flashlamp hand pieces while the solera Titan console is designed specifically to drive the Titan hand pieces. The control system software is designed to ensure that the operator’s instructions are properly communicated from the graphical user interface to the other components within the system and includes real-time calibration to control the output energy as the pulse is delivered during the treatment. Our truSculpt control console includes a high-powered, mono-polar RF generator at 1MHz capable of delivering up to 300 watts of energy. The truSculpt system dynamically adjusts current, voltage and power during treatment as needed to reach and maintain the appropriate treatment levels.

Hand Pieces

1064 nm Nd:YAG Hand Piece- Our 1064nm Nd:YAG hand piece delivers laser energy to the treatment area for hair removal, leg and facial vein treatment, and skin rejuvenation procedures to treat skin texture and fine lines, and reduce pore size. The 1064nm Nd:YAG hand piece consists of an energy-delivery component, consisting of an optical fiber and lens, and a copper cooling plate with imbedded temperature monitoring. The hand piece weighs approximately 14 ounces, which is light enough to be held with one hand. The lightweight nature and ergonomic design of the hand piece allows the operation of the device without user fatigue. Its design allows the practitioner an unobstructed view of the treatment area, which reduces the possibility of unintended damage to the skin and can increase the speed of treatment. The 1064nm Nd:YAG hand piece also incorporates our cooling system, providing integrated pre- and post-cooling of the treatment area through a temperature-controlled copper plate to protect the outer layer of the skin. The hand piece is available in either a fixed 10 millimeter spot size for our CoolGlide CV system, or a user-controlled variable 3, 5, 7 or 10 millimeter spot size for our CoolGlide Excel and CoolGlide Vantage systems.

excel V Hand Piece- The excel V system introduced in February 2011 delivers 1064 nm and 532 nm laser energy to the treatment area for vascular treatments. The excel V system supports two hand pieces, both consisting of an energy-delivery component housing an optical fiber and lens. One hand piece includes a sapphire window cooling plate with temperature monitoring. The second hand piece does not have a cooling plate and includes a non-contact temperature sensor to monitor the treatment area temperature. In addition, this second hand piece includes dual aiming beams that facilitate consistent treatments by maintaining the correct distance of the hand piece to the skin. Both hand pieces offer a spot size range from 1.5 to 12 mm in 0.1 mm increments. Each hand piece is capable of delivering either the 1064 nm or 532 nm laser energy.

Genesis Plus Hand Piece- Our Genesis Plus system launched in 2010 delivers 1064 nm laser energy to the treatment area for the temporary increase of clear nail in patients with onychomycosis and for the treatment of fine wrinkles, diffuse redness and rosacea. This lightweight 1064nm Nd:YAG hand piece consists of an energy-delivery component, housing an optical fiber and lens. The hand piece includes a non-contact temperature sensor to monitor the treatment area temperature. In addition, the hand piece includes dual, coaxial aiming beams that facilitate consistent treatments by maintaining the correct distance of the hand piece to the skin. This hand piece offers a single 5 mm spot size.

Pulsed Light Hand Piece- The LP560, ProWave 770, ProWave LX, AcuTip 500, and LimeLight hand pieces are designed to produce a pulse of light over a wavelength spectrum to treat discoloration such as age and sun spots and other dyschromia, hair removal, and superficial facial vessels. The hand pieces each consist of a custom flashlamp, proprietary wavelength filter, closed-loop power control and embedded temperature monitor, and weigh approximately 13 ounces. The filter in the AcuTip 500 eliminates long and short wavelengths, transmitting only the therapeutic range required for safe and effective treatment. The filter in the LP560, ProWave 770, ProWave LX, and LimeLight eliminates short wavelengths, allowing longer wavelengths to be transmitted to the treatment area. In addition, the wavelength spectrum of the ProWave 770 and the LimeLight can be shifted based on the setting of the control console. Our power control includes a monitoring system to ensure that the desired energy level is delivered. The hand pieces protect the epidermis by regulating the temperature of the hand piece window through the embedded temperature monitor. These hand pieces are available on the xeo and solera platforms.

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Titan Hand Piece- The Titan hand pieces are designed to produce a sustained pulse of light over a wavelength spectrum tailored to induce heating in the dermis to treat skin laxity (although it is cleared in the U.S. by the U.S. Food and Drug Administration, or FDA, only for deep dermal heating). The hand piece consists of a custom light source, proprietary wavelength filter, closed-loop power control, sapphire cooling window and embedded temperature monitor, and weighs approximately three pounds. The temperature of the epidermis is controlled by using a sapphire window to provide cooling before, during and after the delivery of energy to the treatment site. We offer two different Titan hand pieces—Titan V and Titan XL.

● Titan V- Titan V has a treatment tip that extends beyond the hand piece housing to provide enhanced visibility of the skin’s surface to effectively treat delicate areas such as the skin around the eyes and nose.

● Titan XL- Titan XL, like the Titan V, has a treatment tip that extends beyond the housing for improved visibility. It also has a larger treatment spot size to treat larger body areas faster, such as the arms, abdomen and legs.

The Titan hand pieces can be used on the xeo and solera platforms. The Titan hand piece requires a periodic “refilling” process, which includes the replacement of the optical source, after a set number of pulses have been used. This provides us with a source of recurring revenue.

Pearl Hand Piece- The Pearl hand piece, introduced in 2007, is designed to treat fine lines, uneven texture and dyschromia through the application of proprietary YSGG laser technology. This hand piece can safely remove a small portion of the epidermis, while coagulating the remaining epidermis, leading to new collagen growth. The Pearl hand piece consists of a custom monolithic laser source, scanner and power monitoring electronics. The scanner includes multiple scan patterns to allow simple and fast treatments of the face. The hand piece includes an attachment for a smoke evacuator, allowing the practitioner to use one hand during treatment.

Pearl Fractional Hand Piece- The Pearl Fractional hand piece, introduced in 2008, also uses proprietary YSGG technology and is designed to treat wrinkles and deep dermal imperfections (although it is cleared in the U.S. by the FDA only for skin resurfacing and coagulation). This hand piece penetrates the deep dermis producing a series of micro-columns across the skin, which can result in the removal of damaged tissue and the production of new collagen. The Pearl Fractional hand piece consists of a custom monolithic laser source, scanner and power monitoring electronics. The scanner includes multiple scan patterns to allow simple and fast treatments of the face. The hand piece includes an attachment for a smoke evacuator, allowing the practitioner to use one hand during treatment.

truSculpt Hand Pieces- The truSculpt product introduced in August 2012 is used for the non-invasive heating of subcutaneous fat tissue. We sold three different truSculpt hand pieces in 2013. The original 25cm² hand piece (now discontinued), 40 cm² for larger body parts and the 16cm² for smaller parts of the body. Each of the truSculpt hand pieces is light weight and ergonomically designed for operator comfort, which allows for the uniform heat distribution delivered by the hand pieces. In addition, the hand pieces have a built-in, real time, temperature sensing system to monitor the temperature during the treatment.

excel HR Hand Piece- The dual wavelength excel HR system introduced in June 2014 delivers 1064 nm and 755 nm laser energy to the treatment area for hair removal. excel HR’s single hand piece consists of an energy-delivery component housing an optical fiber and lens. The hand piece features a sapphire window and peripheral cooling plate with temperature monitoring. The sapphire window allows for 30 watts of temperature regulation with user selectable settings ranging from 4 to 20 degrees centigrade and provides cooling of the skin before, during, and immediately after each laser pulse. This “pre, parallel, and post” cooling provides an anesthetic benefit that makes treatments more comfortable than systems without contact cooling, and also increases the safety profile of treatments by reducing the chances of burning skin. The hand piece has a wide spot-size range between 3 to 18 mm (5 to 18 mm, alexandrite mode), and is adjustable in 1 mm increments.

enlighten Hand Piece- The dual wavelength and dual pulse mode enlighten system introduced in December 2014 delivers 532 nm and 1064 nm laser energy to treat benign pigmented lesions as well as the removal of multi-color tattoos. enlighten’s single hand piece consists of an energy-delivery component housing a motorized focus lens assembly connected to an articulated arm. The hand piece features spot size adjustability from 2 to 8mm, adjustable in 1 mm increments. As with all Cutera laser and light-based systems, the hand piece does not require manual power calibration through a separate calibration port. The power calibration is automatic and built into the laser system.

Upgrades

Our solera and xeo platforms are multi-application products that are designed to allow our customers to cost-effectively upgrade to our newest technologies, which provide our customers the option to add applications to their system and provides us with a source of recurring revenue.

Service

We offer post-warranty services to our customers through extended service contracts ─ that cover preventive maintenance and/or replacement parts and labor ─ as well as direct billing for detachable hand piece replacements, parts and labor. These post-warranty services serve as additional sources of recurring revenue from our installed base.

Titan and truSculpt Hand Piece Refills

When customers purchase a replacement Titan or truSculpt hand piece, we treat that as “refill” revenue, which provides us with a source of recurring revenue from existing customers. Following the launch of truSculpt product in 2012, we charged customers for hand piece refills, however, beginning in the third quarter of 2013 we included truSculpt refills as part of our standard warranty and service contract product offerings.

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Fillers and Cosmeceuticals

We distribute ZO Skin Health, Inc.’s (“ZO”) physician-dispensed, topical skin health systems (or ‘cosmeceuticals’) and through the second quarter of 2014, we also distributed Merz’s Radiesse^® dermal filler product to physicians in the Japanese market. Since the first quarter of 2010 we had been distributing Obagi Medical Products, Inc.’s (“Obagi”) cosmeceuticals. As of December 31, 2013 we stopped distributing the Obagi cosmeceuticals and have fully transitioned to the ZO product line.

Our Applications and Procedures

Our products are designed to allow the practitioner to select an appropriate combination of energy level, spot size and pulse duration for each treatment. The ability to manipulate the combinations of these parameters allows our customers to treat the broadest range of conditions available with a single energy-based system.

Hair Removal- Our laser technology allows our customers to treat all skin types and hair thicknesses. Our 1064 nm Nd:YAG and 755 nm Alexandrite lasers permits energy to safely penetrate through the epidermis of any skin type and into the dermis where the hair follicle is located. Using the universal graphic user interface on our control console, the practitioner sets parameters to deliver therapeutic energy with a large spot size and variable pulse durations, allowing the practitioner to treat fine or coarse hair. Our 1064nm Nd:YAG and 755 nm Alexandrite hand pieces allows our customers to treat all skin types, while our ProWave 770 and ProWave LX hand pieces, with pulsed light technology, treat the majority of skin types quickly and effectively.

For hair removal treatments, the treatment site on the skin is first cleaned and shaved. The practitioner then applies a thin layer of gel to improve contact and aid gliding of the hand piece across the skin. If using the CoolGlide 1064nm Nd:YAG hand piece, the hand piece is applied directly to the skin to cool the area to be treated, then moved and a laser pulse is delivered to the pre-cooled area. To remove hair using the excel HR, excel V, ProWave 770 and ProWave LX hand pieces, cooling is provided by a sapphire window placed directly on the skin, allowing the pulse of light to be applied while the treatment area is being cooled. In the case of both hand pieces, delivery of light which is converted to heat destroys the hair follicles and prevents hair re-growth. This procedure is then repeated at the next treatment site on the body, and can be done in a gliding motion to increase treatment speed. Patients receive on average three to six treatments. Each treatment can take between five minutes to one hour depending on the size of the area and the condition being treated. On average, there are six to eight weeks between treatments.

Vascular Lesions-   Our laser technology allows our customers to treat the widest range of aesthetic vein conditions, including spider and reticular veins and small facial veins. Our CoolGlide and xeo 1064nm Nd:YAG hand piece’s adjustable spot size of 3, 5, 7 or 10 millimeters; the excel V 1064 nm and 532 nm hand piece with adjustable spot sizes from 1.5 to 12 mm; and the excel HR 1064 nm and 755 nm hand pieces with adjustable spot sizes from 3 mm to 18 mm, allows the practitioner to control treatment depth to target different sized veins. Selection of the appropriate energy level and pulse duration ensures effective treatment of the intended target. Our AcuTip 500 hand piece, with its 6 millimeter spot size, uses pulsed-light technology and is designed for the treatment of facial vessels.

The vein treatment procedure when using the 1064nm Nd:YAG hand piece is performed in a substantially similar manner to the laser hair removal procedure. The laser hand piece is used to cool the treatment area both before and after the laser pulse has been applied. With the excel V and excel HR hand pieces the cooling can be performed pre, during and post-delivery of the laser pulse. With the AcuTip 500 hand piece, the pulse of light is delivered while the treatment area is being cooled with the sapphire tip. The delivered energy damages the vein and, over time, it is absorbed by the body. Patients receive on average between one and six treatments, with six weeks or longer between treatments.

Skin Rejuvenation- Our Nd:YAG laser and other energy based technologies allow our customers to perform non-invasive and minimally-invasive treatments that reduce redness, pore size, fine lines and laxity, improve skin texture, and treat other aesthetic conditions.

Tattoo Removal- Our enlighten dual wavelength, dual pulse duration system featuring picosecond technology and our myQ Q-switched laser can be used for tattoo removal, for the treatment of benign pigmented lesions, and for skin rejuvenation and laser skin toning.

Texture, Lines and Wrinkles- When using a 1064nm Nd:YAG laser to improve skin texture, reduce pore size and treat fine lines, cooling is not applied and the hand piece is held directly above the skin. A large number of pulses are directed at the treatment site, repeatedly covering an area, such as the cheek. By delivering many pulses of laser light to a treatment area, a gentle heating of the dermis occurs and collagen growth is stimulated to rejuvenate the skin and reduce wrinkles. Patients typically receive four to six treatments for this procedure. The treatment typically takes less than a half hour and there are typically two to four weeks between treatments.

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When treating texture and fine lines with a Pearl hand piece, the hand piece is held at a controlled distance from the skin and the scanner delivers a preset pattern of spots to the treatment area. Cooling is not applied to the epidermis during the treatment. The energy delivered by the hand piece ablates a portion of the epidermis while leaving a coagulated portion that will gently peel off over the course of a few days. Heat is also delivered into the dermis which can result in the production of new collagen. Treatment of the full face can usually be performed in 15 to 30 minutes. Patients receive on average between one and three treatments at monthly intervals.

When treating wrinkles and deep dermal imperfections with a Pearl Fractional hand piece, the hand piece is held at a controlled distance from the skin and the scanner delivers a preset pattern of spots to the treatment area. Cooling is not applied to the epidermis during the treatment. The energy delivered by the hand piece penetrates the deep dermis producing a series of micro-columns across the skin, which can result in the removal of damaged tissue and the production of new collagen. Treatment of the full face can usually be performed in less than an hour. Patients receive on average between one and three treatments at monthly intervals.

Our CE Mark allows us to market Pearl Fractional in the European Union, Australia and certain other countries outside the U.S. for the treatment of wrinkles and deep dermal imperfections. However, in the U.S. we have a 510(k) clearance for only skin resurfacing and coagulation.

Toenail Fungus- In addition to performing skin rejuvenation, we have FDA, Health Canada and CE Mark approvals for Genesis Plus that allows us to market it for onychomycosis (“toenail fungus”). Tiny pulses of light from an Nd:YAG laser pass through the toenail to the fungus underneath, which is irradiated without any damage to the surrounding nail or skin. The Genesis Plus has dual aiming beams that facilitate consistent treatments by maintaining the correct distance of the hand piece to the skin. In addition, during the treatment an integrated sensor is used to actively monitor the temperature of the treatment area.

Dyschromia- Our pulsed-light technologies allow our customers to safely and effectively treat red and brown dyschromia, which is skin discoloration, pigmented lesions, and rosacea. The practitioner delivers a narrow spectrum of light to the surface of the skin through our LP560 or LimeLight hand pieces. These hand pieces include one of our proprietary wavelength filters, which reduce the energy level required for therapeutic effect and minimize the risk of skin injury.

In treating pigmented lesions with a pulsed-light technology, the hand piece is placed directly on the skin and then the light pulse is triggered. The cells forming the pigmented lesion absorb the light energy, darken and then flake off over the course of two to three weeks. Several treatments may be required to completely remove the lesion. The treatment takes a few minutes per area treated and there are typically three to four weeks between treatments.

The 532 nm wavelength green laser option on the excel V and the 755 nm infrared wavelength of the excel HR can also be used to treat pigmented lesions in substantially the same way as described above with the pulsed light devices.

Practitioners can also treat dyschromia and other skin conditions with our Pearl hand piece. During these treatments, the heat delivered by the Pearl hand piece will remove the outer layer of the epidermis while coagulating a portion of the epidermis. That coagulated portion will gently peel off over the course of a few days, revealing a new layer of skin underneath. Treatment of the full face can usually be performed in 15 to 30 minutes. Patients receive on average between one and three treatments at monthly intervals.

Skin Laxity- Our Titan technology allows our customers to use deep dermal heating to tighten lax skin. The practitioner delivers a spectrum of light to the skin through our Titan hand piece. This hand piece includes our proprietary light source and wavelength filter which tailors the delivered spectrum of light to provide heating at the desired depth in the skin.

In treating skin laxity, the hand piece is placed directly on the skin and then the light pulse is triggered. A sustained pulse causes significant heating in the dermis. This heating can cause immediate collagen contraction while also stimulating long-term collagen re-growth. Several treatments may be required to obtain the desired degree of tightening of the skin. The treatment of a full face can take over an hour and there are typically four weeks between treatments.

Our CE Mark allows us to market the Titan in the European Union, Australia and certain other countries outside the U.S. for the treatment of wrinkles through skin tightening. However, in the U.S. we have a 510(k) clearance for only deep dermal heating.

Non-Invasive Body Contouring- our truSculpt technology allows physicians to apply a hand piece directly to the skin and deliver high-powered RF energy that results in the deep and uniform heating of the subcutaneous fat tissue at sustained therapeutic temperatures. This heating can cause selective destruction of fat cells, which are eliminated from the treatment area through the body’s natural wound healing processes. The treatment takes approximately 45 minutes and two or more treatments may be required to obtain the desired aesthetic results.

Our CE Mark allows us to market the truSculpt in the European Union, and certain other countries outside the U.S. for fat reduction, body shaping and body contouring. In the U.S. we have 510(k) clearance for the purpose of elevating tissue temperature for the treatment of selected medical conditions such as relief of pain, muscle spasms, increase in local circulation, and the temporary improvement in the appearance of cellulite.

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Sales and Marketing

In the U.S. we market and sell our products primarily through a direct sales organization. Generally, each direct sales employee is assigned a specific territory. As of December 31, 2014, we had a U.S. direct sales force of 33 employees. We internally manage our U.S. and Canadian sales organization as one North American sales region with 37 territories as of December 31, 2014.

International sales are generally made through a worldwide distributor network in over 40 countries, as well as a direct international sales force of 32 employees, as of December 31, 2014. As of December 31, 2014, we had direct sales offices in Australia, Belgium, Canada, France, Japan and Switzerland. Our international revenue as a percentage of total revenue represented 55% in 2014, 58% in 2013 and 59% in 2012.

We also sell certain items like Titan hand piece refills and marketing brochures through the internet.

Although specific customer requirements can vary depending on applications, customers generally demand quality, performance, ease of use, and high productivity in relation to the cost of ownership. We have responded to these customer demands by introducing new products focused on these requirements in the markets we serve. Specifically, we believe that we introduce new products and applications that are innovative, address the specific aesthetic procedures in demand, and are upgradeable on our customers’ existing systems. In addition, we provide attractive upgrade pricing to new product families and are responsive to our customers’ financing preferences. To increase market penetration, in addition to marketing to the core specialties of plastic surgeons and dermatologists, we also market to the non-core aesthetic practices consisting of gynecologists, primary care physicians, family practitioners, physicians offering aesthetic treatments in non-medical offices, podiatrists and other qualified practitioners.

We seek to establish strong ongoing relationships with our customers through the upgradeability of our products, sales of extended service contracts, the refilling of Titan hand pieces, ongoing training and support, and distributing (in Japan only) cosmeceutical products. We primarily target our marketing efforts to practitioners through office visits, workshops, trade shows, webinars and trade journals. We also market to potential patients through brochures, workshops and our website. In addition, we offer clinical forums with recognized expert panelists to promote advanced treatment techniques using our products to further enhance customer loyalty and uncover new sales opportunities.

Competition

Our industry is subject to intense competition. Our products compete against conventional non-energy-based treatments, such as electrolysis, Botox and collagen injections, chemical peels, microdermabrasion and sclerotherapy. Our products also compete against laser and other energy-based products offered by public companies, such as Cynosure, Elen (in Italy), Lumenis, Syneron and Zeltiq, as well as private companies, including, Alma, Sciton, and several others.

Competition among providers of laser and other energy-based devices for the aesthetic market is characterized by extensive research efforts and innovative technology. While we attempt to protect our products through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that would compete directly with ours. There are many companies, both public and private, that are developing innovative devices that use both energy-based and alternative technologies. Some of these competitors have greater resources than we do or product applications for certain sub-markets in which we do not participate. Additional competitors may enter the market, and we are likely to compete with new companies in the future. To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and treatments by differentiating our products on the basis of performance, brand name, service and price. We have encountered, and expect to continue to encounter, potential customers who, due to existing relationships with our competitors, are committed to, or prefer the products offered by these competitors. Competitive pressures may result in price reductions and reduced margins for our products.

Research and Development

Our research and development group develops new products and applications and builds clinical support to address unmet or underserved market needs. As of December 31, 2014, our research and development activities were conducted by a staff of 38 employees with a broad base of experience in lasers, optoelectronics, software and other fields. We have developed relationships with outside contract engineering and design consultants, giving our team additional technical and creative breadth. We work closely with thought leaders and customers, to understand unmet needs and emerging applications in aesthetic medicine. Research and development expenses were approximately $10.5 million in 2014, $9.2 million in 2013 and $8.4 million in 2012.

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Service and Support

Our products are engineered to enable quick and efficient service and support. There are several separate components of our products, each of which can easily be removed and replaced. We believe that quick and effective delivery of service is important to our customers. As of December 31, 2014, we had a 40-person global service department. Internationally, we provide direct service support through our Australia, Belgium, Canada, France and Japan offices, and also through the network of distributors and third-party service providers in over 40 countries. In February 2012, we acquired Iridex’s aesthetic business, which resulted in an increase in our service and support team and service revenue.

We provide a standard one-year warranty coverage for all of our systems. We provide initial warranties on our products to cover parts and service and offer extended service plans that vary by the type of product and the level of service desired. Our standard warranty on system consoles covers parts and service for a standard period of one year. From time to time, we also have promotions whereby we include a post-warranty service contract with the sale of our products. Customers are notified before their initial warranty expires and are able to choose from two different extended service plans covering preventative maintenance or replacement parts and labor. With effect from the third quarter of 2013, we included the refilling of truSculpt hand pieces in the initial warranty as well as service contracts offered to customers.

In the event a customer does not purchase an extended service plan, we will offer to service the customer’s system and charge the customer for time and materials. With respect to the truSculpt and other hand pieces, if a customer’s system is out of warranty and they have not purchased an extended service contract that covers hand piece replacements, then the customer is charged for their replacement hand piece.

Our Titan hand pieces generally include a warranty for a set number of shots, instead of for a period of time.

We have invested substantial financial and management resources to develop a worldwide infrastructure to meet the service needs of our customers through our direct operations in the U.S., Australia, Belgium, Canada, France, Japan, and Switzerland. In countries where we are represented by distributor partners, our customers are serviced through the distributor network.

Manufacturing

We manufacture our products with components and subassemblies supplied by vendors. We assemble and test each of our products at our Brisbane, California facility. Quality control, cost reduction and inventory management are top priorities of our manufacturing operations.

We purchase certain components and subassemblies from a limited number of suppliers. We have flexibility with our suppliers to adjust the number of components and subassemblies as well as the delivery schedules. The forecasts we use are based on historical demands and sales projections. Lead times for components and subassemblies may vary significantly depending on the size of the order, time required to fabricate and test the components or subassemblies, specific supplier requirements and current market demand for the components and subassemblies. We reduce the potential for disruption of supply by maintaining sufficient inventories and identifying additional suppliers. The time required to qualify new suppliers for some components, or to redesign them, could cause delays in our manufacturing. To date, we have not experienced significant delays in obtaining any of our components or subassemblies.

We use small quantities of common cleaning products in our manufacturing operations, which are lawfully disposed of through a normal waste management program. We do not forecast any material costs due to compliance with environmental laws or regulations.

We are required to manufacture our products in compliance with the FDA’s Quality System Regulation, or QSR. The QSR covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. The FDA enforces the QSR through periodic unannounced inspections. We had an FDA full quality system audit for three weeks during March 2014. There were no significant findings as a result of this audit and our responses have been accepted by the FDA. Our failure to maintain compliance with the QSR requirements could result in the shutdown of our manufacturing operations and the recall of our products, which would have a material adverse effect on business. In the event that one of our suppliers fails to maintain compliance with our quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result. We have opted to maintain quality assurance and quality management certifications to enable us to market our products in the U.S., the member states of the European Union, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European Union. In January 2015, we passed our recertification audit establishing compliance with the most current requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC. Our manufacturing facility is ISO 13485 certified.

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Patents and Proprietary Technology

We rely on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure, confidentiality and invention assignment agreements to protect our intellectual property rights. As of December 31, 2014, we had 34 issued U.S. patents and 5 pending U.S. patent applications. In the U.S. and several foreign countries, we have registered our Company name and several of our product names as trademarks, including Cutera, Acutip 500, CoolGlide, CoolGlide Excel, Limelight, myQ, Pearl, ProWave 770, ProWave LX, solera, Titan, xeo and truSculpt. We may have common law rights in other product names, including excel V, Pearl Fractional, solera Titan, excel HR and enlighten. We intend to file for additional patents and trademarks to continue to strengthen our intellectual property rights.

We license certain patents from Palomar (acquired by Cynosure in 2013) and pay ongoing royalties based on sales of applicable hair-removal products. The royalty rate on these products ranges from 3.75% to 7.50% of revenue. One patent expired in February 2013, the remaining U.S. patents expired in February 2015 and the remaining international patents are set to expire in February 2016. Our revenue from systems that do not include hair-removal capabilities (such as our solera Titan, xeo SA, GenesisPlus, myQ, excel V and enlighten), and other revenue from service contracts, Titan, Fillers and cosmeceuticals, are not subject to these royalties. In addition, in 2006 we capitalized $1.2 million as an intangible asset representing the ongoing license for these patents, which is being amortized on a straight-line basis over their expected useful life of 9-10 years.

Our employees and technical consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived in connection with the relationship. We cannot provide any assurance that employees and consultants will abide by the confidentiality or assignability terms of their agreements. Despite measures taken to protect our intellectual property, unauthorized parties may copy aspects of our products or obtain and use information that we regard as proprietary.

Government Regulation

Our products are medical devices subject to extensive and rigorous regulation by the U.S. Food and Drug Administration, as well as other regulatory bodies. FDA regulations govern the following activities that we perform and will continue to perform to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended uses:

● Product design and development;

● Product testing;

● Product manufacturing;

● Product safety;

● Product labeling;

● Product storage;

● Recordkeeping;

● Pre-market clearance or approval;

● Advertising and promotion;

● Production;

● Product sales and distribution; and

● Complaint Handling.

FDA’s Pre-market Clearance and Approval Requirements

Unless an exemption applies, each medical device we wish to commercially distribute in the U.S. will require either prior 510(k) clearance or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risks are placed in either class I or II, which requires the manufacturer to submit to the FDA a pre-market notification requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in class III, requiring pre-market approval. All of our current products are class II devices.

510(k) Clearance Pathway

When a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of Pre-Market Approval, or PMA, applications. By regulation, the FDA is required to clear or deny a 510(k), pre-market notification within 90 days of submission of the application. As a practical matter, clearance often takes significantly longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. Laser devices used for aesthetic procedures, such as hair removal, have generally qualified for clearance under 510(k) procedures.

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The following table details the indications for which we received a 510(k) clearance for our products and when these clearances were received.

FDA Marketing Clearances:		Date Received:
Laser-based products:
- treatment of vascular lesions		June 1999
- hair removal		March 2000
- permanent hair reduction		January 2001
- treatment of benign pigmented lesions and pseudo folliculitis barbae, commonly referred to as razor bumps, and for the reduction of red pigmentation in scars		June 2002
- treatment of wrinkles		October 2002
- treatment to increase clear nail in patients with onychomycosis	April 2011
- expanded spot size to 5 mm for clear nail in patients with onychomycosis	May 2013
- addition of Alexandrite 755 nm laser wavelength for hair removal, permanent hair reduction and the treatment of vascular and benign pigmented lesions		December 2013
- enlighten picosecond and nanosecond 532/1064 nm for the treatment of benign pigmented lesions		August 2014
- enlighten picosecond and nanosecond 532/1064 nm for tattoo removal		November 2014
Pulsed-light technologies:
- treatment of pigmented lesions		March 2003
- hair removal and vascular treatments		March 2005
Infrared Titan technology for deep dermal heating for the temporary relief of minor muscle and joint pain and for the temporary increase in local circulation where applied		February 2004
Solera tabletop console:
- for use with the Titan hand piece		October 2004
- for use with our pulsed-light hand pieces		January 2005
Pearl product for the treatment of wrinkles		March 2007
Pearl Fractional product for skin resurfacing and coagulation		August 2008
truSculpt radio frequency (“RF”) product for deep tissue heating for the temporary relief of minor muscle and joint pain and for a temporary improvement in the appearance of cellulite
- 16cm2 to 25cm2 hand pieces for smaller body parts		April 2008
- 16cm2 to 40cm2 hand pieces for larger body parts		November 2012
- Product labeling and technology updates for existing clearances		September 2014

Pre-Market Approval (“PMA”) Pathway

A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. A PMA must be supported by extensive data, including but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. No device that we have developed to date has required pre-market approval, although development of future devices or indications may require pre-market approval.

Product Modifications

We have modified aspects of our products since receiving regulatory clearance, but we believe that new 510(k) clearances are not required for these modifications. After a device receives 510(k) clearance or a PMA, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with our determination not to seek a new 510(k) clearance or PMA, the FDA may retroactively require us to seek 510(k) clearance or pre-market approval. The FDA could also require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or pre-market approval is obtained. Also, in these circumstances, we may be subject to significant regulatory fines or penalties.

Clinical Trials

When FDA approval of a class I, class II or class III device requires human clinical trials, and if the device presents a “significant risk,” as defined by the FDA, to human health, the device sponsor is required to file an Investigational Device Exemption, or IDE, application with the FDA and obtain IDE approval prior to commencing the human clinical trial. If the device is considered a “non-significant” risk, IDE submission to the FDA is not required. Instead, only approval from the Institutional Review Board, or IRB, overseeing the clinical trial is required. Human clinical studies are generally required in connection with approval of class III devices and may be required for class I and II devices. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specified number of patients. Clinical trials for a significant risk device may begin once the application is reviewed and cleared by the FDA and the appropriate institutional review boards at the clinical trial sites. Future clinical trials of our products may require that we submit and obtain clearance of an IDE from the FDA prior to commencing clinical trials. The FDA, and the IRB at each institution at which a clinical trial is being performed, may suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk.

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Pervasive and Continuing Regulation

After a device is placed on the market, numerous regulatory requirements apply. These include:

● Quality system regulations, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

● Labeling regulations and FDA prohibitions against the promotion of products for un-cleared, unapproved or “off-label” uses;

● Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and

● Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device. 

The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Health Services, or CDHS, to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our subcontractors. In the past, our prior facility has been inspected, and observations were noted. There were no findings that involved a material violation of regulatory requirements. Our responses to these observations have been accepted by the FDA and CDHS, and we believe that we are in substantial compliance with the QSR. Our current manufacturing facility has been inspected by the FDA and the CDHS. The FDA and the CDHS noted observations, but there were no findings that involved a material violation of regulatory requirements. Our responses to those observations have been accepted by the FDA and CDHS.

We are also regulated under the Radiation Control for Health and Safety Act, which requires laser products to comply with performance standards, including design and operation requirements, and manufacturers to certify in product labeling and in reports to the FDA that their products comply with all such standards. The law also requires laser manufacturers to file new product and annual reports, maintain manufacturing, testing and sales records, and report product defects. Various warning labels must be affixed and certain protective devices installed, depending on the class of the product.

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, 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.

The FDA also has the authority to require us to repair, replace or refund the cost of any medical device that we have manufactured or distributed. If any of these events were to occur, they could have a material adverse effect on our business.

We are also subject to a wide range of federal, state and local laws and regulations, including those related to the environment, health and safety, land use and quality assurance. We believe that compliance with these laws and regulations as currently in effect will not have a material adverse effect on our capital expenditures, earnings and competitive and financial position.

International

International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may be different.

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The primary regulatory environment in Europe is that of the European Union, which consists of a 27 countries encompassing most of the major countries in Europe. The member states of the European Free Trade Association have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet European Union requirements. The European Union has adopted numerous directives and European Standardization Committees have promulgated voluntary standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member states of the European Union, the member states of the European Free Trade Association and countries which have entered into a Mutual Recognition Agreement. The method of assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a Notified Body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s device. An assessment by a Notified Body in one member state of the European Union, the European Free Trade Association or one country which has entered into a Mutual Recognition Agreement is required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 9001 and ISO 13845 certification are voluntary harmonized standards. Compliance establishes the presumption of conformity with the essential requirements for a CE Marking. In February 2000, our facility was awarded the ISO 9001 and EN 46001 certification. In March 2003, we received our ISO 9001 updated certification (ISO 9001:2000) as well as our certification for ISO 13485:1996 which replaced our EN 46001 certification. In March 2004, we received our ISO 13485:2003 certification and in March 2006, March 2010, February 2011 and January 2012 we passed ISO 13485 recertification audits. Our most recent recertification audit occurred in January 2015. We passed the audit establishing compliance with the most current requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC.

Employees

As of December 31, 2014, we had 266 employees, compared to 238 employees as of December 31, 2013. Of the 266 employees at December 31, 2014, 106 were in sales and marketing, 58 in manufacturing operations, 40 in technical service, 38 in research and development and 24 in general and administrative. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor union, and we believe our employee relations are good.

Available Information

We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to file reports and information with the Securities and Exchange Commission, or SEC, including reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports and other information concerning the company may be accessed through the SEC’s website at www.sec.gov. Such filings, as well as our charters for our Audit and Compensation Committees and our Code of Ethics are available on our website at www.cutera.com. In the event that we grant a waiver under our Code of Ethics to any of our officers and directors, we will publish it on our website.

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. Our business, financial condition and results of operations may be impacted by a number of factors. In addition to the factors discussed elsewhere in this report, the following risks and uncertainties could materially harm our business, financial condition or results of operations, including causing our actual results to differ materially from those projected in any forward-looking statements. The following list of significant risk factors is not all-inclusive or necessarily in order of importance. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, also may materially adversely affect us in future periods. You should carefully consider these risks and uncertainties before investing in our securities.

Revenue from the U.S. represents a significant part of our total revenue. In 2014, our U.S. revenue increased by approximately 13%, compared to 2013. Unless our U.S. revenue continues to improve, we could experience a material adverse effect on our total revenue, profitability, employee retention and stock price.

Revenue from the U.S. represented 45% of our total revenue in 2014 compared to 42% in 2013. U.S. revenue increased by approximately 13% in 2014, compared to 2013, due to several factors, including:

● In 2014, we expanded our North American direct sales force, restructured their compensation arrangements, and hired new sales management.

● Historically, following a new product introduction, we experience revenue growth, compared to the same period in the prior year. We experienced revenue growth from our new enlighten and excel HR products launched in the fourth and second quarter of 2014, respectively, as well as continued growth of our excel V product.

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There can be no assurance that we will continue to introduce new products each year, or that the new product introductions will translate into increased revenue in the long term in the U.S., or that the new direct sales employees and management hired to replace the departed sales employees will be effective and result in improved sales productivity. Further, if the current economic recovery does not continue, or there is another recession in the U.S., our future revenue would be adversely impacted.

Given the U.S. represents a significant source of our revenue, if our U.S. revenue does not improve further, we could experience a material adverse effect on our total revenue, profitability, employee retention and stock price.

In over five years we have only had two profitable quarters and we are unable to predict whether we will return to sustained quarterly profits in the future.

Although we had a profitable fourth quarter in 2009 and 2012, we have had net quarterly losses in each quarter since the third quarter of 2008. There is no guarantee that we will be profitable in the future and you should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance. Any predictions about the performance of our operations in the future may not be as accurate as they could be if we had a longer history of profitability.

Revenue growth in our business is driven by several factors and one such factor is new product introductions. While we generated revenue from sales of our newly released enlighten and excel HR product in the second, third and fourth quarters of 2014, and sales of our excel V platform increased in 2014 and 2013, compared with the respective prior years, sales of our truSculpt product introduced in 2012 have not gained a share of the market segment to the degree we had expected. If our total revenue does not continue to grow in 2015 compared to 2014, we may not be able to become profitable in future quarters.

In an effort to improve our revenue in 2014, we expanded our North American sales force and restructured their compensation arrangements, hired new senior sales management with prior experience in the aesthetic medical device industry, and have increased our marketing and promotional activities in North America. Given the time it takes to train new sales employees to sell our products and for the marketing efforts to yield in improved revenue, our total sales and marketing expenses increased to 41% of total net revenue in 2014, compared to 38% in 2013. If our North American revenue does not increase by more than our expenses, we may not be able to become profitable in future quarters.

Our ability to sustain profitability depends on the extent to which we can increase revenue and control our costs in order to, among other things, counter any unforeseen difficulties, complications, product delays or other unknown factors that may require additional expenditures. Because of the numerous risks and uncertainties associated with our growth prospects, product development, sales and marketing and other efforts, we are unable to predict the extent of our future profitability or losses. If our revenue does not achieve adequate growth in the future, we may continue to incur a quarterly net loss and may continue to consume cash in our operations in the future.

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.

We have experienced direct sales employee and sales management turnover in North America for several reasons. One such reason was the consolidation of our specialty podiatry sales force into the mainstream aesthetic sales group in the third quarter of 2013. Further, competition for sales professionals who are familiar and trained to sell in the aesthetic equipment market continues to be strong. As a result, we have lost some of our sales people to our competitors. However, we have also hired a record number of new sales people, including several from our competitors. Several of our sales employees and sales management have been recently hired or recently transferred into different roles, and it will take time for them to be fully trained to improve their productivity. These factors have heavily impacted the revenue we derived from our products and upgrades in the 2014.

In 2014, we restructured our North American direct sales force and sales management, and expanded our direct sales force in North America. We have increased our efforts to hire high quality experienced sales professionals but there can be no guarantee that we will be able to retain all of the hired sales professionals or that they will all become productive in a short period of time. Our industry is characterized by a few established companies that compete vigorously for talented sales professionals. Further, as the economy in North America has rebounded from the recent recession, some of those sales professionals have left our company for jobs that they perceive to be better opportunities, both within and outside of the aesthetic industry. We believe that the sales employee turnover, restructuring and expansion of the sales force had a negative impact on our North American productivity in the 2014.

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We train our existing and recently recruited sales professionals to better understand our existing and new product technologies and how they can be positioned against our competitors’ products. These initiatives are intended to improve the productivity of our sales professionals and our revenue and profitability. It takes time for the sales professionals to become productive following their training and there can be no assurance that the recently recruited sales professionals will be adequately trained in a timely manner, or that our direct sales productivity will improve, or that we will not experience significant levels of attrition in the future. If we are not able to improve the productivity and retention of our North American and international sales professionals, then our total revenue, profitability and stock price may be adversely impacted.

Measures we implement in an effort to recruit, 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 improve, 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 (revenue less cost of revenue) was 56% for both 2014 and 2013. Our gross margin is impacted by the revenue that we generate and the costs incurred to generate the revenue. To the extent that our revenue declines, it is difficult to improve our gross margins as our fixed costs must be spread over a lower revenue base. 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 margins.

Our cost of revenue may also be adversely impacted by various factors such as obsolescence of our inventory, impairment of our intangibles, increased expenses associated with the repair of 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 and sales and marketing activities. We have expanded our global direct sales force, and it may take time for our new sales professionals to become productive and for the revenue that they generate to become accretive to our operating income. We plan to continue making such investments in order to bring new products to market and to distribute them effectively. If these investments do not yield increased revenue, we may continue to generate losses and consume cash.

If our revenue does not improve, 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 body contouring, hair removal, treatment of veins, tattoo removal, and skin rejuvenation, includingthe treatment of diffuse redness, skin laxity, fine lines, wrinkles, skin texture, pore size and pigmented lesions, etc. In the fourth quarter of 2014, we launched enlighten, a dual wavelength, dual pulse duration tattoo removal and benign pigmented lesions system featuring picosecond technology. Additionally, in the second quarter of 2014 we launched excel HR, a premium hair removal platform for all skin types. In 2012, we launched truSculpt for the body contouring market; and acquired VariLite for the treatment of vascular and pigmented lesions, which we discontinued selling in the fourth quarter of 2014. In 2011, we launched our vascular laser product – excel V – 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 other energy-based aesthetic procedures. In addition, since the first quarter of 2010, we have been distributing cosmeceuticals and dermal fillers in the Japanese market. In the second quarter of 2014, we terminated our agreement with Merz for the distribution of their Radiesse dermal filler product. To grow in the future, we must continue to develop and/or acquire new and innovative aesthetic products and applications, identify new markets, and successfully launch the newly acquired or developed product offerings.

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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 are an attractive revenue-generating addition to their practice;

● 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.

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, there could be a material adverse effect on our total revenue, profitability, employee retention and stock price.

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; 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.

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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 55% of our total revenue in 2014, compared to 58% in 2013. 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. For example, our direct business in Japan and Canada as well as revenue from Asia Pacific distributors declined in year ended December 31, 2014, negatively impacting our revenue from international operations.

We have experienced significant turnover of our European sales team in the past. While we continue to have a direct sales and service organization in France, Belgium and Switzerland, a significant portion of our European revenue is generated through our network of distributors. Though we continue to evaluate and replace non-performing distributors, and have recently brought greater focus on collaborating with our distributor partners, 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;

● 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.

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

Foreign currency fluctuations could result in volatility of 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 and Canadian Dollar. As a result, changes in the exchange rates of these currencies to the U.S. Dollar will affect our results from operations. For example, as a result of the recent strengthening of the U.S. Dollar, relative to many other major currencies, our products priced in U.S. Dollars have become more expensive relative to products of our foreign competitors. In addition, our revenue earned in foreign currencies, such as our locally generated revenue in Japan, has been negatively impacted upon translation into U.S. Dollars. Both these factors had a negative impact on our international revenue in 2014, compared to 2013. Future foreign currency fluctuations could adversely impact and increase the volatility of our revenue, profitability and stock price.

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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), Lumenis, Solta (acquired by Valeant Pharmaceuticals International, Inc. in January 2014), Syneron, as well as private companies such as Alma, Sciton and several other companies. Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources. For example, Valeant acquired Solta in January 2014 and Cynosure acquired Palomar in June 2013. 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 other-energy-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:

● 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 other energy-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.

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The U.S. Food and Drug Administration (the “FDA”), federal and state agencies and international regulatory bodies have broad enforcement powers. If we fail to comply with applicable regulatory requirements, it could result in enforcement action by the FDA, federal and state agencies or international regulatory bodies.

The FDA, state authorities and international regulatory bodies have broad enforcement powers. For example, in July 2012, we received a warning letter from the FDA concerning the promotional labeling for our GenesisPlus laser. The FDA determined that some of the claims, such as the one related to Skin Rejuvenation, constituted new Indications for Use and required additional 510(k) clearances. The FDA subsequently requested that we review the promotional labeling for all of our products to ensure our claims were within regulatory clearances and that we submit updated promotional labeling for our products to the FDA for their review. In October 2014, following the satisfactory review of our amended marketing materials and website, the FDA issued us a formal notice of closure of the warning letter.

If we fail to comply with any U.S. law or any of the applicable regulatory requirements of the FDA, or federal or state agencies, or one of the international regulatory bodies, it could result in enforcement action by the agencies, which may include any of the following sanctions:

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

● Repair, replacement, refund, 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 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 U.S. 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 U.S., 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 U.S. and revenue derived from there may be adversely affected.

Medical devices may be marketed in the U.S. only for the indications for which they are approved or cleared by the FDA. For example, prior to April 2011 our 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 for the treatment of toenail fungus outside of the US where it held CE Mark approval for this indication. In April 2011, we received FDA clearance to market GenesisPlus in the U.S. for the clearance of nails that are infected with 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 U.S. 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.

Federal regulatory reforms and changes occurring at the 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.

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

We are currently required to demonstrate and maintain compliance with the FDA’s Quality System Regulation (the “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 have had multiple quality system audits by the FDA, our Notified Body, and other foreign regulatory agencies, with the most recent inspection by the FDA occurring over three weeks in March 2014. There were no significant findings and only one observation as a result of this audit. Our response to this observation was accepted by the FDA. 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. For example, we designed a larger 40cm² hand piece for our truSculpt product and had to get that clearance from the FDA before we could market it, which clearance was received in November 2012. 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.

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 U.S. are subject to foreign regulatory requirements that vary widely from country to country. In addition, exports of medical devices from the U.S. 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 U.S., 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.

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.

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.

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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 and a few key employees, 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. The staff we hire to perform administrative functions may be become stretched due to our increased growth and they may not be able to perform their jobs effectively or efficiently as a result.

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.

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 U.S. 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.

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In the past 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 the past we entered into distribution arrangements pursuant to which we utilize our sales force and distributors to sell products manufactured by other companies. In Japan we distribute a Q-switched laser product manufactured by a third party OEM. We also have an agreement with ZO to distribute certain of their proprietary cosmeceuticals, or skin care products, in Japan. Each of these agreements requires us to purchase annual minimum dollar amounts of their product. If we do not make these minimum purchases, we could lose exclusivity for distributing these products to physicians in Japan. Finally, we had an agreement with Merz Aesthetics to distribute its Radiesse dermal filler product in Japan, but terminated this agreement in the second quarter of 2014.

Each of these distribution agreements presents its own unique risks and challenges. For example, to sell cosmeceutical products 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 cosmeceutical products. 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 negatively impacting our profitability and reducing our available cash reserves.

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 December 31, 2014, our balance in marketable investments was $71 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 December 31, 2014 would have potentially decreased by approximately $612,000, 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).

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, 2014, approximately 53% 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;

● 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 and / or volatility 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.

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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.

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 December 31, 2014, we had 34 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 U.S.

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 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.

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.

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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.

Healthcare reform legislation will continue to adversely affect our profitability and financial condition.

In December 2009, the President and members of Congress passed legislation relating to healthcare reform. Procedures performed by our products are not reimbursed by insurance companies or federal or state governments and as a result this legislation had a limited impact on our business. Medical device manufacturers have to pay an excise tax of 2.3% on certain U.S. medical device revenues. Though there are some exceptions, this excise tax applies to all of our product and upgrade revenue from the U.S. and will continue to have an adverse effect on our operating profitability and financial condition.

Our ability to use net operating losses and tax credit carryforwards to offset future tax liabilities may be limited.

As of December 31, 2014, we had cumulative net operating loss carry-forwards for federal and state income tax reporting purposes of approximately $34.3 million and $10.4 million, respectively, and research and development tax credits for federal and state income tax purposes of approximately $4.2 million and $5.1 million, respectively. A lack of future taxable income would adversely affect our ability to utilize these NOLs and tax credit carryforwards. In addition, under Section 382 of the U.S. Internal Revenue Code, or the Code, a corporation that experiences a more-than 50% ownership change over a three-year testing period is subject to limitations on its ability to utilize its pre-change NOLs and tax credit carryforwards to offset future taxable income. We have not conducted a study to-date to assess whether a limitation would apply under Section 382 of the Code. In the event it is determined that we previously experienced an ownership change, or should we experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year, could be limited and may expire unutilized.

Any acquisitions that we make could result in operating difficulties, dilution, and other consequences that may adversely impact our business and results of operations.

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 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.

We have limited experience as a team with acquiring companies and products. 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. Acquisitions could diminish our available cash balances for other uses, result in the incurrence of debt, contingent liabilities, or amortization expenses, and restructuring charges. Also, the anticipated benefits or value of our acquisitions or investments may not materialize and could result in an impairment of goodwill and/or purchased long-lived assets, similar to the $650,000 charge we recorded in the fourth quarter of 2014 related to an acquisition completed in 2012.

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business and our financial condition or results.

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

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 and certain key employees, 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our corporate headquarters and U.S. operations are located in an approximately 66,000 square foot facility in Brisbane, California. We lease these premises under a non-cancelable operating lease which expires on December 31, 2017. In addition, we have leased office facilities in certain countries as follows:

Country	Square Footage	Lease termination or Expiration
Japan	Approximately 5,896	Two leases, one of which expires in March 2018 and one which expires in December 2015.
France	Approximately 2,239	One lease which expires in October 2021 but can be terminated with six months’ notice prior to October 2015 and 2018.

We believe that these facilities are adequate for our current and future needs for at least the next twelve months.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any pending litigation that we believe will have a material impact to our results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Exchange Listing

Our common stock trades on The NASDAQ Global Select Market under the symbol “CUTR.” As of February 27, 2015, the closing sale price of our common stock was $12.85 per share.

Common Stockholders

We had 10 stockholders of record as of February 28, 2015. Since many stockholders choose to hold their shares under the name of their brokerage firm, we estimate that the actual number of stockholders was over 1,900 shareholders.

Stock Prices

The following table sets forth quarterly high and low closing sales prices of our common stock for the indicated fiscal periods:

	Common Stock
	2014				2013
	High		Low		High		Low
4th Quarter	$	11.04	$	9.66	$	10.56	$	8.39
3rd Quarter		10.75		9.27		10.18		8.89
2nd Quarter		11.73		9.25		13.70		8.62
1st Quarter		11.24		9.00		13.03		8.95

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Issuer Purchases of Equity Securities

The following table summarizes the activity related to stock repurchases for the year ended December 31, 2014 and 2013 (in thousands except per share data):

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
August 1-30, 2013		546	$	9.46		546	$	14,833
September 1-30, 2013		251	$	9.70		251	$	12,400
November 1-30, 2013		264	$	9.10		264	$	10,000
As of December 31, 2013		1,061	$	9.43		1,061	$	10,000
January 1-December 31, 2014		—	$	—		—	$	10,000
As of December 31, 2014		1,061	$	9.43		1,061	$	10,000

On August 5, 2013, our Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in November 2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased. As modified, the stock buyback program permits us to purchase an aggregate of $20 million of our common stock through a 10b5-1 program based on predetermined pricing and volume parameters, as well as open-market purchase that are subject to management discretion and regulatory restrictions.

In the year ended December 31, 2013, we repurchased 1,060,447 shares of our common stock for approximately $10.0 million. There were no repurchases of shares of our common stock in 2014. As of December 31, 2014, there remained an additional $10.0 million of our common stock to be purchased under the modified stock buyback program. The number of shares to be repurchased, and the timing of such repurchases, will be based on several factors, including the price of the Company's common stock, regulatory restrictions, and general market and business conditions.

On February 18, 2015, our Board of Directors approved the expansion of our Stock Repurchase Program from $10 million to $40 million, under which we are authorized to repurchase shares of our common stock. We plan to make the repurchases from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.

Sales of Unregistered Securities

We did not sell any unregistered securities during the period covered by this Annual Report on Form 10-K.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in Part III Item 12 of this Annual Report on Form 10-K.

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 Performance Graph

Below is a graph showing the cumulative total return to our stockholders during the period from December 31, 2009 through December 31, 2014 in comparison to the cumulative return on the NASDAQ Composite Index (U.S.) and the NASDAQ Medical Equipment Index during that same period.

The information under “Performance Graph” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of Cutera under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of any general incorporation language in those filings.

Dividend Policy

We have never paid a cash dividend and have no present intention to pay cash dividends in the foreseeable future. We intend to retain any future earnings for use in our business.

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ITEM 6. SELECTED FINANCIAL DATA

The table set forth below contains certain consolidated financial data for each of our last five fiscal years. The following selected consolidated financial data should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

	Year Ended December 31,
Consolidated Statements of Operations Data (in thousands, except per share data):	2014			2013			2012			2011			2010
Net revenue	$	78,138		$	74,594		$	77,277		$	60,290		$	53,274
Cost of revenue		34,765			32,712			35,737			25,978			23,058
Gross profit		43,373			41,882			41,540			34,312			30,216
Operating expenses:
Sales and marketing		32,246			27,984			28,664			25,499			24,735
Research and development		10,543			9,216			8,427			9,141			7,004
General and administrative		11,203			9,938			11,276			10,104			9,576
Total operating expenses		53,992			47,138			48,367			44,744			41,315
Loss from operations		(10,619	)		(5,256	)		(6,827	)		(10,432	)		(11,099	)
Interest and other income, net		226			455			497			614			583
Loss before income taxes		(10,393	)		(4,801	)		(6,330	)		(9,818	)		(10,516	)
Income tax (benefit) provision		219			(54	)		218			243			2
Net loss	$	(10,612	)	$	(4,747	)	$	(6,548	)	$	(10,061	)	$	(10,518	)
Net loss per share:
Basic and diluted	$	(0.74	)	$	(0.33	)	$	(0.46	)	$	(0.73	)	$	(0.78	)
Weighted-average number of shares used in per share calculations:
Basic and diluted		14,254			14,421			14,089			13,807			13,540

	As of December 31,
Consolidated Balance Sheet Data (in thousands):	2014			2013			2012			2011			2010
Cash, cash equivalents and marketable investments	$	81,146		$	83,073		$	85,572		$	88,686		$	90,003
Long-term investments		—			—			—			3,027			6,784
Working capital (current assets less current liabilities)		81,900			84,654			88,788			89,075			90,339
Total assets		108,913			108,669			112,794			111,353			111,805
Retained earnings (accumulated deficit)		(25,232	)		(14,620	)		(9,873	)		(3,325	)		6,736
Total stockholders’ equity		80,508			84,265			90,774			91,567			95,417

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 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited financial statements and notes thereto for the fiscal year ended December 31, 2014. This Annual Report on Form 10-K, 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 7, the forward-looking statements are based upon our current expectations, estimates and projections and that 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. The 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, improve the performance of our worldwide sales and distribution network, and to the outlook regarding long term prospects. We caution you not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.

Some of the important factors that could cause our results to differ materially from those in our forward-looking statements, and a discussion of other risks and uncertainties, are discussed in Item 1A—Risk Factors commencing on page 17. We encourage you to read that section carefully as well as other risks detailed from time to time in our filings with the SEC.

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.

● Recent Accounting Guidance. This section describes the issuance and effect of new accounting pronouncements that are and may be applicable to us.

● 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 that existed as of December 31, 2014.

Executive Summary

Company Description.

We are a leading medical device company specializing in the research, development, manufacture, marketing and servicing of laser and other energy-based aesthetics systems for practitioners worldwide. We offer easy-to-use products which enable physicians and other qualified practitioners to perform safe and effective aesthetic procedures, including treatment of vascular conditions and removal of benign pigmented lesions, hair-removal, skin rejuvenation, body contouring, skin resurfacing, tattoo removal and toenail fungus. Our platforms are designed to be easily upgraded to add additional applications and hand pieces, which provide flexibility for our customers as they expand their practices. 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, hand piece refills, and third-party manufactured dermal fillers and cosmeceuticals. In the second quarter of 2014, we terminated our agreement with Merz for the distribution of its Radiesse dermal filler product.

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. We market, sell and service our products through direct sales and service employees in the U.S., Australia, Belgium, Canada, France, Japan and Switzerland. Sales and Service outside of these direct markets are made through a worldwide distributor network in over 40 countries. As of December 31, 2014, we had a U.S. direct sales force of 33 employees and a direct international sales force of 32 employees.

Products. Our revenue is derived from the sale of Products, Upgrades, Service, Titan and truSculpt 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 other energy 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 other energy based module is sometimes contained in the hand piece such as with our Pearl and Pearl Fractional applications instead of within the console.

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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. For our Titan hand pieces, after a set number of treatments have been performed, the customer is required to send the hand piece back to the factory for refurbishment, which we refer to as ”refilling” the hand piece. In Japan, we distribute ZO’s cosmeceutical products, and through the second quarter of 2014, we also distributed Merz Pharma GmbH’s (“Merz”) Radiesse dermal filler product.

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.

For a detailed discussion of the significant business trends impacting our business, please see “Results of Operations” below.

Factors that May Impact Future Performance

Our industry is impacted by numerous competitive, regulatory 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 with 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 I, Item 1A “Risk Factors.”

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements and related disclosures in conformity with generally accepted accounting principles in the U.S. (“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. Our critical accounting estimates are as follows:

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Revenue Recognition

We earn revenue from the sale of Products, Upgrades, Titan and truSculpt hand piece refills, and Dermal fillers and cosmeceuticals. We recognize revenue when persuasive evidence of an arrangement exists, transfer of title to the customer has occurred, the sales price is fixed or determinable, and collectability is probable. We defer revenue in the event that any of these revenue recognition criteria is not met.

● Persuasive evidence of an arrangement exists: We use customer purchase agreements or contracts, or customer purchase orders to determine the existence of an arrangement;

● Transfer of title: Our standard terms generally specify that title transfers upon shipment to the customer. We generally use third party shipping documents to verify that title has transferred. For service revenue, we use the date that services have been rendered;

● Sales price is fixed or determinable: We assess whether the sales price is fixed or determinable at the time of the transaction. Sales prices are documented in the customer purchase agreement or purchase order received prior to shipment. Our standard terms do not allow for trial or evaluation periods, rights of return or refund, payments contingent upon the customer obtaining financing or other terms that could impact the customer's obligation; and

● Collectability is probable: We assess whether collection is reasonably assured based on a number of factors, including receipt of cash or credit card payment, customer's past transaction history, credit worthiness, or the receipt of an irrevocable letter of credit.

Multiple-Element Arrangements

For System or Upgrade sales, all of the tangible products, including the embedded software, are delivered to the customer at the time of sale. In some circumstances, in conjunction with the purchase of a System or Upgrade, customers purchase Service contracts for one or more years to cover their products. For these transactions, the following multiple-element arrangement exists:

a tangible product delivered to the customer at the inception of the revenue arrangement; and

a service contract for delivery of services to the customer over a contractually stated period of time defined in the service contract.

For multiple-element arrangements, judgments are required as to the allocation of the proceeds received from an arrangement to the multiple elements of the arrangement. For multiple element arrangements entered into on or after January 1, 2010, we allocate revenue to all deliverables based on their relative selling prices. Because we have neither vendor-specific objective evidence (“VSOE”) nor third-party evidence of selling price (“TPE”) for our systems, the allocation of revenue has been based on our best estimate of selling prices (“BESP”). The objective of BESP is to determine the price at which we would transact a sale if the product or service was sold on a stand-alone basis. We determine BESP for our deliverables by considering multiple factors including, but not limited to, features and functionality of the system, geographies, type of customer and market conditions.

Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Service revenue, not under a service contract, is recognized as the services are provided.

Hand Piece Refills

When customers purchase a hand piece refill, we ship a previously refurbished unit and recognize revenue upon shipment. With respect to our truSculpt product, prior to the third quarter of 2013, we sold the system and hand piece and then charged the customer an incremental fee for any future refills and we treated the refills as a separate deliverable under FASB ASC 605-25. In addition, we also provided promotions that included an unlimited number of “free” hand piece replacements during a stated trial period of 3 months or 12 months. We determined that these free refills were an undelivered element under FASB ASC 605-25 in the original revenue transaction. As such, we deferred the relative fair value related to the estimated number of hand piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the third quarter of 2013, we included unlimited hand piece replacements in the truSculpt standard warranty contract and concluded that this no longer was a separate deliverable under the multiple-element arrangement revenue guidance. Following this change, we recognized the revenue under the warranty model, in which the revenue for the system sale was recognized up-front along with an estimate of the costs which will be incurred under the warranty obligation recorded in cost of revenue.

Shipping and handling costs

We expense shipping and handling costs as incurred and include them in cost of revenue. In those cases where we bill shipping and handling costs to customers, we classify the amounts billed as revenue.

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Stock-based Compensation Expense

Stock options

We account for stock-based compensation in accordance with the fair value recognition provisions of U.S. GAAP. We use the Black-Scholes-Merton option-pricing model which requires the input of highly subjective assumptions. These assumptions include:

● Estimating the length of time employees will retain their vested stock options before exercising them (“expected term”);

● Estimated volatility of our common stock price over the expected term;

● Number of options that will ultimately not complete their vesting requirements (“forfeiture rate”); and

● Expected risk-free interest rate and dividend rate over the expected term.

The assumptions for expected volatility and expected term are the two assumptions that significantly affect the grant date fair value.

The expected term represents the weighted-average period that our stock options are expected to be outstanding. The expected term is based on the observed and expected time to post-vesting exercise of options by employees. We use historical exercise patterns of previously granted options in relation to stock price movements to derive an employee behavioral pattern used to forecast expected exercise patterns.

We estimate volatility based on historical volatility and we also consider implied volatility when there is sufficient volume of freely traded options with comparable terms and exercise prices in the open market.

U.S. GAAP requires us to develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. Adjustments in the estimated forfeiture rates can have a significant effect on our reported share-based compensation, as we recognize the cumulative effect of the rate adjustments for all expense amortization in the period the estimated forfeiture rates were adjusted. We estimate and adjust forfeiture rates based on a periodic review of recent forfeiture activity and expected future employee turnover. If a revised forfeiture rate is higher than previously estimated forfeiture rate, we may make an adjustment that will result in a decrease to the expense recognized in the financial statements during the period when the rate was changed. Adjustments in the estimated forfeiture rates could also cause changes in the amount of expense that we recognize in future periods.

Changes in expected risk-free interest rate and dividend rate do not significantly impact the calculation of fair value, and determining this input is not highly subjective.

Changes in the subjective assumptions of expected term, volatility and forfeiture rate can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized on the Consolidated Statements of Income.

Restricted Stock Units

We grant restricted stock unit (“RSU”) awards to our management employees, officers and directors. RSUs are measured based on the fair market values of the underlying stock on the dates of grant and the stock based compensation expense is recognized over the vesting period using the straight-line method. Shares are issued on the vesting dates net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore, we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital.

Performance Stock Units 

Performance stock unit (“PSU”) awards were granted to our officers and other members of management in 2014 and 2013. The final number of shares of common stock issuable at the end of the performance measurement period, subject to the recipient’s continued service through that date, is determined based on the degree of achievement of the performance goals. The stock-based compensation expenses for the PSUs is measured based on the fair market value on the dates of grant of the target number of underlying shares. Stock based compensation expense is recognized over the vesting period using the straight-line method and the expected degree of achievement of the performance goals. At the vesting date, we issue fully-paid up common stock, net of the minimum statutory tax withholding requirements to be paid by us on behalf of our officers. As a result, the actual number of shares issued is less than the original number of PSUs outstanding. Furthermore, we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital.

Intangible Assets

Our intangible assets include identifiable intangibles and goodwill. Identifiable intangibles include sub-licenses, rights acquired from a former distributor and those acquired in conjunction with an acquisition in 2012. All of our identifiable intangibles have finite lives.

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 are being 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.

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Identifiable intangible assets with finite lives are subject to impairment testing and are reviewed for impairment when events or circumstances indicate that such assets may not be recoverable at their carrying value. We evaluate the recoverability of the carrying value of these identifiable intangibles based on estimated undiscounted cash flows to be generated from such assets. If the cash flow estimates or the significant operating assumptions upon which they are based change in the future, we may be required to record additional impairment charges. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets.

The valuation and classification of intangible assets and goodwill and the assignment of useful amortization lives for the intangible assets involves judgments and the use of estimates. The evaluation of these intangibles and goodwill for impairment under established accounting guidelines is required on a recurring basis. Changes in business conditions could potentially require future adjustments to asset valuations. If we determine that the remaining useful lives of assets are shorter than we had originally estimated, we accelerate the rate of amortization over the assets’ new, shorter useful lives. A considerable amount of judgment is required in assessing impairment, which includes financial forecasts. Should conditions be different from management’s current estimates, material write-downs of long-lived assets may be required, which would adversely affect our operating results.

As of December 31, 2014, we evaluated the recoverability of our long-lived assets. Relating to the purchased intangible assets associated with the Iridex acquisition in 2012, due to the discontinuation of the manufacture and sale of all products acquired, lower than projected future service revenue, and lower than projected revenue expected from the distributor relationships acquired, we determined based on an undiscounted cash flow model that the remaining carrying value of these assets was impaired. Based on a discounted cash flow model, we measured the impairment of the purchased intangible assets and recorded an impairment charge of $650,000 in cost of revenue in the year ended December 31, 2014. There were no impairment charges or accelerated amortization recorded for the years ended December 31, 2013 or 2012. Our valuation model relied on unobservable inputs (referred to as Level 3 in the fair value hierarchy), that are supported by little or no market activity and reflect the use of significant management judgment and included expected future cash flow streams as well as a market discount rate. Our valuation model is subject to uncertainties that are difficult to predict.

Based on the remaining fair value of the purchased intangible assets, we recorded an impairment charge of $650,000 in cost of revenue in the year ended December 31, 2014. There were no impairment charges or accelerated amortization recorded for the years ended December 31, 2013 or 2012.

Valuation of Inventories

We state our inventories at the lower of cost or market, computed on a standard cost basis, which approximates actual cost on a first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. Standard costs are monitored and updated quarterly or as necessary, to reflect changes in raw material costs, labor to manufacture the product and overhead rates. We provide for excess and obsolete inventories when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and estimated market value and charged to cost of revenue to establish a lower cost basis for the inventories. We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology, timing of new product introductions and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory provisions that could adversely impact our gross margins. Conversely, favorable changes in demand could result in higher gross margins when product that had previously been written down is sold.

Warranty Obligations

We provide a one-year standard warranty on all systems. Warranty coverage provided is for labor and parts necessary to repair the systems during the warranty period. Commencing with the third quarter of 2013, for sales of our truSculpt product, we included free hand piece refills during the warranty period. We provide for the estimated future costs of warranty obligations in cost of revenue when the related revenue is recognized. The accrued warranty costs represent our best estimate at the time of sale, and as reviewed and updated quarterly, of the total costs that we expect to incur during the warranty period to repair or replace product parts that fail, including the refurbishment of any truSculpt refills included as part of the original sale. Accrued warranty costs include costs of material, technical support labor and associated overhead. The amount of accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. Actual warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances of our warranty obligations and update based on historical warranty cost trends. If we were required to accrue additional warranty cost in the future due to actual product failure rates, material usage, service delivery costs or overhead costs differing from our estimates, revisions to the estimated warranty liability would be required, which would negatively impact our operating results.

Provision for Income Taxes

We are subject to taxes on earnings in both the U.S. and various foreign jurisdictions. As a global taxpayer, significant judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for income taxes on earnings. We perform a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

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Our effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance, foreign operations, research and development tax credits, state taxes, and certain benefits realized related to stock option activity. Our current effective tax rate does not assume U.S. taxes on undistributed profits of foreign subsidiaries. These earnings could become subject to incremental foreign withholding or U.S. federal and state taxes, should they either be deemed or actually remitted to the U.S. The effective tax rate in 2014, 2013 and 2012 was approximately (2)%, 1%, and (3)%, respectively. Our future effective tax rates could be adversely affected by earnings being lower in countries where we have lower statutory rates and being higher in countries where we have higher statutory rates, or by changes in tax laws, accounting principles, interpretations thereof, net operating loss carryback, research and development tax credits, and due to changes in the valuation allowance of our U.S. deferred tax assets. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

At December 31, 2014, we had an aggregate of approximately $2.6 million of unremitted earnings of foreign subsidiaries that have been, or are intended to be, indefinitely reinvested for continued use in foreign operations. Depending on the timing and nature of the distribution, if the total undistributed earnings of foreign subsidiaries were remitted while the Company is able to utilize its net operating losses, it is likely there would be no material additional tax resulting from the distribution.

Our deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. A valuation allowance reduces deferred tax assets to estimated realizable value, which assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the net carrying value. We have fully reserved our U.S. federal and state deferred tax assets due to our history of operating losses.

Litigation

We have been, and may in the future become, subject to legal proceedings related to securities litigation, intellectual property, product liability claims, contractual disputes and other matters. Based on all available information at the balance sheet dates, we assess the likelihood of any adverse judgments or outcomes for these matters, as well as potential ranges of probable loss. If losses are probable and reasonably estimable, we record an estimated liability. 

Results of Operations

The following table sets forth selected consolidated financial data expressed as a percentage of net revenue.

	Year Ended December 31,
	2014			2013			2012
Net revenue		100	%		100	%		100	%
Cost of revenue		44	%		44	%		46	%
Gross profit		56	%		56	%		54	%
Operating expenses:
Sales and marketing		41	%		38	%		37	%
Research and development		14	%		12	%		11	%
General and administrative		14	%		13	%		15	%
Total operating expenses		69	%		63	%		63	%
Loss from operations		(13	)%		(7	)%		(9	)%
Interest and other income, net		—	%		1	%		1	%
Loss before income taxes		(13	)%		(6	)%		(8	)%
Income tax (benefit) provision		—	%		—	%		—	%
Net loss		(13	)%		(6	)%		(8	)%

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Net Revenue

The following table sets forth selected consolidated revenue by major geographic area and product category with changes thereof.

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013			% Change			2012
Revenue mix by geography:
United States	$	35,494			13	%	$	31,487			(1	)%	$	31,949
Percent of total		45	%					42	%					41	%
Japan	$	13,328			(6	)%	$	14,205			(20	)%	$	17,826
Asia, excluding Japan		11,023			(2	)%		11,263			27	%		8,902
Europe		7,792			6	%		7,358			48	%		4,958
Rest of the world		10,501			2	%		10,281			(25	)%		13,642
Total international revenue		42,644			(1	)%		43,107			(5	)%		45,328
Percent of total		55	%					58	%					59	%
Total consolidated revenue	$	78,138			5	%	$	74,594			(3	)%	$	77,277
Revenue mix by product category:
Products and upgrades	$	53,106			10	%	$	48,374			(2	)%	$	49,605
Titan and truSculpt hand piece refills		3,714			(13	)%		4,267			(11	)%		4,807
Dermal fillers and cosmeceuticals		3,479			(18	)%		4,264			(24	)%		5,645
Total product revenue		60,299			6	%		56,905			(5	)%		60,057
Service		17,839			1	%		17,689			3	%		17,220
Total consolidated revenue	$	78,138			5	%	$	74,594			(3	)%	$	77,277

Revenue by Geography:

Our U.S. revenue increased by 13% in 2014, compared to 2013. We believe the increase in U.S. revenues was attributable to several factors, including:

● Revenue generated by our recently introduced enlighten and excel HR products;

● Continued growth of excel V product revenue; partially offset by

● Reduced productivity of our U.S. sales force, caused in part by field sales and management turnover; and

● A decline in revenue from our xeo, Genesis Plus and truSculpt products.

Our total international revenue decreased by 1% in 2014, compared to 2013, and represented 55% of our total revenue. The decrease in international revenue was primarily a result of decreased revenue from Canada, the decline in 2014 of the Japanese Yen versus the U.S. Dollar compared to 2013, partially offset by growth in revenue from Australia and the Benelux region.

Revenue by Product Category:

Our product and upgrade revenue increased by 10% in 2014 and decreased by 2% in 2013, compared to the respective prior year periods. The 2014 increase in product and upgrade revenue was primarily attributable to revenue generated by our newly introduced enlighten and excel HR products and the continued growth in excel V sales, partially offset by declines in xeo, Genesis Plus and truSculpt sales. The 2013 decrease in product and upgrade revenue was primarily attributable to a decline of the Japanese Yen versus the U.S. Dollar and the decline of Genesis Plus sales, partially offset by continued growth in excel V sales.

Our service revenue increased by 1% in 2014 and by 3% in 2013, compared to the respective prior year periods. The ratable recognition of service contract fees is the primary component of our service revenue. The increase in 2013 was primarily due to an expanded customer base as well as one additional month of service revenue in 2013, versus 2012, relating to the acquisition of the Iridex aesthetic business in February 2012.

Our Titan and truSculpt hand piece refill revenue decreased by 13% and 11% in 2014 and 2013, compared to the respective prior year periods. The decrease in 2014 was due primarily to declines in Titan hand piece refill revenue caused by reduced utilization. The decrease in 2013 was due primarily to declines in Titan hand piece refill revenue caused by reduced utilization and partly due to decline in the Japanese Yen versus the U.S. Dollar, which was partially offset by an increase in revenue from truSculpt refills. Commencing in the third quarter of 2013, we have repositioned our truSculpt product to include the refurbishment of the hand pieces as part of the original system warranty or ongoing service contracts, thereby enabling our customers unlimited usage as part of the original system warranty.

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Our Dermal filler and cosmeceutical business decreased by 18% and 24% in 2014 and 2013, compared to the respective prior year periods. The decrease in 2014 was primarily a result of the discontinuation of the distribution of the Merz Radiesse filler product in Japan in the second quarter of 2014. In addition, the continued devaluation of the Japanese Yen versus the U.S. Dollar by approximately 9% in 2014, compared to 2013, had an adverse impact on our revenue. The decrease in 2013 Dermal filler and cosmeceuticals revenue was primarily the result of a devaluation of the Japanese Yen, versus the U.S. Dollar, by approximately 22%, compared to 2012.

Gross Profit

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013			% Change			2012
Gross Profit	$	43,373			4	%	$	41,882			1	%	$	41,540
As a percentage of total revenue		56	%					56	%					54	%

Our cost of revenue consists primarily of materials, personnel expenses, royalty expense, warranty and manufacturing overhead expenses. Gross margin as a percentage of net revenue was flat at 56% in 2014, compared to 2013, which was primarily attributable to the following:

● A $3.5 million increase in total revenue, which improved the leverage of our manufacturing department expenses; offset by

● A one-time impairment charge of $650,000 for purchased intangibles related to a previous acquisition; and

● A partial shift in product mix towards lower margin products, primarily as a result of our newly introduced excel HR and enlighten products in 2014 that had a high initial cost structure.

Gross margin as a percentage of net revenue improved to 56% in 2013, compared to 2012, which was primarily attributable to the following:

● A partial shift in product mix towards higher margin products;

● Improved gross margin from our Service business, due primarily to reduced material expenses resulting from improved reliability of our products;

● Results of cost reduction initiatives; and

● Reduced amortization of intangibles related to the acquisition of Iridex’s aesthetic business.

Sales and Marketing

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013			% Change			2012
Sales and marketing	$	32,246			15	%	$	27,984			(2	)%	$	28,664
As a percentage of total revenue		41	%					38	%					37	%

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 by $4.3 million in 2014, compared to 2013, which was primarily attributable to the following:

● $2.6 million increase in personnel related expenses in North American, driven primarily by the expansion of our sales force;

● $1.4 million increase in non-Japan international spending, primarily as a result of higher international sales headcount as well as the expansion of our international operations;

● $752,000 of increased promotional spending, primarily in North America;

● $541,000 of increased North American travel and entertainment expenses due to the higher sales headcount; partially offset by

● $941,000 of decreased Japan expenses resulting primarily from the continued devaluation of the Japanese Yen, versus the U.S. Dollar.

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In 2013, sales and marketing expenses decreased by $680,000 compared to 2012. This decrease was primarily attributable to:

● $1.0 million of decreased Japan expenses resulting primarily from the devaluation of the Japanese Yen, versus the U.S. Dollar;

● $312,000 of decreased North American travel and entertainment expenses due primarily to reduced business meetings and other cost cutting measures; partially offset by

● $523,000 of increased North American product demonstration, promotional and marketing expenses.

Sales and marketing expenses as a percentage of net revenue, increased to 41% in 2014, compared to 38% in 2013. This increase was due to a larger increase in expenses, compared to the increase in revenue. Sales and marketing expenses as a percentage of net revenue, increased to 38% in 2013, compare to 37% in 2012. This increase was due to lower revenue in 2012.

Research and Development (“R&D”)

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013			% Change			2012
Research and development	$	10,543			14	%	$	9,216			9	%	$	8,427
As a percentage of total revenue		14	%					12	%					11	%

Research and development expenses consist primarily of personnel expenses, clinical, regulatory and material costs. R&D expenses increased $1.3 million in 2014, compared to 2013, which was primarily attributable to:

● $1.0 million higher personnel expenses as a result of increased headcount;

● $398,000 increase in material spending due to product development efforts related to our two new launched products (enlighten and excel HR); partially offset by

● A decrease of $110,000 in equipment spending.

In 2013, R&D expenses increased by $789,000, compared to 2012, which primarily attributable to:

● $1.1 million increase in material spending related to new product development; partially offset by

● A decrease of $237,000 in outside consulting expenses.

General and Administrative (“G&A”)

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013			% Change			2012
General and administrative	$	11,203			13	%	$	9,938			(12	)%	$	11,276
As a percentage of total revenue		14	%					13	%					15	%

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 by $1.3 million in 2014, compared to 2013, which was primarily attributable to:

● $1.3 million of increased personnel related expenses;

● $407,000 of increased legal fees and costs of settlements; partially offset by

● A reduction of $600,000 in fees resulting from the conclusion of a management consulting engagement that commenced in 2013.

In 2013, G&A expenses decreased by $1.3 million, compared to 2012. This decrease was primarily attributable to:

● $1.0 million of decreased personnel related expenses;

● $532,000 of reduced legal fees and costs of settlements;

● A reduction of $527,000 of business integration expenses, which were incurred in 2012 due to the acquisition of Iridex;

● $292,000 of reduced accounting fees; partially offset by

● $800,000 in fees relating to a management consulting engagement in 2013; and

● $343,000 of increased expenses due to the introduction of the U.S. medical excise tax with effect from January 1, 2013.

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Interest and Other Income, Net

The components of “Interest and Other Income, Net” are as follows:

	Year Ended December 31,
(Dollars in thousands)	2014			% Change			2013		% Change			2012
Interest income	$	406			(4	)%	$	421		(12	)%	$	481
Other income (expense), net		(180	)		(629	)%		34		113	%		16
Total interest and other income, net	$	226			(50	)%	$	455		(8	)%	$	497

Interest income decreased 4% in 2014, compared to 2013, and decreased 12% in 2013, compared to 2012. These decreases in interest income in 2014 and in 2013, were primarily attributable to decreases in our cash, cash equivalents and marketable investments balances and decreased yields on our investments. Our cash, cash equivalents, marketable investments and long-term investments at December 31, 2014, 2013 and 2012 were $81.1 million, $83.1 million and $85.6 million, respectively.

Income Tax (Benefit) Provision

	Year Ended December 31,
(Dollars in thousands)	2014			$ Change			2013			$ Change			2012
Loss before income taxes	$	(10,393	)	$	(5,592	)	$	(4,801	)	$	1,529		$	(6,330	)
Income tax (benefit) provision		219			273			(54	)		(272	)		218
Effective tax rate		(2	)%					1	%					(3	)%

In 2014, 2013 and 2012, we recorded an income tax provision of $219,000, an income tax benefit of $54,000 and an income tax provision of $218,000, respectively. Our tax provisions for both 2014 and 2012 are primarily related to foreign tax expenses. Our tax benefit for 2013 is primarily related to releases of reserves for Uncertain Tax Positions due to lapses in the applicable statutes of limitations, offset by foreign tax expenses. A full valuation allowance was applied against all U.S. federal and state deferred tax assets arising during each of these years.

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, stock option exercises, and employee stock purchases. 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. The following table summarizes our cash and cash equivalents and marketable investments (in thousands):

	Year ended December 31,
(Dollars in thousands)	2014		2013		Change
Cash, cash equivalents and marketable securities:
Cash and cash equivalents	$	9,803	$	16,242	$	(6,439	)
Marketable investments		71,343		66,831		4,512
Total	$	81,146	$	83,073	$	(1,927	)

Cash Flows

In summary, our cash flows were as follows:

	Year ended December 31,
(Dollars in thousands)	2014			2013			2012
Cash flows provided by (used in):
Operating activities	$	(4,286	)	$	3,513		$	(2,300	)
Investing activities		(5,611	)		(5,848	)		10,153
Financing activities		3,458			(4,969	)		1,673
Net (decrease) increase in cash and cash equivalents	$	(6,439	)	$	(7,304	)	$	9,526

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Cash Flows from Operating Activities

We used net cash of $4.3 million in operating activities during 2014, which was primarily attributable to:

● $5.1 million used for operations based on a net loss of $10.6 million after adjusting for non-cash related items of $5.5 million, consisting primarily of stock-based compensation expense of $3.3 million, depreciation and amortization expense of $1.3 million and $0.7 million of an impairment of intangible assets;

● $2.0 million used to increase inventories for the addition of the new product line in 2014;

● $1.5 million used as a result of an increase in accounts receivable that resulted from increased product sales in the three-month period ended December 31, 2014, compared to the same period in 2013; partially offset by

● $1.7 million generated from an increase in accrued liabilities;

● $1.4 million generated from an increase in deferred revenue due primarily to a “two years-for the price of one” service contract pricing promotion; and

● $1.3 million generated from an increase in accounts payable resulting from the higher purchases of inventories relating to the new product lines added in 2014.

We generated net cash of $3.5 million in operating activities during 2013, which was primarily attributable to:

● $3.1 million generated from an increase in deferred revenue due primarily to a “two years-for the price of one” service contract pricing promotion;

● $2.1 million generated from a reduction of inventories due primarily to a the consumption of inventories acquired in the Iridex acquisition and a reduction of other inventories; partially offset by

● $857,000 used as a result of an increase in accounts receivable that resulted from increased product sales in December 2013 compared to December 2012; and

● $371,000 used as a result of a reduction in accrued liabilities.

Cash Flows from Investing Activities

We used net cash of $5.6 million in investing activities in 2014, which was primarily attributable to:

● $44.1 million of cash used to purchase marketable investments;

● $0.7 million of cash used to purchase property and equipment; partially offset by

● $39.3 million in net proceeds from the sales and maturities of marketable investments.

We used net cash of $5.8 million in investing activities in 2013, which was primarily attributable to:

● $56.8 million of cash used to purchase marketable investments;

● $0.5 million of cash used to purchase property and equipment; partially offset by

● $51.6 million in net proceeds from the sales and maturities of marketable investments.

Cash Flows from Financing Activities

Net cash provided by financing activities in 2014 was $3.5 million, which resulted primarily from the issuance of stock through our stock option and employee stock purchase plans.

Net cash used in financing activities in 2013 was $5.0 million, which resulted from:

● $10.0 million of cash used to repurchase common stock; partially offset by

● $5.2 million generated from the issuance of stock through our stock option and employee stock purchase plan.

Adequacy of cash resources to meet future needs

We had cash, cash equivalents and marketable investments of $81.1 million as of December 31, 2014. We believe that our existing cash resources are sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next several years.

Contractual Obligations

The following are our contractual obligations, consisting of future minimum lease commitments related to facility and vehicle leases as of December 31, 2014:

	Payments Due by Period ($’000’s)
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating leases	$	5,368	$	1,821	$	3,467	$	80	$	—
Capital leases		402		167		235		—		—
Total leases	$	5,770	$	1,988	$	3,702	$	80	$	—

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Purchase Commitments

We maintain certain open inventory purchase commitments with our suppliers to ensure a smooth and continuous supply for key components. Our 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. Our open inventory purchase commitments were not material at December 31, 2014. As a result, this amount is not included in the contractual obligations table above.

Income Tax Liability

We have included in our Consolidated Balance Sheet a $74,000 long-term income tax liability for unrecognized tax benefits and accrued interest as of December 31, 2014. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the contractual obligations table above.

Other

In the normal course of business, we enter into agreements that contain a variety of representations, warranties, and indemnification obligations. For example, we have entered into indemnification agreements with each of our directors and executive officers. Our exposure under the various indemnification obligations is unknown and not reasonably estimable as they involve future claims that may be made against us. As such, we have not accrued any amounts for such obligations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and municipal bonds, and, by policy, restrict our exposure to any single type of investment or issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at a weighted average maturity of generally less than eighteen months. Based on discounted cash flow modeling with respect to our total investment portfolio as of December 31, 2014 and 2013, assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investment portfolio would potentially decline by approximately $612,000 and $788,000, respectively.

Foreign Currency Exchange

In 2014 and 2013, our international revenue was approximately 55% and 58%, respectively, of total revenue. Approximately 48% and 54%, of this international revenue was denominated in U.S. Dollars, respectively. All of the remaining revenue was denominated in Japanese Yen, Euros, Australian Dollars and Swiss Francs. Our Japanese Yen denominated revenue represents the majority of our foreign currency denominated revenue. In 2014 and 2013, the Japanese Yen, compared to the U.S. Dollar, devalued by approximately 9% and 22%, respectively, which had a significant adverse foreign exchange impact on our revenue − both from a re-measurement loss upon the conversion of our Japanese Yen denominated revenue as well as the additional negative revenue impact due to the effective price increase for the local customers importing our U.S. Dollar denominated systems into Japan. In addition, the Japanese Yen devaluation had a favorable foreign currency translation impact on our local cost of sales and operating expenses.

We have historically not engaged in hedging activities relating to our non-U.S. Dollar operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CUTERA, INC. AND SUBSIDIARY COMPANIES

ANNUAL REPORT ON FORM 10-K

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 8:

	Page
Reports of Independent Registered Public Accounting Firms	46
Consolidated Balance Sheets	48
Consolidated Statements of Operations	49
Consolidated Statements of Comprehensive Loss	50
Consolidated Statements of Stockholders’ Equity	51
Consolidated Statements of Cash Flows	52
Notes to Consolidated Financial Statements	53

The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries for the years ended December 31, 2014, 2013 and 2012 is filed as a part of this Report as required to be included in Item 15(a) and should be read in conjunction with the Consolidated Financial Statements of the Registrant and its subsidiaries:

Schedule		Page
II	Valuation and Qualifying Accounts	73

All other required schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the Consolidated Financial Statements or the Notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Cutera, Inc.

Brisbane, California

We have audited the accompanying consolidated balance sheet of Cutera, Inc. as of December 31, 2014 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2014. In connection with our audit of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cutera, Inc. at December 31, 2014, and the results of its operations and its cash flows for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cutera Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2015 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

San Jose, California

March 16, 2015

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Cutera, Inc.:

We have audited the accompanying consolidated balance sheet of Cutera, Inc. as of December 31, 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2013. Our audit also included the financial statement schedule at Item 15(a) for each of the years in the two-year period ended December 31, 2013. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cutera, Inc. as of December 31, 2013, and the consolidated results of its operations, and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with US generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Redwood City, California

March 17, 2014

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CUTERA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	December 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	9,803		$	16,242
Marketable investments		71,343			66,831
Accounts receivable, net of allowance for doubtful accounts of $0 and $19, respectively		11,137			9,679
Inventories		10,988			9,006
Deferred tax assets		26			31
Other current assets and prepaid expenses		1,591			1,507
Total current assets		104,888			103,296
Property and equipment, net		1,461			1,362
Deferred tax assets, net of current portion		269			329
Intangibles, net		595			2,019
Goodwill		1,339			1,339
Other long-term assets		361			324
Total assets	$	108,913		$	108,669
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,083		$	1,820
Accrued liabilities		11,007			9,328
Deferred revenue		8,898			7,494
Total current liabilities		22,988			18,642
Deferred revenue, net of current portion		4,346			4,340
Income tax liability		145			108
Other long-term liabilities		926			1,314
Total liabilities		28,405			24,404
Commitments and contingencies (Note 11)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value:
Authorized: 5,000,000 shares; Issued and outstanding: none		—			—
Common stock, $0.001 par value:
Authorized: 50,000,000 shares; Issued and outstanding: 14,446,950 and 13,931,833 shares at December 31, 2014 and 2013, respectively		14			14
Additional paid-in capital		105,721			98,820
Accumulated deficit		(25,232	)		(14,620	)
Accumulated other comprehensive income		5			51
Total stockholders’ equity		80,508			84,265
Total liabilities and stockholders’ equity	$	108,913		$	108,669

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

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CUTERA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended December 31,
	2014			2013			2012
Net revenue:
Products	$	60,299		$	56,905		$	60,057
Service		17,839			17,689			17,220
Total net revenue		78,138			74,594			77,277
Cost of revenue:
Products		26,796			24,179			26,911
Service		7,969			8,533			8,826
Total cost of revenue		34,765			32,712			35,737
Gross profit		43,373			41,882			41,540
Operating expenses:
Sales and marketing		32,246			27,984			28,664
Research and development		10,543			9,216			8,427
General and administrative		11,203			9,938			11,276
Total operating expenses		53,922			47,138			48,367
Loss from operations		(10,619	)		(5,256	)		(6,827	)
Interest and other income, net		226			455			497
Loss before income taxes		(10,393	)		(4,801	)		(6,330	)
Income tax (benefit) provision		219			(54	)		218
Net loss	$	(10,612	)	$	(4,747	)	$	(6,548	)
Net loss per share:
Basic and diluted	$	(0.74	)	$	(0.33	)	$	(0.46	)
Weighted-average number of shares used in per share calculations:
Basic and diluted		14,254			14,421			14,089

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

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CUTERA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Year Ended December 31,
	2014			2013			2012
Net loss	$	(10,612	)	$	(4,747	)	$	(6,548	)
Other comprehensive income (loss):
Available-for-sale investments
Net change in unrealized gain (loss) on available-for-sale investments		(42	)		(21	)		959
Less: Reclassification adjustment for net gains on investments recognized during the year		(4	)		(9	)		(19	)
Net change in unrealized gain (loss) on available-for-sale investments		(46	)		(30	)		940
Tax provision (benefit)		—			—			18
Other comprehensive income (loss), net of tax		(46	)		(30	)		922
Comprehensive loss	$	(10,658	)	$	(4,777	)	$	(5,626	)

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

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CUTERA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

	Common Stock						Additional Paid-in			Retained Earnings (Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount			Capital			Deficit)			Income (loss)			Equity
Balance at December 31, 2011		13,948,395		$	14		$	95,719		$	(3,325	)	$	(841	)	$	91,567
Issuance of common stock for employee purchase plan		46,982			—			289			—			—			289
Exercise of stock options		211,551			—			1,480			—			—			1,480
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards		26,548			—			(101	)		—			—			(101	)
Stock-based compensation expense		—			—			3,159			—			—			3,159
Tax benefit from exercises of stock-based payment awards		—			—			6			—			—			6
Net loss		—			—			—			(6,548	)		—			(6,548	)
Net change in unrealized gain (loss) on available-for-sale investments (net of $18 of tax provision)		—			—			—			—			922			922
Balance at December 31, 2012		14,233,476			14			100,552			(9,873	)		81			90,774
Issuance of common stock for employee purchase plan		51,338			—			362			—			—			362
Exercise of stock options		612,210			1			5,048			—			—			5,049
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards		95,256			—			(222	)		—			—			(222	)
Repurchase of common stock		(1,060,447	)		(1	)		(10,030	)		—			—			(10,031	)
Stock-based compensation expense		—			—			3,110			—			—			3,110
Net loss		—			—			—			(4,747	)		—			(4,747	)
Net change in unrealized gain (loss) on available-for-sale investments		—			—			—			—			(30	)		(30	)
Balance at December 31, 2013		13,931,833			14			98,820			(14,620	)		51			84,265
Issuance of common stock for employee purchase plan		52,759			—			451			—			—			451
Exercise of stock options		396,970			—			3,307			—			—			3,307
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards		65,388			—			(156	)		—			—			(156	)
Stock-based compensation expense		—			—			3,299			—			—			3,299
Net loss		—			—			—			(10,612	)		—			(10,612	)
Net change in unrealized gain (loss) on available-for-sale investments		—			—			—			—			(46	)		(46	)
Balance at December 31, 2014		14,446,950		$	14		$	105,721		$	(25,232	)	$	5		$	80,508

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

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CUTERA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2014			2013			2012
Cash flows from operating activities:
Net loss	$	(10,612	)	$	(4,747	)	$	(6,548	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,299			3,110			3,160
Tax benefit (deficit) from stock-based compensation		—			—			6
Excess tax benefit related to stock-based compensation		—			—			(6	)
Depreciation and amortization		1,336			1,304			1,606
Impairment of intangible assets		650			—			—
Other		206			243			(87	)
Changes in assets and liabilities:
Accounts receivable		(1,460	)		(857	)		(3,690	)
Inventories		(1,982	)		2,108			1,167
Other current assets and prepaid expenses		239			345			859
Other long-term assets		(37	)		73			89
Accounts payable		1,263			(287	)		(466	)
Accrued liabilities		1,650			(371	)		(177	)
Other long-term liabilities		(285	)		(218	)		(62	)
Deferred revenue		1,410			3,114			1,915
Income tax liability		37			(304	)		(66	)
Net cash provided by (used in) operating activities		(4,286	)		3,513			(2,300	)
Cash flows from investing activities:
Acquisition of property, equipment and software		(734	)		(517	)		(516	)
Acquisition of intangible asset		—			(155	)		—
Business acquisition		—			—			(5,091	)
Disposal of property and equipment		—			63			—
Proceeds from sales of marketable and long-term investments		12,354			15,578			31,564
Proceeds from maturities of marketable investments		26,915			36,030			43,009
Purchase of marketable investments		(44,146	)		(56,847	)		(58,813	)
Net cash (used in) provided by investing activities		(5,611	)		(5,848	)		10,153
Cash flows from financing activities:
Repurchase of common stock		—			(10,031	)		—
Proceeds from exercise of stock options and employee stock purchase plan		3,602			5,189			1,667
Payments on capital lease obligation		(144	)		(127	)		—
Excess tax benefit related to stock-based compensation		—			—			6
Net cash provided by (used in) financing activities		3,458			(4,969	)		1,673
Net (decrease) increase in cash and cash equivalents		(6,439	)		(7,304	)		9,526
Cash and cash equivalents at beginning of year		16,242			23,546			14,020
Cash and cash equivalents at end of year	$	9,803		$	16,242		$	23,546
Supplemental cash flow information:
Cash paid for interest		26			19			—
Cash paid for income taxes	$	225		$	337		$	307
Supplemental non-cash investing and financing activities:
Assets acquired under capital lease	$	70		$	577		$	—

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

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CUTERA, INC.

NOTES TO 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 other energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets laser and other energy-based product platforms for use by physicians and other qualified practitioners which enable them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following key product platforms: CoolGlide^®, xeo, solera^®, Genesis Plus, excel V, truSculpt, excel HR and enlighten. The Company’s products offer multiple hand pieces and applications, which allow customers to upgrade their systems. The sales of systems, upgrades, hand pieces, hand piece refills (Titan^® and truSculpt) and the distribution of third party manufactured dermal fillers and cosmeceuticals are classified as “Product” revenue. In the second quarter of 2014, the Company terminated its agreement with Merz Pharma GmbH (“Merz”) for the distribution of its Radiesse dermal filler product. In addition to Product revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan and truSculpt) and service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service” revenue.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries that are currently operational in Australia, Belgium, Canada, France, Japan, Switzerland and Hong Kong, that market, sell and service its products outside of the United States. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates their estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, valuation of inventories, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, fair values of options to purchase the Company’s common stock and other share based awards, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases their 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.

Cash, Cash Equivalents, and Marketable Investments

The Company invests its cash primarily in money market funds and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and its foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities have been classified and accounted for as available-for-sale. Investments with remaining maturities more than one year are viewed by the Company as available to support current operations, and are classified as current assets under the caption marketable investments in the accompanying Consolidated Balance Sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

Fair Value Measurements

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. 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. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

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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.

Impairment of Marketable Investments

After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either temporary or other-than-temporary impairments is the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment has been less than cost, the financial condition and near-term prospects of the issuer. There were no other-than-temporary impairments in the years ended December 31, 2014, 2013, and 2012.

Allowance for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of our products.

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily invested in deposits and money market accounts with three major financial institutions in the U.S. In addition, the Company has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks may exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are financially sound and, accordingly, believes that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The Company has also invested in other high grade investments such as commercial paper and corporate bonds. By policy, the Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity (interest reset date for auction-rate securities and variable rate demand notes) of generally less than eighteen months.

Accounts receivable are typically unsecured and are derived from revenue earned from worldwide customers. The Company performs credit evaluations of its customers and maintains reserves for potential credit losses. No single customer represented more than 10% of net accounts receivable as of either December 31, 2014 or 2013.

During the years ended December 31, 2014, 2013, and 2012, domestic revenue accounted for 45%, 42%, and 41%, respectively, of total revenue, while international revenue accounted for 55%, 58%, and 59%, respectively, of total revenue, for each of the years. No single customer represented more than 10% of total revenue for any of the years ended December 31, 2014, 2013, and 2012.  

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The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technology innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, product liability, Food and Drug Administration and/ or international regulatory approvals required for new products and compliance with government regulations. 

Inventories

Inventories are stated at the lower of cost or market, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis) and market being determined as the lower of replacement cost or net realizable value.

The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over an estimated economic life of two years. Amortization expense related to demonstration units is recorded in cost of revenue or in the respective operating expense line based on which function and purpose for which it is being used for. Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged to cost of revenue.

As of December 31, 2014 and 2013, demonstration inventories included in the “Finished goods inventory” balance was $2.3 million and $1.8 million, respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation recognized is on a straight-line basis over the estimated useful lives of the assets, generally as follows:

	Useful Lives
Leasehold improvements	Lesser of useful life or term of lease
Office equipment and furniture (years)	3
Machinery and equipment (years)	3

Upon sale or retirement of assets, the costs and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to operations as incurred.

Depreciation expense related to property, equipment and leasehold improvements for 2014, 2013 and 2012, were $562,000, $602,000 and $436,000 respectively. Amortization expense for vehicles leased under capital leases is included in depreciation expense.

Goodwill and Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets, is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.

The Company’s intangible assets are comprised of purchased technology sub-licenses, acquired customer relationships, and those assets acquired in conjunction with an asset acquisition in February 2012 including, existing customer relationships, product portfolio and a manufacturing process for the products acquired. All identifiable intangibles have finite lives and are carried at cost, net of accumulated amortization. Amortization was recorded using the straight-line method, over their respective useful lives, which range from approximately 11 months to 10 years.

Impairment of Long-lived Assets

Goodwill is not amortized, but is tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. The goodwill impairment test is generally performed annually during the fourth fiscal quarter (or earlier if impairment indicators arise). The Company continues to operate in one segment, which is considered to be the sole reporting unit and therefore, goodwill was tested for impairment at the enterprise level. As of December 31, 2014, there has been no impairment of goodwill.

The Company evaluates the recoverability of its long-lived assets, which include amortizable intangible and tangible assets. Acquired intangible assets with definite useful lives are amortized over their useful lives. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. The Company recognizes such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In 2014, the Company’s impairment review indicated that certain purchased long-lived assets associated with the Iridex acquisition were impaired and an impairment charge of $650,000 was recognized. No other impairment losses were incurred in the periods presented.

Warranty Obligations

The Company provides a one-year standard 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.

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Revenue Recognition

Product, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceutical revenue is recognized when title and risk of ownership has been transferred, provided that:

● Persuasive evidence of an arrangement exists;

● The price is fixed or determinable;

● Delivery has occurred or services have been rendered; and

● Collectability is probable.

Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. For sales transactions when collectability is not reasonably assured, the Company recognizes revenue upon receipt of cash payment. Sales to customers and distributors do not include any return or exchange rights. In addition, the Company’s distributor agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as a component of cost of revenue.

Multiple-element arrangements

A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. The Company determined that its multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: system and upgrade sales; and service contracts.

For multiple-element arrangements revenue is allocated to each element based on their relative selling prices. Relative selling prices would be based first on vendor specified objective evidence (“VSOE”), then on third-party evidence of selling price (“TPE”) when VSOE does not exist, and then on best estimate of selling price (“BESP”) when VSOE and TPE do not exist. Because the Company has neither VSOE nor TPE for its systems, the allocation of revenue has been based on the Company’s BESPs. The objective of BESP is to determine the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines BESP for its systems by considering multiple factors including, but not limited to, prices charged for stand-alone sales, features and functionality of the system, geographies, type of customer, and market conditions. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met for each element.

In the first and second quarter of 2013, with respect to the sale of its truSculpt product, the Company provided promotions that included an unlimited number of “free” hand piece replacements during a stated trial period of 3 months or 12 months. These free refills were treated as an undelivered element under FASB ASC 605-25 in the original revenue transaction. The Company deferred the relative fair value related to the estimated number of hand piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the third quarter of 2013, the Company included unlimited refills as part of the truSculpt standard warranty and determined that this was no longer a separate deliverable under the multiple-element arrangement revenue guidance. Following this change, the Company recognized the revenue under the warranty model, in which the revenue for the system sale was recognized up-front along with an estimate of the costs which will be incurred under the warranty obligation recorded in cost of revenue.

The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Service revenue, from customers whose systems are not under a service contact, is recognized as the services are provided. Service revenue for the years ended December 31, 2014, 2013, and 2012 was $17.8 million, $17.7 million, and $17.2 million, respectively.

Cost of Revenue

Cost of revenue consists primarily of material, finished and semi-finished products purchased from third-party manufacturers, labor, stock-based compensation expenses, overhead involved in our internal manufacturing processes, technology license amortization and royalties, costs associated with product warranties and any inventory or intangible write-downs.

The Company's system sales include a control console, universal graphic user interface, control system software, high voltage electronics and a combination of applications (referred to as hand pieces). Hand pieces are programmed to have a limited number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its Titan product and provides for refurbishment of other hand pieces under warranty or service contracts. When customers purchase a replacement hand piece (or “refill”) or are provided a replacement hand piece under a warranty or service contract, Cutera ships a previously refurbished unit. Upon the receipt of the expended hand piece from the customer the Company capitalizes the expended hand piece as inventory at the estimated fair value. Cost of revenue includes the costs incurred to refurbish hand pieces.

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Research and Development Expenditures

Costs related to research, design, development and testing of products are charged to research and development expense as incurred. Expenses incurred primarily relate to employees, facilities, material, third party contractors and clinical and regulatory fees.

Advertising Costs

Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for 2014, 2013 and 2012 were $1.6 million, $1.6 million and $1.3 million, respectively.

Stock-based Compensation

The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions under U.S. GAAP. The Company’s stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units (“RSUs”), performance stock units (“PSUs”) and stock awards are measured based on the fair market values of the underlying stock on the dates of grant. Shares are issued on the vesting dates, net of the tax withholding requirements to be paid by the Company on behalf of its employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore, the Company records the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when the shares are issued. Also, the Company recognizes stock-based compensation using the straight-line method.

U.S. GAAP requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for stock-based awards for options exercised and RSUs vested during the period (excess tax benefits) to be classified as financing cash flows.

Income Taxes

The Company recognizes income taxes under the liability method. The Company recognizes deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. For deferred tax assets which are not subject to a valuation allowance, the Company has determined that its future taxable income will be sufficient to recover all of the deferred tax assets. However, should there be a change in their ability to recover the deferred tax assets, the Company could be required to record a valuation allowance against the net carrying value of its deferred tax assets. This would result in an increase to the Company’s tax provision in the period in which they determined that the recovery was not probable.

The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax basis. The deferred tax assets and liabilities reflect management’s assessment that tax positions taken, and the resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax rates that the Company expects to apply and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which the Company operates. These matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.

Valuation allowances are established when necessary to reduce deferred income tax assets to amounts that the Company believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to determine whether adjustments to our valuation allowance are appropriate. In making this evaluation, the Company relies on its recent history of pre-tax earnings, estimated timing of future deductions and benefits represented by the deferred tax assets, and its forecasts of future earnings, the latter two of which involve the exercise of significant judgment. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax asset due to a history of operating losses.

The Company establishes reserves for uncertain tax positions in accordance with the Income Taxes subtopic of ASC 740. The subtopic prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Additionally, the subtopic provides guidance on de-recognition, measurement, classification, interest and penalties, and transition of uncertain tax positions. The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax years. The Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the determination that the tax position is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The Company will record an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the ultimate assessment to be. 

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Computation of Net Loss per Share

Basic net income per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of shares and dilutive potential shares outstanding during the period. Dilutive potential shares primarily consist of employee stock options. Dilute earnings per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would be anti-dilutive.

U.S. GAAP requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional-paid-in-capital (“APIC”) when the award becomes deductible are all assumed to be used to repurchase shares.

Comprehensive Loss

Comprehensive loss includes all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the unrealized gains or losses on the Company's available-for-sale investments, net of tax.  

Foreign Currency

The U.S. Dollar is the functional currency of the Company’s subsidiaries. Monetary and non-monetary assets and liabilities are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured at average exchange rates in effect during each period, except for those expenses related to non-monetary assets which are re-measured at historical exchange rates. Gains or losses resulting from foreign currency transactions are included in net income (loss) and are insignificant for each of the three years ended December 31, 2014. The effect of exchange rate changes on cash and cash equivalents was insignificant for each of the three years presented in the period ended December 31, 2014.

Segments

The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. As of December 31, 2014 and 2013, 71% and 83%, respectively, of all long-lived assets were maintained in the U.S. See Note 10 for details relating to revenue by geography.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled to for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company in the first quarter of fiscal year 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the Consolidated Financial Statements and related disclosures.

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NOTE 2—INVESTMENT SECURITIES

The following tables summarize cash, cash equivalents and marketable securities (in thousands):

	December 31,
	2014		2013
Cash and cash equivalents:
Cash	$	7,761	$	3,816
Cash equivalents:
Money market funds		242		9,926
Commercial paper		1,800		2,500
Total cash and cash equivalents		9,803		16,242
Marketable securities:
U.S. government notes		18,361		10,522
U.S. government agencies		19,800		25,858
Municipal securities		3,607		2,039
Commercial paper		10,695		10,242
Corporate debt securities		18,880		18,170
Total marketable securities		71,343		66,831
Total cash, cash equivalents and marketable securities	$	81,146	$	83,073

The following table summarizes unrealized gains and losses related to our marketable investments (in thousands):

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	9,803	$	—	$	—		$	9,803
Marketable investments
U.S. government notes		18,345		17		(1	)		18,361
U.S. government agencies		19,768		33		(1	)		19,800
Municipal securities		3,607		3		(3	)		3,607
Commercial paper		10,693		2		—			10,695
Corporate debt securities		18,875		13		(8	)		18,880
Total marketable securities		71,288		68		(13	)		71,343
Total cash, cash equivalents and marketable securities	$	81,091	$	68	$	(13	)	$	81,146

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	16,242	$	—	$	—		$	16,242
Marketable investments
U.S. government notes		10,516		11		(5	)		10,522
U.S. government agencies		25,823		38		(3	)		25,858
Municipal securities		2,043		1		(5	)		2,039
Commercial paper		10,239		3		—			10,242
Corporate debt securities		18,109		61		—			18,170
Total marketable securities		66,730		114		(13	)		66,831
Total cash, cash equivalents and marketable securities	$	82,972	$	114	$	(13	)	$	83,073

No investments were in a continuous unrealized loss position for longer than 12 months.

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The following table summarizes the estimated fair value of our marketable investments classified by the contractual maturity date of the security as of December 31, 2014 (in thousands):

	Amount
Due in less than one year (fiscal year 2015)	$	37,023
Due in 1 to 3 years (fiscal year 2016 - 2017)		34,320
	$	71,343

Fair Value Measurements

The following table summarizes 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 (in thousands):

December 31, 2014	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	242	$	—	$	—	$	242
Commercial paper		—		1,800		—		1,800
Short term marketable investments:
Available-for-sale securities		—		71,343		—		71,343
Total assets at fair value	$	242	$	73,143	$	—	$	73,385

December 31, 2013	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	9,926	$	—	$	—	$	9,926
Commercial paper		—		2,500		—		2,500
Short term marketable investments:
Available-for-sale securities		—		66,831		—		66,831
Total assets at fair value	$	9,926	$	69,331	$	—	$	79,257

The Company’s Level 1 financial assets are money market funds with fair values are based on quoted market prices 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 December 31, 2014 is less than 36 months and all of these investments are rated by S&P and Moody’s at A or better.

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 Auction Rate Securities, for the year ended December 31, 2012 (in thousands):

	Amount
Balance at December 31, 2011	$	3,027
Total gains or losses (realized or unrealized)
Included in other comprehensive income (loss)		262
Settlements		(3,289	)
Balance at December 31, 2012, 2013 and 2014	$	—

At December 31, 2014, the Company evaluated the fair values of its intangible assets, which are classified within Level 3 of the fair value hierarchy. With respect to the purchased intangible assets associated with the Iridex acquisition in 2012, the Company determined that there was impairment in the value of these intangible assets based on an undiscounted cash flow model. Based on a discounted cash flow model, we measured the impairment of the purchased intangibles. This model relied on Level 3 inputs that included expected future cash flow streams as well as a market discount rate and is subject to uncertainties that are difficult to predict.

NOTE 3—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.

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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

The identifiable intangible assets and goodwill identified above shall be deductible for income taxes over a useful economic life of 15 years.

NOTE 4—BALANCE SHEET DETAIL

Inventories

Inventories consist of the following (in thousands):

	December 31,
	2014		2013
Raw materials	$	7,185	$	5,989
Finished goods		3,803		3,017
Total	$	10,988	$	9,006

Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	December 31,
	2014			2013
Leasehold improvements	$	641		$	625
Office equipment and furniture		2,964			3,285
Machinery and equipment		4,140			3,876
		7,745			7,786
Less: Accumulated depreciation		(6,284	)		(6,424	)
Property and equipment, net	$	1,461		$	1,362

Included in machinery and equipment are financed vehicles used by the Company’s North American sales employees. As of December 31, 2014 and 2013, the gross capitalized value of the leased vehicles was $647,000 and $577,000 and the related accumulated depreciation was $253,000 and $98,000, respectively.

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Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006, intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit, and, customer relationships in the Benelux countries acquired from a former distributor in 2013. The components of intangible assets at December 31, 2014 and 2013 were as follows (in thousands):

	Gross Carrying Amount		Accumulated Amortization & Impairment Amount		Net Amount
December 31, 2014
Patent sublicense	$	1,218	$	1,206	$	12
Customer relationship intangible related to acquisition		2,510		1,998		512
Other identified intangible assets related to acquisition		780		780		—
Other intangible		155		84		71
Goodwill		1,339		—		1,339
Total	$	6,002	$	4,068	$	1,934
December 31, 2013
Patent sublicense	$	1,218	$	1,068	$	150
Customer relationship intangible related to acquisition		2,510		962		1,548
Other identified intangible assets related to acquisition		780		607		173
Other intangible		155		6		149
Goodwill		1,339		—		1,339
Total	$	6,002	$	2,643	$	3,359

As of December 31, 2014, the Company evaluated the recoverability of its long-lived assets. Relating to the purchased intangible assets associated with the Iridex acquisition in 2012, due to the discontinuation of the manufacture and sale of all products acquired, lower than projected future Service revenue, and lower than projected revenue expected from the distributor relationships acquired, the Company concluded based on future undiscounted cash flows that the remaining carrying value of these assets was impaired. As a result, the Company recorded an impairment charge of $650,000 in cost of revenue.

Amortization expense (excluding the impairment charge described above) in 2014, 2013, and 2012 for intangible assets was $773,000, $702,000, and $1.2 million, respectively.

Based on intangible assets recorded at December 31, 2014, 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):

Year ending December 31,	Amount
2015	$	452
2016		142
2017		1
Total	$	595

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	2014		2013
Payroll and related expenses	$	5,533	$	4,753
Sales tax		1,789		1,307
Warranty		1,167		1,202
Other		2,518		2,066
Total	$	11,007	$	9,328

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NOTE 5—WARRANTY AND SERVICE CONTRACTS

The Company has a direct field service organization in the U.S. Internationally, the Company provides direct service support through its wholly-owned subsidiaries in Australia, Belgium, Canada, France and Japan as well as through a network of distributors and third-party service providers in several other countries where it does not have a direct presence. The Company provides a warranty with its products, depending on the type of product. After the original warranty period, maintenance and support are offered on a service contract basis or on a time and materials basis. The Company currently provides for the estimated cost to repair or replace products under warranty at the time of sale.

Warranty Accrual (in thousands)

	December 31,
	2014			2013
Balance at beginning of year	$	1,202		$	1,212
Add: Accruals for warranties issued during the year		2,497			3,420
Less: Settlements made during the year		(2,532	)		(3,430	)
Balance at end of year	$	1,167		$	1,202

Deferred Service Contract Revenue (in thousands)

	December 31,
	2014			2013
Balance at beginning of year	$	11,637		$	8,539
Add: Payments received		13,913			15,026
Less: Revenue recognized		(12,601	)		(11,928	)
Balance at end of year	$	12,949		$	11,637

Costs incurred under service contracts in 2014, 2013 and 2012 amounted to $6.6 million, $6.9 million, and $7.2 million, respectively, and are recognized as incurred.

NOTE 6—STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION EXPENSE

As of December 31, 2014, the Company had the following stock-based employee compensation plans:

2004 Equity Incentive Plan and 1998 Stock Plan 

In 1998, the Company adopted the 1998 Stock Plan, or 1998 Plan, under which 4,650,000 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants.

On January 12, 2004, the Board of Directors adopted the 2004 Equity Incentive Plan. A total of 1,750,000 shares of common stock were originally reserved for issuance pursuant to the 2004 Equity Incentive Plan. In addition, the shares reserved for issuance under the 2004 Equity Incentive Plan included shares reserved but un-issued under the 1998 Plan and shares returned to the 1998 Plan as the result of termination of options or the repurchase of shares. In 2012 the stockholders approved a “fungible share” provision whereby each full-value award issued under the 2004 Equity Incentive Plan results in a requirement to subtract 2.12 shares from the shares reserved under the Plan.

Options granted under the 1998 Plan and 2004 Equity Incentive Plan may be incentive stock options or non-statutory stock options. Stock purchase rights may also be granted under the 2004 Equity Incentive Plan. Incentive stock options may only be granted to employees. The Board of Directors determines the period over which options become exercisable. Options granted under the Plan to employees generally vest over a four year term from the vesting commencement date and become exercisable 25% on the first anniversary of the vesting commencement date and an additional 1/48th on the last day of each calendar month until all of the shares have become exercisable. During 2013 and 2012 the officers of the Company were granted options that vest over a three year term at the rate of 1/3^rd on the one year anniversary of the vesting commencement date and 1/36^th thereafter. In 2014 the officers of the Company were granted RSUs and PSUs but were not granted any options. The contractual term of the options granted in 2013 and 2012 was seven years.

In accordance with the 2004 Equity Incentive Plan, prior to 2012, the Company’s non-employee directors were granted $60,000 of grant date fair value, fully vested, stock awards annually on the date of the Company’s Annual Meeting of stockholders. Commencing with 2012, the Company’s non-employee directors get $60,000 of RSUs annually that cliff-vest on the one year anniversary of the grant date. In the years ended December 31, 2014, 2013 and 2012, the Company issued 38,688, 40,674 and 52,938 shares of stock to its non-employee directors, respectively.

In the years ended December 31, 2014 and 2013, the Company’s Board of Directors granted 211,250 and 148,004, respectively, of RSUs to its executive officers and certain members of the Company’s management. The RSUs granted to the employees vest at the rate of one-fourth on the one-year anniversary of the grant date, and one-fourth in each of the subsequent three years. The RSUs granted to the executive officers vest at the rate of one-third on the one-year anniversary of the grant date, and one-third in each of the subsequent two years. The Company measured the fair market values of the underlying stock on the dates of grant and recognizes the stock-based compensation expense using the straight-line method over the vesting period.

In addition, in the years ended December 31, 2014 and 2013 the Company’s Board of Directors granted its executive officers and certain senior management employees 105,000 and 33,751 of PSUs that had a vesting date of June 30, 2015, and June 1, 2014, respectively, subject to the recipient’s continued service through that date and achievement of the pre-established performance objectives. At the vest date, the Company issues fully-paid up common stock, based on the degree of achievement towards pre-established targets. The Company’s targets were based on revenue and operating loss improvements, compared to the same period in the prior year. The Company recognizes stock based compensation expense over the requisite services period if it is probable that the performance goals will be met.

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2004 Employee Stock Purchase Plan

On January 12, 2004, the Board of Directors adopted the 2004 Employee Stock Purchase Plan. Under the 2004 Employee Stock Purchase Plan, or 2004 ESPP, eligible employees are permitted to purchase common stock at a discount through payroll deductions. The 2004 ESPP offering and purchase periods are for approximately six months. The 2004 ESPP has an evergreen provision based on which shares of common stock eligible for purchase are increased on the first day of each fiscal year by an amount equal to the lesser of:

i. 600,000 shares;

ii. 2.0% of the outstanding shares of common stock on such date; or

iii. an amount as determined by the Board of Directors.

The Company’s Board of Directors did not increase the shares available for future grant on January 1, 2014, 2013, 2012 and 2011. The price of the common stock purchased is the lower of 85% of the fair market value of the common stock at the beginning or end of a six month offering period. In the years ended December 31, 2014 and 2013, under the 2004 ESPP, the Company issued 52,759 and 51,338 shares, respectively. At December 31, 2014, 905,857 shares remained available for future issuance.

Option Activity

Activity under the 1998 Plan and 2004 Equity Incentive Plan is summarized as follows:

				Options Outstanding
	Shares Available For Grant			Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in $ millions)(1)
Balances as of December 31, 2011		474,537			3,549,022		$	9.92		4.6		0.4
Additional shares reserved(2)		1,910,000			—			—
Options granted		(921,500	)		921,500		$	7.04
Options exercised		—			(211,551	)	$	7.00
Options cancelled (expired or forfeited)		470,732			(470,732	)	$	9.45
Stock awards granted		(314,159	)		—			—
Stock awards cancelled (expired or forfeited)		24,746			—			—
Balances as of December 31, 2012		1,644,356			3,788,239		$	9.44		4.3	$	2.6
Options granted		(1,007,166	)		1,007,166		$	8.97
Options exercised		—			(612,210	)	$	8.16
Options cancelled (expired or forfeited)		391,033			(391,033	)	$	10.37
Stock awards granted		(399,997	)		—			—
Stock awards cancelled (expired or forfeited)		81,257			—			—
Balances as of December 31, 2013		709,483			3,792,162		$	9.42		4.2	$	5.1
Additional shares reserved(3)		200,000			—			—
Options granted		(486,300	)		486,300		$	9.78
Options exercised		—			(396,970	)	$	8.33
Options cancelled (expired or forfeited)		418,925			(418,925	)	$	11.15
Stock awards granted		(764,394	)		—			—
Stock awards cancelled (expired or forfeited)		52,046			—			—
Balances as of December 31, 2014		129,760			3,462,567		$	9.39		3.4	$	5.7
Exercisable as of December 31, 2014					2,330,762		$	9.62		2.7	$	3.7
Expected to vest, net of estimated forfeitures, as of December 31, 2014					909,562		$	8.86		4.96	$	1.7

(1)	Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(2)	Approved by stock holders in 2012.
(3)	Approved by Board of Directors in 2014, subject to stock holder’s approval in 2015.

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The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the Company’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. The aggregate intrinsic amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised in 2014, 2013 and 2012 was $824,000, $2.1 million, and $397,000, respectively. The options outstanding and exercisable at December 31, 2014 were in the following exercise price ranges:

		Options Outstanding			Options Exercisable
Range of Exercise Price		Number Outstanding	Weighted-Average Remaining Contractual Life (in years)		Number Outstanding		Weighted-Average Exercise Price
$	6.54	17,125		1.30		17,125	$	6.54
$	6.88	460,530		4.37		278,266		6.88
$	7.11–$ 8.66	442,525		1.63		428.942		8.53
$	8.72	473,989		3.21		431,615		8.72
$	8.80	553,795		5.08		196,926		8.80
$	8.81–$9.65	432,778		5.47		114,960		9.15
$	9.74–$10.03	183,000		4.66		28,000		9.74
$	10.24	441,325		2.21		441,325		10.24
$	10.32–$14.78	354,500		1.36		290,603		11.14
$	16.25–$25.73	103,000		0.81		103,000		20.93
$	6.54–$25.73	3,462,567		3.42		2,330,762	$	9.62

As of December 31, 2013 there were 2,221,657 options that were exercisable at a weighted average exercise price of $10.14. 

Stock Awards (RSU and PSU) Activity Table

Information with respect to restricted stock units’ and performance stock units’ activity is as follows (in thousands):

	Number of Shares			Weighted-Average Grant- Date Fair Value		Aggregate Fair Value(1) (in thousands)			Aggregate Intrinsic Value(2) (in thousands)
Outstanding at December 31, 2011		55,253		$	9.55				$	412
Granted		148,188		$	6.85
Vested(3)		(41,522	)	$	9.79	$	279	(4)
Forfeited		(13,210	)	$	7.39
Outstanding at December 31, 2012		148,709		$	6.99				$	1,338
Granted		188,678		$	8.94
Vested(3)		(119,505	)	$	7.68	$	1,091	(5)
Forfeited		(38,417	)	$	8.11
Outstanding at December 31, 2013		179,465		$	8.34				$	1,827
Granted		360,563		$	9.72
Vested (3)		(81,157	)	$	8.62	$	777	(6)
Forfeited		(24,550	)	$	8.14
Outstanding at December 31, 2014		434,321		$	9.31				$	4,639

(1)	Represents the value of the Company’s stock on the date that the restricted stock units vest.
(2)	Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(3)	The number of restricted stock units vested includes shares that the Company withheld on behalf of the employees to satisfy the statutory tax withholding requirements.
(4)	On the grant date, the fair value for these vested awards was $407,000.
(5)	On the grant date, the fair value for these vested awards was $917,000.
(6)	On the grant date, the fair value for these vested awards was $699,000.

Performance Stock Units

In 2014 and 2013, the Company granted its executive officers and certain senior management 105,000 and 33,751 PSUs that vest on June 30, 2015 and June 1, 2014, respectively, subject to the recipient’s continued service through that date. At the vest date, the Company issues fully-paid up common stock based on the percentage achievement of each performance goal. For the July 1, 2014 to June 30, 2015 PSUs, there are three performance goals. For the June 1, 2013 to May 30, 2014 PSUs, there were also three performance goals, related to Company revenue and profitability targets, based on which the Company issued 5,625 shares of common stock on June 1, 2014.

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Stock-Based Compensation

Stock-based compensation expense for stock options, restricted stock units, stock awards and ESPP shares for the year ended December 31, 2014, 2013 and 2012 was as follows (in thousands):

	Year Ended December 31,
	2014		2013		2012
Stock options	$	1,811	$	2,201	$	2,421
RSUs		875		631		501
PSUs		455		162		138
ESPP		158		116		100
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

As of December 31, 2014, the unrecognized compensation cost, net of expected forfeitures, was $4.9 million for stock options and stock awards, which will be recognized using the straight-line attribution method over an estimated weighted-average remaining amortization period of 2.31 years. For the ESPP, the unrecognized compensation cost, net of expected forfeitures, was $59,000, which will be recognized using the straight- line attribution method over an estimated weighted-average amortization period 0.33 years.

The Company issues new shares of common stock upon the exercise of stock options, vesting of RSUs and PSUs, and the issuance of ESPP shares. The amount of cash received from these issuances, net of taxes withheld and paid, in 2014, 2013 and 2012 was $3.6 million, $5.2 million and $1.7 million. The total direct tax benefit realized, including the excess tax benefit, from stock-based award activity was $6,000 in 2012. There was no direct tax benefit (deficit) in 2013 or 2014. The Company elected to account for the indirect effects of stock-based awards—primarily the research and development tax credit—through the Statement of Operations.

Total stock-based compensation expense recorded by department during the year ended December 31, 2014, 2013 and 2012 was as follows (in thousands):

	Year Ended December 31,
	2014		2013		2012
Cost of revenue	$	560	$	638	$	658
Sales and marketing		641		744		657
Research and development		581		397		514
General and administrative		1,517		1,331		1,331
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

Valuation Assumptions and Fair Value of Stock Options and ESPP Grants

The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted under its equity incentive plans and rights to acquire stock granted under its employee stock purchase plan. The Company based the weighted average estimated values of employee stock option grants and rights granted under the employee stock purchase plan, as well as the weighted average assumptions used in calculating these values, on estimates at the date of grant, as follows:

	Stock Options									Stock Purchase Plan
	2014			2013			2012			2014			2013			2012
Expected term (in years)(1)		4.18			4.30			4.17			0.50			0.50			0.50
Risk-free interest rate(2)		1.31	%		1.13	%		0.45	%		0.06	%		0.08	%		0.15	%
Volatility(3)		41	%		43	%		44	%		37	%		44	%		43	%
Dividend yield(4)		—	%		—	%		—	%		—	%		—	%		—	%
Weighted average estimated fair value at grant date	$	3.36		$	3.22		$	2.47		$	2.65		$	2.84		$	2.16

(1)	The expected term represents the period during which the Company’s stock-based awards are expected to be outstanding. The estimated term is based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.
(2)	The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.
(3)	Estimated volatility is based on historical volatility. The Company also considers implied volatility when there is sufficient volume of freely traded options with comparable terms and exercise prices in the open market.
(4)	The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.

The Company periodically estimates forfeiture rates based on its historical experience within separate groups of employees and adjusts the stock-based payment expense accordingly.

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RSU Withholdings

For RSUs granted to employees, the number of shares issued on the date the RSUs vest is net of the tax withholding requirements paid on behalf of the employees. In 2014, 2013 and 2012, the Company withheld 15,769, 24,249, and 14,974 shares of common stock, respectively, to satisfy its employees’ tax obligations of $156,000, $222,000, and $101,000, respectively. The Company paid this amount in cash to the appropriate taxing authorities. Although shares withheld are not issued, they are treated as common stock repurchases for accounting and disclosure purposes, as they reduce the number of shares that would have been issued upon vesting.

Share Repurchase Program

On August 5, 2013, the Company’s Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in November 2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased. As modified, the stock buyback program permits the Company to purchase an aggregate of $20 million of its common stock through a 10b5-1 program based on predetermined pricing and volume as well as open-market purchases that are subject to management discretion and regulatory restrictions

In the year ended December 31, 2013, the Company repurchased 1,060,447 shares of its common stock at an average price of $9.43 per share, for approximately $10.0 million. The Company did not repurchase any shares of its common stock in 2014. As of December 31, 2014, there remained an additional $10.0 million of the Company's common stock to be purchased under the modified stock buyback program. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company's common stock, regulatory restrictions, and general market and business conditions.

On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock. The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.

NOTE 7—INCOME TAXES

The Company files income tax returns in the U.S. federal and various state and local jurisdictions and foreign jurisdictions. The Company’s loss before provision for income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2014			2013			2012
U.S.	$	(10,592	)	$	(4,919	)	$	(6,767	)
Foreign		199			118			437
Loss before income taxes	$	(10,393	)	$	(4,801	)	$	(6,330	)

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	(7	)	$	(329	)	$	(13	)
State		19			7			(56	)
Foreign		110			159			366
		122			(163	)		297
Deferred:
Federal		32			33			(12	)
State		—			—			—
Foreign		65			76			(67	)
		97			109			(79	)
Tax (benefit) provision	$	219		$	(54	)	$	218

The Company’s deferred tax asset consists of the following (in thousands):

	December 31,
	2014			2013
Net operating loss	$	12,138		$	11,014
Stock-based compensation		3,884			3,806
Other accruals and reserves		4,735			3,686
Credits		3,808			3,121
Foreign		295			360
Accrued warranty		417			441
Depreciation and amortization		998			224
Other		66			470
Deferred tax asset before valuation allowance		26,341			23,122
Valuation allowance		(26,046	)		(22,762	)
Deferred tax asset after valuation allowance		295			360
Deferred tax liability on goodwill		(71	)		(39	)
Net deferred tax asset	$	224		$	321

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The Company’s deferred tax asset balance is reported in the following captions in the Consolidated Balance Sheets (in thousands):

	December 31,
	2014			2013
Deferred tax asset (current portion)	$	26		$	31
Deferred tax asset, net of current portion		269			329
Accrued liabilities (non-current deferred tax liability)		(71	)		(39	)
Net deferred tax asset after valuation allowance	$	224		$	321

The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:

	Year Ended December 31,
	2014			2013			2012
U.S. federal statutory income tax rate		34.00	%		35.00	%		35.00	%
State tax rate, net of federal benefit		1.62			1.57			3.28
Benefit for research and development credit		7.24			19.91			3.40
Foreign rate differential		(1.04	)		(4.53	)		(1.49	)
Changes in unrecognized tax benefits		(0.53	)		2.60			1.06
Foreign income inclusion		—			—			(0.05	)
Income tax refund		0.08			0.19			1.07
Stock-based compensation		(5.56	)		(34.33	)		(21.31	)
Meals and entertainment		(1.11	)		(2.10	)		(1.68	)
Tax effect of other comprehensive income		—			—			0.28
Valuation allowance		(36.58	)		(17.82	)		(21.15	)
Other		(0.22	)		0.63			(1.86	)
Effective tax rate		(2.10	)%		1.12	%		(3.45	)%

The Company recognizes deferred tax assets for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. The Company records a valuation allowance to reduce the deferred tax assets to their estimated realizable value, when it is more likely than not that it will not be able to generate sufficient future taxable income to realize the net carrying value. The Company has recorded a full valuation allowance against its U.S. federal and state deferred tax assets due to its history of operating losses. In the years ended December 31, 2014, 2013 and 2012, there was a net increase in the valuation allowance of $3.3 million, $0.9 million, and $1.4 million, respectively.

As of December 31, 2014, the Company had cumulative net operating loss carry-forwards for federal and state income tax reporting purposes of approximately $34.3 million and $10.4 million, respectively. The federal net operating loss carry-forwards expire through the year 2034 and the state net operating loss carry-forwards expire at various dates through the year 2033. The Company maintained a valuation allowance against these net operating loss carry-forwards as of December 31, 2014.

As of December 31, 2014, the Company had research and development tax credits for federal and state income tax purposes of approximately $4.2 million and $5.1 million, respectively. The federal research and development tax credits expire through the year 2034. The state research and development credits can be carried forward indefinitely, except for $284,000, which will expire at various dates through the year 2020. The Company maintained a valuation allowance against these tax credits as of December 31, 2014.

Included in the net operating loss and research and development tax credit carryforwards are approximately $4.2 million of excess tax benefits from employee stock option exercises, for which the Company has not recorded a deferred tax asset. When such excess tax benefits are ultimately realized, the Company will record the deferred tax asset and the credit to additional paid in capital.

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Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 of the Internal Revenue Code. Similar rules may apply under state tax laws. The Company has not conducted a study to-date to assess whether a limitation would apply under Section 382 of the Internal Revenue Code as and when it starts utilizing its net operating losses and tax credits. The Company will continue to monitor activities in the future. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

Undistributed earnings of the Company’s foreign subsidiaries at both December 31, 2014 and 2013 were approximately $2.6 million, are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes has been provided thereon. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability would be reduced by any foreign income taxes previously paid on these earnings. Because of the availability of U.S. foreign tax credits, the determination of the unrecognized deferred tax liability on these earnings is not practicable.

Uncertain Tax Positions

The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax years. If the Company ultimately determines that payment of these amounts are not more-likely-than-not, the Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the determination. The Company will record an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the ultimate assessment to be. The Company’s policy is to include interest and penalties related to gross unrecognized tax benefits within the provision for income taxes.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2004 through 2014 tax years generally remain subject to examination by U.S., federal and California state tax authorities due to the Company’s net operating loss and credit carryforwards. For significant foreign jurisdictions, the 2009 through 2014 tax years generally remain subject to examination by their respective tax authorities.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits in December 31, 2012 to December 31, 2014 (in thousands):

	Year Ended December 31,
	2014		2013			2012
Balance at beginning of year	$	535	$	536		$	583
Increases related to prior year tax positions		—		36			—
Increases related to current year tax positions		62		116			29
Decreases related to lapsing of statute of limitations		—		(153	)		(76	)
Balance at end of year	$	597	$	535		$	536

The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate at December 31, 2014 and 2013, were approximately $33,000. As of December 31, 2014 and 2013, the Company had accrued approximately $41,000 and $37,000 for payment of interest, respectively. Interest included in the provision for income taxes was not significant in all the periods presented. The Company has not accrued any penalties related to its uncertain tax positions as it believes that it is more likely than not that there will not be any assessment of penalties. The Company expects that the amount of unrecognized tax benefits will not materially change within the next 12 months.

NOTE 8—NET LOSS PER SHARE

Diluted earnings per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would be anti-dilutive. The following number of weighted 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 years presented because including them would have had an anti-dilutive effect (in thousands):

	Year Ended December 31,
	2014		2013		2012
Options to purchase common stock		3,489		3,830		3,746
Restricted stock units		213		173		97
Employee stock purchase plan shares		86		72		78
Performance stock units		37		34		8
Total		3,825		4,109		3,929

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NOTE 9—DEFINED CONTRIBUTION PLAN

In the U.S., the Company has an employee savings plan (“401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary contributions to the 401(k) Plan up to 100% of their annual compensation, subject to statutory annual limitations. In 2014, 2013 and 2012, the Company made discretionary contributions under the 401(k) Plan of $211,000, $184,000 and $146,000 respectively.

For the Company’s Japanese subsidiary, it has established an employee retirement plan at its discretion. In addition, for some of the Company’s other foreign subsidiaries, the Company deposits funds with insurance companies, third-party trustees, or into government-managed accounts consistent with the requirements of local laws. The Company has fully funded or accrued for its obligations as of December 31, 2014, and the related expense for each of the three years then ended was not significant.

NOTE 10—SEGMENT INFORMATION AND REVENUE BY GEOGRAPY AND PRODUCTS

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company’s chief decision maker, as defined under the FASB’s ASC 280 guidance, is a combination of the Chief Executive Officer and the Executive Vice President and Chief Financial Officer. To date, the Company has viewed its operations, managed its business, and used one measurement of profitability for the one operating segment – the sale of aesthetic medical equipment and services, and distribution of cosmeceutical and dermal filler products, to qualified medical practitioners. In addition, substantially all of the Company’s long-lived assets are located in the U.S.

The following table summarizes revenue by geographic region, which is based on the shipping location of where the product is delivered, and product category (in thousands):

	Year Ended December 31,
	2014		2013		2012
Revenue mix by geography:
United States	$	35,494	$	31,487	$	31,949
Japan		13,328		14,205		17,826
Asia, excluding Japan		11,023		11,263		8,902
Europe		7,792		7,358		4,958
Rest of the world		10,501		10,281		13,642
Consolidated total	$	78,138	$	74,594	$	77,277
Revenue mix by product category:
Products and upgrades	$	53,106	$	48,374	$	49,605
Titan and truSculpt hand piece refills		3,714		4,267		4,807
Dermal filler and cosmeceuticals		3,479		4,264		5,645
Total product revenue		60,299		56,905		60,057
Service		17,839		17,689		17,220
Consolidated total	$	78,138	$	74,594	$	77,277

NOTE 11—COMMITMENTS AND CONTINGENCIES

Facility Leases

As of December 31, 2014, the Company was committed to minimum lease payments for facilities and other leased assets under long-term non-cancelable operating leases as follows (in thousands):

Year Ending December 31,	Amount
2015	$	1,821
2016		1,745
2017		1,722
2018		78
2019		2
Future minimum rental payments	$	5,368

Gross rent expense in 2014, 2013 and 2012 was $1.5 million, $1.6 million and $1.6 million, respectively.

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Vehicle Leases

As of December 31, 2014, the Company was committed to minimum lease payments for leased vehicles under long-term non-cancelable capital leases as follows (in thousands):

Year Ending December 31,	Amount
2015	$	167
2016		211
2017		24
Future minimum lease payments	$	402

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 December 31, 2014 or 2013.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations, warranties, and indemnification obligations. For example, the Company has entered into indemnification agreements with each of its directors and executive officers and certain key employees. The Company’s exposure under its various indemnification obligations is unknown and not reasonably estimable as they involve future claims that may be made against the Company. As such, the Company has not accrued any amounts for such obligations.

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 December, 2014, the Company had accrued $74,000 related to pending product liability and contractual lawsuits.

NOTE 12—SUBSEQUENT EVENTS

On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock. The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.

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SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)

(In thousands, except per share amounts)

Quarter ended:	Dec. 31, 2014			Sept. 30, 2014			June 30, 2014			March 31, 2014			Dec. 31, 2013			Sept. 30, 2013			June 30, 2013			March 31, 2013
Net revenue	$	25,499		$	18,726		$	17,724		$	16,189		$	22,239		$	16,828		$	19,560		$	15,967
Cost of revenue		11,679			7,935			7,848			7,303			9,202			7,651			8,442			7,417
Gross profit		13,820			10,791			9,876			8,886			13,037			9,177			11,118			8,550
Operating expenses:
Sales and marketing		9,356			7,805			7,754			7,331			7,804			6,554			7,170			6,456
Research and development		2,649			2,628			2,622			2,644			2,438			2,440			2,217			2,121
General and administrative		3,407			2,897			2,335			2,564			3,135			2,160			2,354			2,289
Total operating expenses		15,412			13,330			12,711			12,539			13,377			11,154			11,741			10,866
Income (loss) from operations		(1,592	)		(2,539	)		(2,835	)		(3,653	)		(340	)		(1,977	)		(623	)		(2,316	)
Interest and other income, net		8			—			138			80			105			140			75			135
Income (loss) before income taxes		(1,584	)		(2,539	)		(2,697	)		(3,573	)		(235	)		(1,837	)		(548	)		(2,181	)
Income tax provision (benefit)		41			97			44			37			43			(169	)		90			(18	)
Net income (loss)	$	(1,625	)	$	(2,636	)	$	(2,741	)	$	(3,610	)	$	(278	)	$	(1,668	)	$	(638	)	$	(2,163	)
Net income (loss) per share—basic	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Net income (loss) per share—diluted	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Weighted average number of shares used in per share calculations:
Basic		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408
Diluted		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408

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SCHEDULE II

CUTERA, INC.

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

For the Years Ended December 31, 2014, 2013 and 2012

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Deferred tax assets valuation allowance
Year ended December 31, 2014	$	22,762	$	3,780	$	496	$	26,046
Year ended December 31, 2013	$	21,907	$	3,437	$	2,582	$	22,762
Year ended December 31, 2012(1)	$	20,551	$	1,773	$	417	$	21,907

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Allowance for doubtful accounts receivable
Year ended December 31, 2014	$	19	$	4	$	23	$	—
Year ended December 31, 2013	$	—	$	19	$	—	$	19
Year ended December 31, 2012	$	8	$	66	$	74	$	—

(1)The Company revised the deferred tax assets valuation allowance balance for calendar year 2012 as a result of revisions to its deferred tax assets relating to stock-based compensation and the resulting valuation allowance for them. These changes had no impact to the Company’s balance sheets, statement of operations, earnings per share, statement of cash flows, or statement of equity for any period presented. The beginning balance for 2012 was reduced by $723,000, and the deductions for the year were increased by $276,000, which resulted in a net change in the ending balance for the year by $999,000.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Attached as exhibits to this Annual Report are certifications of the Company’s 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.

The Company 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 the Company’s management, including the CEO and CFO. Based on this evaluation, the CEO and our CFO have concluded that as of the end of the period covered by this report the Company’s 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 the Company’s 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 the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its 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 the Company’s internal control over financial reporting are included within its Disclosure Controls, they are included in the scope of the Company’s annual controls evaluation.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2014. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by BDO USA LLP, an Independent Registered Public Accounting Firm, as stated in their report, which is included herein.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that the Company’s 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, within the Company 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.

Changes in Internal Control over Financial Reporting

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of Cutera, Inc.

We have audited Cutera, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cutera, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Cutera, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Cutera, Inc.' as of December 31, 2014 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2014 and our report dated March 16, 2015 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

San Jose, California

March 16, 2015

ITEM 9B. OTHER INFORMATION

The Company has established that the 2015 Annual Meeting of Stockholders will be held at its principal executive offices located at 3240 Bayshore Blvd., Brisbane, CA 94005-1021 on June 17, 2015 at 10:00 a.m. and the record date for the purposes of voting in that meeting shall be April 21, 2015.

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PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a Definitive Proxy Statement (the “Proxy Statement”) for our 2015 Annual Meeting of Stockholders with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2014.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated herein by reference to the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the Proxy Statement.

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 PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(1) The financial statements required by Item 15(a) are filed as Item 8 of this annual report.

(2) The financial statement schedule required by Item 15(a) filed as Item 8 of this annual report.

(3) 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(4)	Specimen Common Stock certificate of the Registrant.
10.1(1)	Form of Indemnification Agreement for directors and executive officers.
10.2(1)	1998 Stock Plan.
10.4(5)	2004 Employee Stock Purchase Plan.
10.6(1)	Brisbane Technology Park Lease dated August 5, 2003 by and between the Registrant and Gal-Brisbane, L.P. for office space located at 3240 Bayshore Boulevard, Brisbane, California.
10.10(2)	Settlement Agreement and Non-Exclusive Patent License, each between the Registrant and Palomar Medical Technologies, Inc. dated June 2, 2006.
10.11(3)	Form of Performance Unit Award Agreement.
10.14(6)	2004 Equity Incentive Plan, as amended by its Board of Directors on April 27, 2012.
10.19(7)	First Amendment to Brisbane Technology Park Lease dated August 11, 2010 by and between the Company and BMR-Bayshore Boulevard LLC, as successor-in-interest to Gal-Brisbane, L.P., the original landlord, for office space located at 3240 Bayshore Boulevard.
16.1(8)	Letter regarding change in certifying accountants.
23.1(9)	Consent of Independent Registered Public Accounting Firm.
23.2(9)	Consent of Independent Registered Public Accounting Firm.
24.1	Power of Attorney.
31.1(9)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(9)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(9)	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(9)	The following materials from Cutera Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii)Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statement of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged at Level I through IV.

(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 Current Report on Form 8-K filed on June 2, 2006.
(3)	Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2005.
(4)	Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 8, 2006.
(5)	Incorporated by reference from our 2006 Annual Report on Form 10-K filed on March 16, 2007.
(6)	Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on April 30, 2012.
(7)	Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 1, 2010.
(8)	Incorporated by reference from Current Report on Form 8-K filed April, 2, 2014.
(9)	Filed herewith.

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SIGNATURES

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 16th day of March, 2015.

CUTERA, INC.
By:	/s/ KEVIN P. CONNORS
	Kevin P. Connors
	President and Chief Executive Officer

Power of Attorney

KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin P. Connors, his attorney-in-fact, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ KEVIN P. CONNORS		March 16, 2015
Kevin P. Connors	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ RONALD J. SANTILLI		March 16, 2015
Ronald J. Santilli	Executive Vice President and Chief Financial Officer (Principal Accounting Officer)
/s/ DAVID B. APFELBERG		March 16, 2015
David B. Apfelberg	Director
/s/ GREGORY A. BARRETT		March 16, 2015
Gregory A. Barrett	Director
/s/ DAVID A. GOLLNICK		March 16, 2015
David A. Gollnick	Director
/s/ J. DANIEL PLANTS		March 16, 2015
J. Daniel Plants	Director
/s/ CLINT H. SEVERSON		March 16, 2015
Clint H. Severson	Director
/s/ TIM O’SHEA		March 16, 2015
Tim O’Shea	Director
/s/ JERRY P. WIDMAN		March 16, 2015
Jerry P. Widman	Director

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Cutera, Inc.

Brisbane, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-114149, 333-123495, 333-132583, 333-141376, 333-149703, 333-158160 and 333-187502) of Cutera, Inc. of our reports dated March 16, 2015, relating to the consolidated financial statements and financial statement schedule, and the effectiveness of Cutera, Inc.’s internal control over financial reporting, which appear in this Form 10-K.

/s/ BDO USA, LLP

San Jose, California

March 16, 2015

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-114149, 333-123495, 333-132583, 333-141376, 333-149703, 333-158160, and 333-187502) of Cutera, Inc. of our report dated March 17, 2014, with respect to the consolidated financial statements and schedule of Cutera, Inc. as of December 31, 2013 and for each of the two years in the period ended December 31, 2013 included in this Annual Report (Form 10-K) for the year ended December 31, 2014.

/s/ Ernst & Young LLP

San Jose, California

March 16, 2015

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 15 U.S.C. SECTION 7241, AS

ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin P. Connors, certify that:

1. I have reviewed this annual report on Form 10-K 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 fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2015	/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 15 U.S.C. SECTION 7241, AS

ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald J. Santilli, certify that:

1. I have reviewed this annual report on Form 10-K 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 fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2015	/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

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

In connection with the annual report on Form 10-K of Cutera, Inc. a Delaware corporation, for the period ended December 31, 2014, as filed with the Securities and Exchange Commission, each of the undersigned officers of Cutera, Inc. certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his respective knowledge:

(1) the annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of Cutera, Inc. for the periods presented therein.

Date: March 16, 2015	/s/ Kevin P. Connors
	Kevin P. Connors
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

Date: March 16, 2015	/s/ Ronald J. Santilli
	Ronald J. Santilli
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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Note 2 - Investment Securities (Details) - Cash, Cash Equivalents and Marketable Securities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash and cash equivalents:
Cash	$ 7,761	$ 3,816
Cash equivalents:
Total cash and cash equivalents	9,803	16,242	23,546	14,020
Marketable securities:
Marketable securities	71,343	66,831
Total cash, cash equivalents and marketable securities	81,146	83,073
US Treasury and Government [Member]
Marketable securities:
Marketable securities	18,361	10,522
US Government Agencies Debt Securities [Member]
Marketable securities:
Marketable securities	19,800	25,858
US States and Political Subdivisions Debt Securities [Member]
Marketable securities:
Marketable securities	3,607	2,039
Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Marketable securities:
Marketable securities	10,695	10,242
Corporate Debt Securities [Member]
Marketable securities:
Marketable securities	18,880	18,170
Money Market Funds [Member]
Cash equivalents:
Cash equivalents	242	9,926
Commercial Paper [Member]
Cash equivalents:
Cash equivalents	$ 1,800	$ 2,500

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Note 5 - Warranty and Service Contracts (Details) - Deferred Service Contract Revenue (Nonsoftware Service, Support and Maintenance Arrangement [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Nonsoftware Service, Support and Maintenance Arrangement [Member]
Deferred Revenue Arrangement [Line Items]
Balance at beginning of year	$ 11,637	$ 8,539
Add: Payments received	13,913	15,026
Less: Revenue recognized	(12,601)	(11,928)
Balance at end of year	$ 12,949	$ 11,637

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Note 4 - Balance Sheet Detail (Details) - Property and Equipment (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property, plany and equipment, gross	$ 7,745	$ 7,786
Less: Accumulated depreciation	(6,284)	(6,424)
Property and equipment, net	1,461	1,362
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plany and equipment, gross	641	625
Equipment and Furniture [Member]
Property, Plant and Equipment [Line Items]
Property, plany and equipment, gross	2,964	3,285
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plany and equipment, gross	$ 4,140	$ 3,876

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Note 9 - Defined Contribution Plan (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 9 - Defined Contribution Plan (Details) [Line Items]
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 211,000	$ 184,000	$ 146,000
Maximum [Member]
Note 9 - Defined Contribution Plan (Details) [Line Items]
Defined Contribution Plan, Maximum Percentage of Employee Voluntary Contribution	100.00%

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) (USD $)	12 Months Ended			0 Months Ended	12 Months Ended	13 Months Ended	0 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Jun. 02, 2014	May 30, 2014	Jun. 30, 2015	Aug. 05, 2013	Dec. 31, 2011	Feb. 18, 2015	Dec. 30, 2013
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	$ 824,000	$ 2,100,000	$ 397,000
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options (in Shares)		2,221,657
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Exercise Price (in Dollars per share)		$ 10.14
Proceeds from Issuance of Shares under Incentive and Share-based Compensation Plans, Including Stock Options	3,602,000	5,189,000	1,667,000
Employee Service Share-based Compensation, Tax Benefit Realized from Exercise of Stock Options	0	0	6,000
Shares Paid for Tax Withholding for Share Based Compensation (in Shares)	15,769	24,249	14,974
Adjustments Related to Tax Withholding for Share-based Compensation	156,000	222,000	101,000
Employee Stock Option [Member] | 2004 Equity Incentive Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		4 years
Options Exercisable in Hundredths		25.00%
Share Price (in Dollars per share)	$ 10.68	$ 10.18	$ 9.00					$ 7.45
Employee Stock Option [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years	3 years
Option Granted, Contractual Term	7 years	7 years	7 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	4,900,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 113 days
Restricted Stock Units (RSUs) [Member] | 2004 Equity Incentive Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation by Share-based Payment, Fully Vested Stock Awards, Grant Date Fair Value		60,000
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period (in Shares)	211,250	148,004
Restricted Stock Units (RSUs) [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share Price (in Dollars per share)	$ 10.68	$ 10.18	$ 9.00					$ 7.45
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	407,000	917,000	699,000
Performance Shares [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in Shares)	105,000	33,751		5,625
Number of Revenue-Based Performance Goals					3	3
Stock Purchase Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
ESPP Offering and Purchase Period		6 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	59,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	120 days
Subsequent Event [Member] | Modified Stock Buyback Program [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Stock Repurchase Program, Remaining Authorized Repurchase Amount									40,000,000
1998 Stock Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)	4,650,000
2004 Equity Incentive Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)	1,750,000
Fungible Share Provision (in Shares)	2.12
Share-based Compensation by Share-based Payment, Fully Vested Stock Awards, Grant Date Fair Value										60,000
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures (in Shares)	38,688	40,674	52,938
2004 Employee Stock Purchase Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
ESPP Offering and Purchase Period		6 months
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in Shares)		600,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent		85.00%
Stock Issued During Period, Shares, Employee Stock Ownership Plan (in Shares)	52,759	51,338
Common Stock, Capital Shares Reserved for Future Issuance (in Shares)	905,857
Modified Stock Buyback Program [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) [Line Items]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Exercise Price (in Dollars per share)		$ 9.43
Increase in Authorized Amount Under Stock Repurchase Plan							10,000,000
Stock Repurchase Program, Authorized Amount							20,000,000
Stock Repurchased During Period, Shares (in Shares)		1,060,447
Treasury Stock, Value, Acquired, Cost Method		10,000,000
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 10,000,000

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Note 14 - Valuation and Qualifying Accounts (Details) (Valuation Allowance of Deferred Tax Assets [Member], USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2014	Dec. 31, 2013	Jan. 02, 2012	Dec. 31, 2011
Note 14 - Valuation and Qualifying Accounts (Details) [Line Items]
Valuation Allowances and Reserves, Balance	$ 21,907,000	[1]	$ 26,046,000	$ 22,762,000		$ 20,551,000	[1]
Valuation Allowances and Reserves, Deductions	417,000	[1]	496,000	2,582,000
Restatement Adjustment [Member]
Note 14 - Valuation and Qualifying Accounts (Details) [Line Items]
Valuation Allowances and Reserves, Balance	(999,000)				(723,000)
Valuation Allowances and Reserves, Deductions	$ 276,000

[1] The Company revised the deferred tax assets valuation allowance balance for calendar year 2012 as a result of revisions to its deferred tax assets relating to stock-based compensation and the resulting valuation allowance for them. These changes had no impact to the Company's balance sheets, statement of operations, earnings per share, statement of cash flows, or statement of equity for any period presented. The beginning balance for 2012 was reduced by $723,000, and the deductions for the year were increased by $276,000, which resulted in a net change in the ending balance for the year by $999,000.

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Note 4 - Balance Sheet Detail (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Disclosure Text Block Supplement [Abstract]
Capital Leased Assets, Gross	$ 647,000	$ 577,000
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	253,000	98,000
Impairment of Intangible Assets (Excluding Goodwill)	650,000
Amortization of Intangible Assets	$ 773,000	$ 702,000	$ 1,200,000

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Note 11 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Year Ending December 31,	Amount
2015	$	1,821
2016		1,745
2017		1,722
2018		78
2019		2
Future minimum rental payments	$	5,368

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Year Ending December 31,	Amount
2015	$	167
2016		211
2017		24
Future minimum lease payments	$	402

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Note 14 - Valuation and Qualifying Accounts (Details) - Summary of the Deferred Tax Assets Valuation Allowance (Valuation Allowance of Deferred Tax Assets [Member], USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013		Dec. 31, 2012
Valuation Allowance of Deferred Tax Assets [Member]
Deferred tax assets valuation allowance
Balance at Beginning of Year	$ 22,762,000	$ 21,907,000	[1]	$ 20,551,000	[1]
Additions	3,780,000	3,437,000		1,773,000	[1]
Deductions	496,000	2,582,000		417,000	[1]
Balance at End of Year	$ 26,046,000	$ 22,762,000		$ 21,907,000	[1]

[1] The Company revised the deferred tax assets valuation allowance balance for calendar year 2012 as a result of revisions to its deferred tax assets relating to stock-based compensation and the resulting valuation allowance for them. These changes had no impact to the Company's balance sheets, statement of operations, earnings per share, statement of cash flows, or statement of equity for any period presented. The beginning balance for 2012 was reduced by $723,000, and the deductions for the year were increased by $276,000, which resulted in a net change in the ending balance for the year by $999,000.

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Note 11 - Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
Operating Leases, Rent Expense	$ 1,500,000	$ 1,600,000	$ 1,600,000
Estimated Litigation Liability	$ 74,000

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Options Outstanding and Exercisable Price Ranges (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Exercisable, Number Outstanding (in Shares)		2,221,657
Options Exercisable, Weighted-Average Exercise Price		$ 10.14
Exercise Price Range 1 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.54
Options Outstanding, Number Outstanding (in Shares)	17,125
Options Outstanding, Weighted-Average Remaining Contractual Life	1 year 109 days
Options Exercisable, Number Outstanding (in Shares)	17,125
Options Exercisable, Weighted-Average Exercise Price	$ 6.54
Exercise Price Range 2 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.88
Options Outstanding, Number Outstanding (in Shares)	460,530
Options Outstanding, Weighted-Average Remaining Contractual Life	4 years 135 days
Options Exercisable, Number Outstanding (in Shares)	278,266
Options Exercisable, Weighted-Average Exercise Price	$ 6.88
Exercise Price Range 3 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 7.11
Range of Exercise Prices, Upper Limit	$ 8.66
Options Outstanding, Number Outstanding (in Shares)	442,525
Options Outstanding, Weighted-Average Remaining Contractual Life	1 year 229 days
Options Exercisable, Number Outstanding (in Shares)	428.942
Options Exercisable, Weighted-Average Exercise Price	$ 8.53
Exercise Price Range 4 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 8.72
Options Outstanding, Number Outstanding (in Shares)	473,989
Options Outstanding, Weighted-Average Remaining Contractual Life	3 years 76 days
Options Exercisable, Number Outstanding (in Shares)	431,615
Options Exercisable, Weighted-Average Exercise Price	$ 8.72
Exercise Price Range 5 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 8.80
Options Outstanding, Number Outstanding (in Shares)	553,795
Options Outstanding, Weighted-Average Remaining Contractual Life	5 years 29 days
Options Exercisable, Number Outstanding (in Shares)	196,926
Options Exercisable, Weighted-Average Exercise Price	$ 8.80
Exercise Price Range 6 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 8.81
Range of Exercise Prices, Upper Limit	$ 9.65
Options Outstanding, Number Outstanding (in Shares)	432,778
Options Outstanding, Weighted-Average Remaining Contractual Life	5 years 171 days
Options Exercisable, Number Outstanding (in Shares)	114,960
Options Exercisable, Weighted-Average Exercise Price	$ 9.15
Exercise Price Range 7 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 9.74
Range of Exercise Prices, Upper Limit	$ 10.03
Options Outstanding, Number Outstanding (in Shares)	183,000
Options Outstanding, Weighted-Average Remaining Contractual Life	4 years 240 days
Options Exercisable, Number Outstanding (in Shares)	28,000
Options Exercisable, Weighted-Average Exercise Price	$ 9.74
Exercise Price Range 8 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 10.24
Options Outstanding, Number Outstanding (in Shares)	441,325
Options Outstanding, Weighted-Average Remaining Contractual Life	2 years 76 days
Options Exercisable, Number Outstanding (in Shares)	441,325
Options Exercisable, Weighted-Average Exercise Price	$ 10.24
Exercise Price Range 9 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 10.32
Range of Exercise Prices, Upper Limit	$ 14.78
Options Outstanding, Number Outstanding (in Shares)	354,500
Options Outstanding, Weighted-Average Remaining Contractual Life	1 year 131 days
Options Exercisable, Number Outstanding (in Shares)	290,603
Options Exercisable, Weighted-Average Exercise Price	$ 11.14
Exercise Price Range 10 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 16.25
Range of Exercise Prices, Upper Limit	$ 25.73
Options Outstanding, Number Outstanding (in Shares)	103,000
Options Outstanding, Weighted-Average Remaining Contractual Life	295 days
Options Exercisable, Number Outstanding (in Shares)	103,000
Options Exercisable, Weighted-Average Exercise Price	$ 20.93
Exercise Price Range 11 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.54
Range of Exercise Prices, Upper Limit	$ 25.73
Options Outstanding, Number Outstanding (in Shares)	3,462,567
Options Outstanding, Weighted-Average Remaining Contractual Life	3 years 153 days
Options Exercisable, Number Outstanding (in Shares)	2,330,762
Options Exercisable, Weighted-Average Exercise Price	$ 9.62

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Note 12 - Subsequent Events (Details) (Modified Stock Buyback Program [Member], USD $) In Millions, unless otherwise specified	Feb. 18, 2015	Dec. 31, 2014
Note 12 - Subsequent Events (Details) [Line Items]
Stock Repurchase Program, Remaining Authorized Repurchase Amount		$ 10.0
Subsequent Event [Member]
Note 12 - Subsequent Events (Details) [Line Items]
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 40.0

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Note 13 - Supplementary Financial Data (Unaudited) (Details) - Supplementary Financial Data (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Supplementary Financial Data [Abstract]
Net revenue	$ 25,499	$ 18,726	$ 17,724	$ 16,189	$ 22,239	$ 16,828	$ 19,560	$ 15,967	$ 78,138	$ 74,594	$ 77,277
Cost of revenue	11,679	7,935	7,848	7,303	9,202	7,651	8,442	7,417	34,765	32,712	35,737
Gross profit	13,820	10,791	9,876	8,886	13,037	9,177	11,118	8,550	43,373	41,882	41,540
Sales and marketing	9,356	7,805	7,754	7,331	7,804	6,554	7,170	6,456	32,246	27,984	28,664
Research and development	2,649	2,628	2,622	2,644	2,438	2,440	2,217	2,121	10,543	9,216	8,427
General and administrative	3,407	2,897	2,335	2,564	3,135	2,160	2,354	2,289	11,203	9,938	11,276
Total operating expenses	15,412	13,330	12,711	12,539	13,377	11,154	11,741	10,866	53,922	47,138	48,367
Income (loss) from operations	(1,592)	(2,539)	(2,835)	(3,653)	(340)	(1,977)	(623)	(2,316)	(10,619)	(5,256)	(6,827)
Interest and other income, net	8		138	80	105	140	75	135
Income (loss) before income taxes	(1,584)	(2,539)	(2,697)	(3,573)	(235)	(1,837)	(548)	(2,181)	(10,393)	(4,801)	(6,330)
Income tax provision (benefit)	41	97	44	37	43	(169)	90	(18)	219	(54)	218
Net income (loss)	$ (1,625)	$ (2,636)	$ (2,741)	$ (3,610)	$ (278)	$ (1,668)	$ (638)	$ (2,163)	$ (10,612)	$ (4,747)	$ (6,548)
Net income (loss) per share—basic (in Dollars per share)	$ (0.11)	$ (0.18)	$ (0.19)	$ (0.26)	$ (0.02)	$ (0.11)	$ (0.04)	$ (0.15)
Net income (loss) per share—diluted (in Dollars per share)	$ (0.11)	$ (0.18)	$ (0.19)	$ (0.26)	$ (0.02)	$ (0.11)	$ (0.04)	$ (0.15)
Weighted average number of shares used in per share calculations:
Basic (in Shares)	14,425	14,334	14,231	14,021	14,016	14,541	14,723	14,408
Diluted (in Shares)	14,425	14,334	14,231	14,021	14,016	14,541	14,723	14,408

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Note 10 - Segment Information and Revenue by Geography and Products (Details)	12 Months Ended
	Dec. 31, 2014
Segment Reporting [Abstract]
Number of Operating Segments	1

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Note 2 - Investment Securities (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Investment [Table Text Block]

	December 31,
	2014		2013
Cash and cash equivalents:
Cash	$	7,761	$	3,816
Cash equivalents:
Money market funds		242		9,926
Commercial paper		1,800		2,500
Total cash and cash equivalents		9,803		16,242
Marketable securities:
U.S. government notes		18,361		10,522
U.S. government agencies		19,800		25,858
Municipal securities		3,607		2,039
Commercial paper		10,695		10,242
Corporate debt securities		18,880		18,170
Total marketable securities		71,343		66,831
Total cash, cash equivalents and marketable securities	$	81,146	$	83,073

Unrealized Gain (Loss) on Investments [Table Text Block]

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	9,803	$	—	$	—		$	9,803
Marketable investments
U.S. government notes		18,345		17		(1	)		18,361
U.S. government agencies		19,768		33		(1	)		19,800
Municipal securities		3,607		3		(3	)		3,607
Commercial paper		10,693		2		—			10,695
Corporate debt securities		18,875		13		(8	)		18,880
Total marketable securities		71,288		68		(13	)		71,343
Total cash, cash equivalents and marketable securities	$	81,091	$	68	$	(13	)	$	81,146

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	16,242	$	—	$	—		$	16,242
Marketable investments
U.S. government notes		10,516		11		(5	)		10,522
U.S. government agencies		25,823		38		(3	)		25,858
Municipal securities		2,043		1		(5	)		2,039
Commercial paper		10,239		3		—			10,242
Corporate debt securities		18,109		61		—			18,170
Total marketable securities		66,730		114		(13	)		66,831
Total cash, cash equivalents and marketable securities	$	82,972	$	114	$	(13	)	$	83,073

Investments Classified by Contractual Maturity Date [Table Text Block]

	Amount
Due in less than one year (fiscal year 2015)	$	37,023
Due in 1 to 3 years (fiscal year 2016 - 2017)		34,320
	$	71,343

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

December 31, 2014	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	242	$	—	$	—	$	242
Commercial paper		—		1,800		—		1,800
Short term marketable investments:
Available-for-sale securities		—		71,343		—		71,343
Total assets at fair value	$	242	$	73,143	$	—	$	73,385

December 31, 2013	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	9,926	$	—	$	—	$	9,926
Commercial paper		—		2,500		—		2,500
Short term marketable investments:
Available-for-sale securities		—		66,831		—		66,831
Total assets at fair value	$	9,926	$	69,331	$	—	$	79,257

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Amount
Balance at December 31, 2011	$	3,027
Total gains or losses (realized or unrealized)
Included in other comprehensive income (loss)		262
Settlements		(3,289	)
Balance at December 31, 2012, 2013 and 2014	$	—

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Note 4 - Balance Sheet Detail (Details) - Estimated Annual Amortization Expense (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Estimated Annual Amortization Expense [Abstract]
2015	$ 452
2016	142
2017	1
Total	$ 595

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Note 2 - Investment Securities (Details) - Financial Assets Measured at Fair Value on a Recurring Basis (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Short term marketable investments:
Available-for-sale securities	$ 71,343	$ 66,831
Total assets at fair value	73,385	79,257
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]
Cash equivalents:
Cash and cash equivalents	242	9,926
Fair Value, Inputs, Level 1 [Member]
Short term marketable investments:
Total assets at fair value	242	9,926
Fair Value, Inputs, Level 2 [Member] | Commercial Paper [Member]
Cash equivalents:
Cash and cash equivalents	1,800	2,500
Fair Value, Inputs, Level 2 [Member]
Short term marketable investments:
Available-for-sale securities	71,343	66,831
Total assets at fair value	73,143	69,331
Money Market Funds [Member]
Cash equivalents:
Cash and cash equivalents	242	9,926
Commercial Paper [Member]
Cash equivalents:
Cash and cash equivalents	$ 1,800	$ 2,500

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Note 11 - Commitments and Contingencies (Details) - Minimum Lease Payments for Leased Vehicles under Long-term Non-cancellable Capital Leases (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Minimum Lease Payments for Leased Vehicles under Long-term Non-cancellable Capital Leases [Abstract]
2015	$ 167
2016	211
2017	24
Future minimum lease payments	$ 402

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Note 1 - Summary of Significant Accounting Policies (Details) - Useful Lives of Property, Plant and Equipment	12 Months Ended
	Dec. 31, 2014
Leasehold Improvements [Member]
Note 1 - Summary of Significant Accounting Policies (Details) - Useful Lives of Property, Plant and Equipment [Line Items]
Leasehold improvements	Lesser of useful life or term of lease
Equipment and Furniture [Member]
Note 1 - Summary of Significant Accounting Policies (Details) - Useful Lives of Property, Plant and Equipment [Line Items]
Property and equipment	3 years
Machinery and Equipment [Member]
Note 1 - Summary of Significant Accounting Policies (Details) - Useful Lives of Property, Plant and Equipment [Line Items]
Property and equipment	3 years

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Note 5 - Warranty and Service Contracts (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Product Warranties Disclosures [Abstract]
Deferred Revenue, Costs Incurred	$ 6.6	$ 6.9	$ 7.2

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Note 7 - Income Taxes (Details) - Reconciliation of Effective Tax Rate	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Reconciliation of Effective Tax Rate [Abstract]
U.S. federal statutory income tax rate	34.00%	35.00%	35.00%
State tax rate, net of federal benefit	1.62%	1.57%	3.28%
Benefit for research and development credit	7.24%	19.91%	3.40%
Foreign rate differential	(1.04%)	(4.53%)	(1.49%)
Changes in unrecognized tax benefits	(0.53%)	2.60%	1.06%
Foreign income inclusion			(0.05%)
Income tax refund	0.08%	0.19%	1.07%
Stock-based compensation	(5.56%)	(34.33%)	(21.31%)
Meals and entertainment	(1.11%)	(2.10%)	(1.68%)
Tax effect of other comprehensive income			0.28%
Valuation allowance	(36.58%)	(17.82%)	(21.15%)
Other	(0.22%)	0.63%	(1.86%)
Effective tax rate	(2.10%)	1.12%	(3.45%)

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Valuation Assumptions and Fair Value of Stock Option and ESPP Grants (USD $)	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Employee Stock Option [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Valuation Assumptions and Fair Value of Stock Option and ESPP Grants [Line Items]
Expected term (in years)(1)	4 years 65 days	[1]	4 years 109 days	[1]	4 years 62 days	[1]
Risk-free interest rate(2)	1.31%	[2]	1.13%	[2]	0.45%	[2]
Volatility(3)	41.00%	[3]	43.00%	[3]	44.00%	[3]
Dividend yield(4)		[4]		[4]		[4]
Weighted average estimated fair value at grant date (in Dollars per share)	$ 3.36		$ 3.22		$ 2.47
Stock Purchase Plan [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Valuation Assumptions and Fair Value of Stock Option and ESPP Grants [Line Items]
Expected term (in years)(1)	6 months	[1]	6 months	[1]	6 months	[1]
Risk-free interest rate(2)	0.06%	[2]	0.08%	[2]	0.15%	[2]
Volatility(3)	37.00%	[3]	44.00%	[3]	43.00%	[3]
Dividend yield(4)		[4]		[4]		[4]
Weighted average estimated fair value at grant date (in Dollars per share)	$ 2.65		$ 2.84		$ 2.16

[1] The expected term represents the period during which the Company's stock-based awards are expected to be outstanding. The estimated term is based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.

[2] The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.

[3] Estimated volatility is based on historical volatility. The Company also considers implied volatility when there is sufficient volume of freely traded options with comparable terms and exercise prices in the open market.

[4] The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.

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Note 4 - Balance Sheet Detail (Details) - Inventories (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Inventories [Abstract]
Raw materials	$ 7,185	$ 5,989
Finished goods	3,803	3,017
Total	$ 10,988	$ 9,006

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Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

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 other energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets laser and other energy-based product platforms for use by physicians and other qualified practitioners which enable them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following key product platforms: CoolGlide^®, xeo, solera^®, Genesis Plus, excel V, truSculpt, excel HR and enlighten. The Company’s products offer multiple hand pieces and applications, which allow customers to upgrade their systems. The sales of systems, upgrades, hand pieces, hand piece refills (Titan^® and truSculpt) and the distribution of third party manufactured dermal fillers and cosmeceuticals are classified as “Product” revenue. In the second quarter of 2014, the Company terminated its agreement with Merz Pharma GmbH (“Merz”) for the distribution of its Radiesse dermal filler product. In addition to Product revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan and truSculpt) and service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service” revenue.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries that are currently operational in Australia, Belgium, Canada, France, Japan, Switzerland and Hong Kong, that market, sell and service its products outside of the United States. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates their estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, valuation of inventories, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, fair values of options to purchase the Company’s common stock and other share based awards, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases their 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.

Cash, Cash Equivalents,andMarketable Investments

The Company invests its cash primarily in money market funds and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and its foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities have been classified and accounted for as available-for-sale. Investments with remaining maturities more than one year are viewed by the Company as available to support current operations, and are classified as current assets under the caption marketable investments in the accompanying Consolidated Balance Sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

Fair Value Measurements

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. 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. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

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.

Impairment of Marketable Investments

After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either temporary or other-than-temporary impairments is the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment has been less than cost, the financial condition and near-term prospects of the issuer. There were no other-than-temporary impairments in the years ended December 31, 2014, 2013, and 2012.

Allowance for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of our products.

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily invested in deposits and money market accounts with three major financial institutions in the U.S. In addition, the Company has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks may exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are financially sound and, accordingly, believes that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The Company has also invested in other high grade investments such as commercial paper and corporate bonds. By policy, the Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity (interest reset date for auction-rate securities and variable rate demand notes) of generally less than eighteen months.

Accounts receivable are typically unsecured and are derived from revenue earned from worldwide customers. The Company performs credit evaluations of its customers and maintains reserves for potential credit losses. No single customer represented more than 10% of net accounts receivable as of either December 31, 2014 or 2013.

During the years ended December 31, 2014, 2013, and 2012, domestic revenue accounted for 45%, 42%, and 41%, respectively, of total revenue, while international revenue accounted for 55%, 58%, and 59%, respectively, of total revenue, for each of the years. No single customer represented more than 10% of total revenue for any of the years ended December 31, 2014, 2013, and 2012.  

The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technology innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, product liability, Food and Drug Administration and/ or international regulatory approvals required for new products and compliance with government regulations. 

Inventories

Inventories are stated at the lower of cost or market, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis) and market being determined as the lower of replacement cost or net realizable value.

The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over an estimated economic life of two years. Amortization expense related to demonstration units is recorded in cost of revenue or in the respective operating expense line based on which function and purpose for which it is being used for. Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged to cost of revenue.

As of December 31, 2014 and 2013, demonstration inventories included in the “Finished goods inventory” balance was $2.3 million and $1.8 million, respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation recognized is on a straight-line basis over the estimated useful lives of the assets, generally as follows:

	Useful Lives
Leasehold improvements	Lesser of useful life or term of lease
Office equipment and furniture (years)	3
Machinery and equipment (years)	3

Upon sale or retirement of assets, the costs and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to operations as incurred.

Depreciation expense related to property, equipment and leasehold improvements for 2014, 2013 and 2012, were $562,000, $602,000 and $436,000 respectively. Amortization expense for vehicles leased under capital leases is included in depreciation expense.

Goodwill and Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets, is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.

The Company’s intangible assets are comprised of purchased technology sub-licenses, acquired customer relationships, and those assets acquired in conjunction with an asset acquisition in February 2012 including, existing customer relationships, product portfolio and a manufacturing process for the products acquired. All identifiable intangibles have finite lives and are carried at cost, net of accumulated amortization. Amortization was recorded using the straight-line method, over their respective useful lives, which range from approximately 11 months to 10 years.

Impairment of Long-lived Assets

Goodwill is not amortized, but is tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. The goodwill impairment test is generally performed annually during the fourth fiscal quarter (or earlier if impairment indicators arise). The Company continues to operate in one segment, which is considered to be the sole reporting unit and therefore, goodwill was tested for impairment at the enterprise level. As of December 31, 2014, there has been no impairment of goodwill.

The Company evaluates the recoverability of its long-lived assets, which include amortizable intangible and tangible assets. Acquired intangible assets with definite useful lives are amortized over their useful lives. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. The Company recognizes such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In 2014, the Company’s impairment review indicated that certain purchased long-lived assets associated with the Iridex acquisition were impaired and an impairment charge of $650,000 was recognized. No other impairment losses were incurred in the periods presented.

Warranty Obligations

The Company provides a one-year standard 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.

Revenue Recognition

Product, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceutical revenue is recognized when title and risk of ownership has been transferred, provided that:

● Persuasive evidence of an arrangement exists;

● The price is fixed or determinable;

● Delivery has occurred or services have been rendered; and

● Collectability is probable.

Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. For sales transactions when collectability is not reasonably assured, the Company recognizes revenue upon receipt of cash payment. Sales to customers and distributors do not include any return or exchange rights. In addition, the Company’s distributor agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as a component of cost of revenue.

Multiple-element arrangements

A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. The Company determined that its multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: system and upgrade sales; and service contracts.

For multiple-element arrangements revenue is allocated to each element based on their relative selling prices. Relative selling prices would be based first on vendor specified objective evidence (“VSOE”), then on third-party evidence of selling price (“TPE”) when VSOE does not exist, and then on best estimate of selling price (“BESP”) when VSOE and TPE do not exist. Because the Company has neither VSOE nor TPE for its systems, the allocation of revenue has been based on the Company’s BESPs. The objective of BESP is to determine the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines BESP for its systems by considering multiple factors including, but not limited to, prices charged for stand-alone sales, features and functionality of the system, geographies, type of customer, and market conditions. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met for each element.

In the first and second quarter of 2013, with respect to the sale of its truSculpt product, the Company provided promotions that included an unlimited number of “free” hand piece replacements during a stated trial period of 3 months or 12 months. These free refills were treated as an undelivered element under FASB ASC 605-25 in the original revenue transaction. The Company deferred the relative fair value related to the estimated number of hand piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the third quarter of 2013, the Company included unlimited refills as part of the truSculpt standard warranty and determined that this was no longer a separate deliverable under the multiple-element arrangement revenue guidance. Following this change, the Company recognized the revenue under the warranty model, in which the revenue for the system sale was recognized up-front along with an estimate of the costs which will be incurred under the warranty obligation recorded in cost of revenue.

The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Service revenue, from customers whose systems are not under a service contact, is recognized as the services are provided. Service revenue for the years ended December 31, 2014, 2013, and 2012 was $17.8 million, $17.7 million, and $17.2 million, respectively.

Cost of Revenue

Cost of revenue consists primarily of material, finished and semi-finished products purchased from third-party manufacturers, labor, stock-based compensation expenses, overhead involved in our internal manufacturing processes, technology license amortization and royalties, costs associated with product warranties and any inventory or intangible write-downs.

The Company's system sales include a control console, universal graphic user interface, control system software, high voltage electronics and a combination of applications (referred to as hand pieces). Hand pieces are programmed to have a limited number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its Titan product and provides for refurbishment of other hand pieces under warranty or service contracts. When customers purchase a replacement hand piece (or “refill”) or are provided a replacement hand piece under a warranty or service contract, Cutera ships a previously refurbished unit. Upon the receipt of the expended hand piece from the customer the Company capitalizes the expended hand piece as inventory at the estimated fair value. Cost of revenue includes the costs incurred to refurbish hand pieces.

Research and Development Expenditures

Costs related to research, design, development and testing of products are charged to research and development expense as incurred. Expenses incurred primarily relate to employees, facilities, material, third party contractors and clinical and regulatory fees.

Advertising Costs

Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for 2014, 2013 and 2012 were $1.6 million, $1.6 million and $1.3 million, respectively.

Stock-based Compensation

The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions under U.S. GAAP. The Company’s stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units (“RSUs”), performance stock units (“PSUs”) and stock awards are measured based on the fair market values of the underlying stock on the dates of grant. Shares are issued on the vesting dates, net of the tax withholding requirements to be paid by the Company on behalf of its employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore, the Company records the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when the shares are issued. Also, the Company recognizes stock-based compensation using the straight-line method.

U.S. GAAP requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for stock-based awards for options exercised and RSUs vested during the period (excess tax benefits) to be classified as financing cash flows.

Income Taxes

The Company recognizes income taxes under the liability method. The Company recognizes deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. For deferred tax assets which are not subject to a valuation allowance, the Company has determined that its future taxable income will be sufficient to recover all of the deferred tax assets. However, should there be a change in their ability to recover the deferred tax assets, the Company could be required to record a valuation allowance against the net carrying value of its deferred tax assets. This would result in an increase to the Company’s tax provision in the period in which they determined that the recovery was not probable.

The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax basis. The deferred tax assets and liabilities reflect management’s assessment that tax positions taken, and the resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax rates that the Company expects to apply and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which the Company operates. These matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.

Valuation allowances are established when necessary to reduce deferred income tax assets to amounts that the Company believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to determine whether adjustments to our valuation allowance are appropriate. In making this evaluation, the Company relies on its recent history of pre-tax earnings, estimated timing of future deductions and benefits represented by the deferred tax assets, and its forecasts of future earnings, the latter two of which involve the exercise of significant judgment. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax asset due to a history of operating losses.

The Company establishes reserves for uncertain tax positions in accordance with the Income Taxes subtopic of ASC 740. The subtopic prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Additionally, the subtopic provides guidance on de-recognition, measurement, classification, interest and penalties, and transition of uncertain tax positions. The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax years. The Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the determination that the tax position is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The Company will record an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the ultimate assessment to be. 

Computation of Net Lossper Share

Basic net income per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of shares and dilutive potential shares outstanding during the period. Dilutive potential shares primarily consist of employee stock options. Dilute earnings per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would be anti-dilutive.

U.S. GAAP requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional-paid-in-capital (“APIC”) when the award becomes deductible are all assumed to be used to repurchase shares.

Comprehensive Loss

Comprehensive loss includes all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the unrealized gains or losses on the Company's available-for-sale investments, net of tax.  

Foreign Currency

The U.S. Dollar is the functional currency of the Company’s subsidiaries. Monetary and non-monetary assets and liabilities are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured at average exchange rates in effect during each period, except for those expenses related to non-monetary assets which are re-measured at historical exchange rates. Gains or losses resulting from foreign currency transactions are included in net income (loss) and are insignificant for each of the three years ended December 31, 2014. The effect of exchange rate changes on cash and cash equivalents was insignificant for each of the three years presented in the period ended December 31, 2014.

Segments

The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. As of December 31, 2014 and 2013, 71% and 83%, respectively, of all long-lived assets were maintained in the U.S. See Note 10 for details relating to revenue by geography.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled to for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company in the first quarter of fiscal year 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the Consolidated Financial Statements and related disclosures.

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Note 7 - Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 7 - Income Taxes (Details) [Line Items]
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount	$ 3,300,000	$ 900,000	$ 1,400,000
Tax Credit Recorded to Additional Paid In Capital	4,200,000
Undistributed Earnings of Foreign Subsidiaries	2,600,000	2,600,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	33,000	33,000
Unrecognized Tax Benefits, Interest on Income Taxes Accrued	41,000	37,000
Domestic Tax Authority [Member]
Note 7 - Income Taxes (Details) [Line Items]
Operating Loss Carryforwards	34,300,000
Operating Loss Carryforwards, Expiration Date	2033
Deferred Tax Assets, Tax Credit Carryforwards, Research	4,200,000
Tax Credit Carryforward, Expiration Date	2034
State and Local Jurisdiction [Member]
Note 7 - Income Taxes (Details) [Line Items]
Operating Loss Carryforwards		10,400,000
Operating Loss Carryforwards, Expiration Date	2034
Deferred Tax Assets, Tax Credit Carryforwards, Research	5,100,000
Tax Credit Carryforward, Expiration Date	2020
Research and Development Tax Credits Expiring in 2020	$ 284,000

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Note 2 - Investment Securities (Details) - Carrying Value Associated with Level 3 Financial Assets (USD $) In Thousands, unless otherwise specified	36 Months Ended
	Dec. 31, 2014
Carrying Value Associated with Level 3 Financial Assets [Abstract]
Balance at December 31	$ 3,027
Included in other comprehensive income (loss)	262
Settlements	$ (3,289)

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

				Options Outstanding
	Shares Available For Grant			Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in $ millions)(1)
Balances as of December 31, 2011		474,537			3,549,022		$	9.92		4.6		0.4
Additional shares reserved(2)		1,910,000			—			—
Options granted		(921,500	)		921,500		$	7.04
Options exercised		—			(211,551	)	$	7.00
Options cancelled (expired or forfeited)		470,732			(470,732	)	$	9.45
Stock awards granted		(314,159	)		—			—
Stock awards cancelled (expired or forfeited)		24,746			—			—
Balances as of December 31, 2012		1,644,356			3,788,239		$	9.44		4.3	$	2.6
Options granted		(1,007,166	)		1,007,166		$	8.97
Options exercised		—			(612,210	)	$	8.16
Options cancelled (expired or forfeited)		391,033			(391,033	)	$	10.37
Stock awards granted		(399,997	)		—			—
Stock awards cancelled (expired or forfeited)		81,257			—			—
Balances as of December 31, 2013		709,483			3,792,162		$	9.42		4.2	$	5.1
Additional shares reserved(3)		200,000			—			—
Options granted		(486,300	)		486,300		$	9.78
Options exercised		—			(396,970	)	$	8.33
Options cancelled (expired or forfeited)		418,925			(418,925	)	$	11.15
Stock awards granted		(764,394	)		—			—
Stock awards cancelled (expired or forfeited)		52,046			—			—
Balances as of December 31, 2014		129,760			3,462,567		$	9.39		3.4	$	5.7
Exercisable as of December 31, 2014					2,330,762		$	9.62		2.7	$	3.7
Expected to vest, net of estimated forfeitures, as of December 31, 2014					909,562		$	8.86		4.96	$	1.7

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

		Options Outstanding			Options Exercisable
Range of Exercise Price		Number Outstanding	Weighted-Average Remaining Contractual Life (in years)		Number Outstanding		Weighted-Average Exercise Price
$	6.54	17,125		1.30		17,125	$	6.54
$	6.88	460,530		4.37		278,266		6.88
$	7.11–$ 8.66	442,525		1.63		428.942		8.53
$	8.72	473,989		3.21		431,615		8.72
$	8.80	553,795		5.08		196,926		8.80
$	8.81–$9.65	432,778		5.47		114,960		9.15
$	9.74–$10.03	183,000		4.66		28,000		9.74
$	10.24	441,325		2.21		441,325		10.24
$	10.32–$14.78	354,500		1.36		290,603		11.14
$	16.25–$25.73	103,000		0.81		103,000		20.93
$	6.54–$25.73	3,462,567		3.42		2,330,762	$	9.62

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of Shares			Weighted-Average Grant- Date Fair Value		Aggregate Fair Value(1) (in thousands)			Aggregate Intrinsic Value(2) (in thousands)
Outstanding at December 31, 2011		55,253		$	9.55				$	412
Granted		148,188		$	6.85
Vested (3)		(41,522	)	$	9.79	$	279	(4)
Forfeited		(13,210	)	$	7.39
Outstanding at December 31, 2012		148,709		$	6.99				$	1,338
Granted		188,678		$	8.94
Vested (3)		(119,505	)	$	7.68	$	1,091	(5)
Forfeited		(38,417	)	$	8.11
Outstanding at December 31, 2013		179,465		$	8.34				$	1,827
Granted		360,563		$	9.72
Vested (3)		(81,157	)	$	8.62	$	777	(6)
Forfeited		(24,550	)	$	8.14
Outstanding at December 31, 2014		434,321		$	9.31				$	4,639

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
Stock options	$	1,811	$	2,201	$	2,421
RSUs		875		631		501
PSUs		455		162		138
ESPP		158		116		100
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
Cost of revenue	$	560	$	638	$	658
Sales and marketing		641		744		657
Research and development		581		397		514
General and administrative		1,517		1,331		1,331
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

Valuation Assumptions and Fair Value of Stock Options and ESPP Grants [Table Text Block]

	Stock Options									Stock Purchase Plan
	2014			2013			2012			2014			2013			2012
Expected term (in years)(1)		4.18			4.30			4.17			0.50			0.50			0.50
Risk-free interest rate(2)		1.31	%		1.13	%		0.45	%		0.06	%		0.08	%		0.15	%
Volatility(3)		41	%		43	%		44	%		37	%		44	%		43	%
Dividend yield(4)		—	%		—	%		—	%		—	%		—	%		—	%
Weighted average estimated fair value at grant date	$	3.36		$	3.22		$	2.47		$	2.65		$	2.84		$	2.16

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Note 5 - Warranty and Service Contracts (Tables)

12 Months Ended

Dec. 31, 2014

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

	December 31,
	2014			2013
Balance at beginning of year	$	1,202		$	1,212
Add: Accruals for warranties issued during the year		2,497			3,420
Less: Settlements made during the year		(2,532	)		(3,430	)
Balance at end of year	$	1,167		$	1,202

Deferred Revenue, by Arrangement, Disclosure [Table Text Block]

	December 31,
	2014			2013
Balance at beginning of year	$	11,637		$	8,539
Add: Payments received		13,913			15,026
Less: Revenue recognized		(12,601	)		(11,928	)
Balance at end of year	$	12,949		$	11,637

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Equity Incentive Plan (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Equity Incentive Plan [Abstract]
Balances as of December 31	129,760		709,483		1,644,356		474,537
Balances as of December 31	3,462,567		3,792,162		3,788,239		3,549,022
Balances as of December 31 (in Dollars per share)	$ 9.39		$ 9.42		$ 9.44		$ 9.92
Balances as of December 31	3 years 146 days		4 years 73 days		4 years 109 days		4 years 219 days
Balances as of December 31 (in Dollars)	$ 5.7	[1]	$ 5.1	[1]	$ 2.6	[1]	$ 0.4	[1]
Exercisable as of December 31, 2014	2,330,762
Exercisable as of December 31, 2014 (in Dollars per share)	$ 9.62
Exercisable as of December 31, 2014	2 years 255 days
Exercisable as of December 31, 2014 (in Dollars)	3.7
Expected to vest, net of estimated forfeitures, as of December 31, 2014	909,562
Expected to vest, net of estimated forfeitures, as of December 31, 2014 (in Dollars per share)	$ 8.86
Expected to vest, net of estimated forfeitures, as of December 31, 2014	4 years 350 days
Expected to vest, net of estimated forfeitures, as of December 31, 2014 (in Dollars)	$ 1.7
Additional shares reserved	200,000	[2]			1,910,000	[3]
Options granted	(486,300)		(1,007,166)		(921,500)
Options granted	486,300		1,007,166		921,500
Options granted (in Dollars per share)	$ 9.78		$ 8.97		$ 7.04
Options exercised	(396,970)		(612,210)		(211,551)
Options exercised (in Dollars per share)	$ 8.33		$ 8.16		$ 7.00
Options cancelled (expired or forfeited)	418,925		391,033		470,732
Options cancelled (expired or forfeited)	(418,925)		(391,033)		(470,732)
Options cancelled (expired or forfeited) (in Dollars per share)	$ 11.15		$ 10.37		$ 9.45
Stock awards granted	(764,394)		(399,997)		(314,159)
Stock awards cancelled (expired or forfeited)	52,046		81,257		24,746

[1] Based on the closing stock price of the Company's stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.

[2] Approved by Board of Directors in 2014, subject to stock holder's approval in 2015.

[3] Approved by stock holders in 2012.

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Note 3 - Acquisition (Details) (USD $)	12 Months Ended		0 Months Ended
	Dec. 31, 2012	Dec. 31, 2014	Feb. 02, 2012	Dec. 31, 2013
Note 3 - Acquisition (Details) [Line Items]
Payments to Acquire Businesses, Gross (in Dollars)	$ 5,091,000
Goodwill (in Dollars)		1,339,000		1,339,000
Customer Relationships [Member] | Iridex's Global Aesthetics Business Unit [Member] | Maximum [Member]
Note 3 - Acquisition (Details) [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		5 years
Customer Relationships [Member] | Iridex's Global Aesthetics Business Unit [Member]
Note 3 - Acquisition (Details) [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		5 years
Other Intangible Assets [Member] | Iridex's Global Aesthetics Business Unit [Member] | Minimum [Member]
Note 3 - Acquisition (Details) [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		11 years
Other Intangible Assets [Member] | Iridex's Global Aesthetics Business Unit [Member]
Note 3 - Acquisition (Details) [Line Items]
Acquired Finite-Lived Intangible Assets, Tax, UsefulLife		15 years
Finite-Lived Goodwill [Member] | Iridex's Global Aesthetics Business Unit [Member]
Note 3 - Acquisition (Details) [Line Items]
Acquired Finite-Lived Intangible Assets, Tax, UsefulLife		15 years
Iridex's Global Aesthetics Business Unit [Member]
Note 3 - Acquisition (Details) [Line Items]
Payments to Acquire Businesses, Gross (in Dollars)	5,091,000		5,100,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill (in Dollars)			4,800,000
Goodwill (in Dollars)	$ 1,339,000		$ 1,300,000

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Note 7 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
U.S.	$	(10,592	)	$	(4,919	)	$	(6,767	)
Foreign		199			118			437
Loss before income taxes	$	(10,393	)	$	(4,801	)	$	(6,330	)

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	(7	)	$	(329	)	$	(13	)
State		19			7			(56	)
Foreign		110			159			366
		122			(163	)		297
Deferred:
Federal		32			33			(12	)
State		—			—			—
Foreign		65			76			(67	)
		97			109			(79	)
Tax (benefit) provision	$	219		$	(54	)	$	218

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,
	2014			2013
Net operating loss	$	12,138		$	11,014
Stock-based compensation		3,884			3,806
Other accruals and reserves		4,735			3,686
Credits		3,808			3,121
Foreign		295			360
Accrued warranty		417			441
Depreciation and amortization		998			224
Other		66			470
Deferred tax asset before valuation allowance		26,341			23,122
Valuation allowance		(26,046	)		(22,762	)
Deferred tax asset after valuation allowance		295			360
Deferred tax liability on goodwill		(71	)		(39	)
Net deferred tax asset	$	224		$	321

Schedule of Deferred Tax Reported in Balance Sheet [Table Text Block]

	December 31,
	2014			2013
Deferred tax asset (current portion)	$	26		$	31
Deferred tax asset, net of current portion		269			329
Accrued liabilities (non-current deferred tax liability)		(71	)		(39	)
Net deferred tax asset after valuation allowance	$	224		$	321

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
U.S. federal statutory income tax rate		34.00	%		35.00	%		35.00	%
State tax rate, net of federal benefit		1.62			1.57			3.28
Benefit for research and development credit		7.24			19.91			3.40
Foreign rate differential		(1.04	)		(4.53	)		(1.49	)
Changes in unrecognized tax benefits		(0.53	)		2.60			1.06
Foreign income inclusion		—			—			(0.05	)
Income tax refund		0.08			0.19			1.07
Stock-based compensation		(5.56	)		(34.33	)		(21.31	)
Meals and entertainment		(1.11	)		(2.10	)		(1.68	)
Tax effect of other comprehensive income		—			—			0.28
Valuation allowance		(36.58	)		(17.82	)		(21.15	)
Other		(0.22	)		0.63			(1.86	)
Effective tax rate		(2.10	)%		1.12	%		(3.45	)%

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	Year Ended December 31,
	2014		2013			2012
Balance at beginning of year	$	535	$	536		$	583
Increases related to prior year tax positions		—		36			—
Increases related to current year tax positions		62		116			29
Decreases related to lapsing of statute of limitations		—		(153	)		(76	)
Balance at end of year	$	597	$	535		$	536

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Note 8 - Net Loss Per Share (Tables)

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
Options to purchase common stock		3,489		3,830		3,746
Restricted stock units		213		173		97
Employee stock purchase plan shares		86		72		78
Performance stock units		37		34		8
Total		3,825		4,109		3,929

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities:
Net loss	$ (10,612,000)	$ (4,747,000)	$ (6,548,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,299,000	3,110,000	3,160,000
Tax benefit (deficit) from stock-based compensation			6,000
Excess tax benefit related to stock-based compensation			(6,000)
Depreciation and amortization	1,336,000	1,304,000	1,606,000
Impairment of intangible assets	650,000
Other	206,000	243,000	(87,000)
Changes in assets and liabilities:
Accounts receivable	(1,460,000)	(857,000)	(3,690,000)
Inventories	(1,982,000)	2,108,000	1,167,000
Other current assets and prepaid expenses	239,000	345,000	859,000
Other long-term assets	(37,000)	73,000	89,000
Accounts payable	1,263,000	(287,000)	(466,000)
Accrued liabilities	1,650,000	(371,000)	(177,000)
Other long-term liabilities	(285,000)	(218,000)	(62,000)
Deferred revenue	1,410,000	3,114,000	1,915,000
Income tax liability	37,000	(304,000)	(66,000)
Net cash provided by (used in) operating activities	(4,286,000)	3,513,000	(2,300,000)
Cash flows from investing activities:
Acquisition of property, equipment and software	(734,000)	(517,000)	(516,000)
Acquisition of intangible asset		(155,000)
Business acquisition			(5,091,000)
Disposal of property and equipment		63,000
Proceeds from sales of marketable and long-term investments	12,354,000	15,578,000	31,564,000
Proceeds from maturities of marketable investments	26,915,000	36,030,000	43,009,000
Purchase of marketable investments	(44,146,000)	(56,847,000)	(58,813,000)
Net cash (used in) provided by investing activities	(5,611,000)	(5,848,000)	10,153,000
Cash flows from financing activities:
Repurchase of common stock		(10,031,000)
Proceeds from exercise of stock options and employee stock purchase plan	3,602,000	5,189,000	1,667,000
Payments on capital lease obligation	(144,000)	(127,000)
Excess tax benefit related to stock-based compensation			6,000
Net cash provided by (used in) financing activities	3,458,000	(4,969,000)	1,673,000
Net (decrease) increase in cash and cash equivalents	(6,439,000)	(7,304,000)	9,526,000
Cash and cash equivalents at beginning of year	16,242,000	23,546,000	14,020,000
Cash and cash equivalents at end of year	9,803,000	16,242,000	23,546,000
Supplemental cash flow information:
Cash paid for interest	26,000	19,000
Cash paid for income taxes	225,000	337,000	307,000
Supplemental non-cash investing and financing activities:
Assets acquired under capital lease	$ 70,000	$ 577,000

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Note 10 - Segment Information and Revenue by Geography and Products (Tables)

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
Revenue mix by geography:
United States	$	35,494	$	31,487	$	31,949
Japan		13,328		14,205		17,826
Asia, excluding Japan		11,023		11,263		8,902
Europe		7,792		7,358		4,958
Rest of the world		10,501		10,281		13,642
Consolidated total	$	78,138	$	74,594	$	77,277
Revenue mix by product category:
Products and upgrades	$	53,106	$	48,374	$	49,605
Titan and truSculpt hand piece refills		3,714		4,267		4,807
Dermal filler and cosmeceuticals		3,479		4,264		5,645
Total product revenue		60,299		56,905		60,057
Service		17,839		17,689		17,220
Consolidated total	$	78,138	$	74,594	$	77,277

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Note 2 - Investment Securities (Details) - Unrealized Gains and Losses Related to Marketable Investments and Long-term Investments (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Note 2 - Investment Securities (Details) - Unrealized Gains and Losses Related to Marketable Investments and Long-term Investments [Line Items]
Amortized Cost	$ 9,803	$ 16,242	$ 23,546	$ 14,020
Marketable investments
Gross Unrealized Gains	68	114
Gross Unrealized Losses	(13)	(13)
Fair Market Value	71,343	66,831
Amortized Cost	81,091	82,972
Gross Unrealized Gains	68	114
Fair Market Value	81,146	83,073
Cash and Cash Equivalents [Member]
Note 2 - Investment Securities (Details) - Unrealized Gains and Losses Related to Marketable Investments and Long-term Investments [Line Items]
Amortized Cost	9,803	16,242
Fair Market Value	9,803	16,242
MarketableInvestmentsMember
Marketable investments
Amortized Cost	71,288	66,730
Gross Unrealized Gains	68	114
Gross Unrealized Losses	(13)	(13)
Fair Market Value	71,343	66,831
Gross Unrealized Gains	68	114
US Treasury and Government [Member]
Marketable investments
Amortized Cost	18,345	10,516
Gross Unrealized Gains	17	11
Gross Unrealized Losses	(1)	(5)
Fair Market Value	18,361	10,522
Gross Unrealized Gains	17	11
US Government Agencies Debt Securities [Member]
Marketable investments
Amortized Cost	19,768	25,823
Gross Unrealized Gains	33	38
Gross Unrealized Losses	(1)	(3)
Fair Market Value	19,800	25,858
Gross Unrealized Gains	33	38
US States and Political Subdivisions Debt Securities [Member]
Marketable investments
Amortized Cost	3,607	2,043
Gross Unrealized Gains	3	1
Gross Unrealized Losses	(3)	(5)
Fair Market Value	3,607	2,039
Gross Unrealized Gains	3	1
Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Marketable investments
Amortized Cost	10,693	10,239
Gross Unrealized Gains	2	3
Fair Market Value	10,695	10,242
Gross Unrealized Gains	2	3
Corporate Debt Securities [Member]
Marketable investments
Amortized Cost	18,875	18,109
Gross Unrealized Gains	13	61
Gross Unrealized Losses	(8)
Fair Market Value	18,880	18,170
Gross Unrealized Gains	$ 13	$ 61

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Note 5 - Warranty and Service Contracts (Details) - Summary of Warranties (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Summary of Warranties [Abstract]
Balance at beginning of year	$ 1,202	$ 1,212
Add: Accruals for warranties issued during the year	2,497	3,420
Less: Settlements made during the year	(2,532)	(3,430)
Balance at end of year	$ 1,167	$ 1,202

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Note 10 - Segment Information and Revenue by Geography and Products (Details) - Revenue by Geographic Region (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Revenue mix by geography:
Revenue mix	$ 25,499	$ 18,726	$ 17,724	$ 16,189	$ 22,239	$ 16,828	$ 19,560	$ 15,967	$ 78,138	$ 74,594	$ 77,277
Products and Upgrades [Member]
Revenue mix by geography:
Revenue mix									53,106	48,374	49,605
Titan and truSculpt Hand Piece Refills [Member]
Revenue mix by geography:
Revenue mix									3,714	4,267	4,807
Dermal Filler and Cosmeceuticals [Member]
Revenue mix by geography:
Revenue mix									3,479	4,264	5,645
Total Product Revenue [Member]
Revenue mix by geography:
Revenue mix									60,299	56,905	60,057
Service [Member]
Revenue mix by geography:
Revenue mix									17,839	17,689	17,220
UNITED STATES
Revenue mix by geography:
Revenue mix									35,494	31,487	31,949
JAPAN
Revenue mix by geography:
Revenue mix									13,328	14,205	17,826
Asia, Excluding Japan [Member]
Revenue mix by geography:
Revenue mix									11,023	11,263	8,902
Europe [Member]
Revenue mix by geography:
Revenue mix									7,792	7,358	4,958
Rest of World [Member]
Revenue mix by geography:
Revenue mix									$ 10,501	$ 10,281	$ 13,642

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 9,803	$ 16,242
Marketable investments	71,343	66,831
Accounts receivable, net of allowance for doubtful accounts of $0 and $19, respectively	11,137	9,679
Inventories	10,988	9,006
Deferred tax assets	26	31
Other current assets and prepaid expenses	1,591	1,507
Total current assets	104,888	103,296
Property and equipment, net	1,461	1,362
Deferred tax assets, net of current portion	269	329
Intangibles, net	595	2,019
Goodwill	1,339	1,339
Other long-term assets	361	324
Total assets	108,913	108,669
Current liabilities:
Accounts payable	3,083	1,820
Accrued liabilities	11,007	9,328
Deferred revenue	8,898	7,494
Total current liabilities	22,988	18,642
Deferred revenue, net of current portion	4,346	4,340
Income tax liability	145	108
Other long-term liabilities	926	1,314
Total liabilities	28,405	24,404
Commitments and contingencies (Note 11)
Convertible preferred stock, $0.001 par value:
Authorized: 50,000,000 shares; Issued and outstanding: 14,446,950 and 13,931,833 shares at December 31, 2014 and 2013, respectively	14	14
Additional paid-in capital	105,721	98,820
Accumulated deficit	(25,232)	(14,620)
Accumulated other comprehensive income	5	51
Total stockholders’ equity	80,508	84,265
Total liabilities and stockholders’ equity	108,913	108,669
Convertible Preferred Stock [Member]
Convertible preferred stock, $0.001 par value:
Authorized: 5,000,000 shares; Issued and outstanding: none	$ 0	$ 0

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Note 3 - Acquisition (Details) - Fair Value of Net Assets Acquired (USD $) In Thousands, unless otherwise specified	12 Months Ended	0 Months Ended
	Dec. 31, 2012	Feb. 02, 2012	Dec. 31, 2014	Dec. 31, 2013
Note 3 - Acquisition (Details) - Fair Value of Net Assets Acquired [Line Items]
Purchase price paid	$ 5,091
Assets (liabilities acquired):
Goodwill			1,339	1,339
Customer Relationships [Member] | Iridex's Global Aesthetics Business Unit [Member]
Assets (liabilities acquired):
Acquired Intangibles	2,510
Other Intangible Assets [Member] | Iridex's Global Aesthetics Business Unit [Member]
Assets (liabilities acquired):
Acquired Intangibles	780
Iridex's Global Aesthetics Business Unit [Member]
Note 3 - Acquisition (Details) - Fair Value of Net Assets Acquired [Line Items]
Purchase price paid	5,091	5,100
Assets (liabilities acquired):
Inventory	1,552
Goodwill	1,339	1,300
Deferred service revenue	(780)
Accrued warranty liability	(310)
Total	$ 5,091

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Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2011	$ 14	$ 95,719	$ (3,325)	$ (841)	$ 91,567
Balance (in Shares) at Dec. 31, 2011	13,948,395
Issuance of common stock for employee purchase plan	0	289	0	0	289
Issuance of common stock for employee purchase plan (in Shares)	46,982
Exercise of stock options	0	1,480	0	0	1,480
Exercise of stock options (in Shares)	211,551				211,551
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards	0	(101)	0	0	(101)
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards (in Shares)	26,548
Stock-based compensation expense	0	3,159	0	0	3,159
Tax benefit from exercises of stock-based payment awards	0	6	0	0	6
Net loss	0	0	(6,548)	0	(6,548)
Net change in unrealized gain (loss) on available-for-sale investments	0	0	0	922	922
Balance at Dec. 31, 2012	14	100,552	(9,873)	81	90,774
Balance (in Shares) at Dec. 31, 2012	14,233,476
Issuance of common stock for employee purchase plan	0	362	0	0	362
Issuance of common stock for employee purchase plan (in Shares)	51,338
Exercise of stock options	1	5,048	0	0	5,049
Exercise of stock options (in Shares)	612,210				612,210
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards	0	(222)	0	0	(222)
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards (in Shares)	95,256
Repurchase of common stock	(1)	(10,030)	0		(10,031)
Repurchase of common stock (in Shares)	(1,060,447)
Stock-based compensation expense	0	3,110	0	0	3,110
Net loss	0	0	(4,747)	0	(4,747)
Net change in unrealized gain (loss) on available-for-sale investments	0	0	0	(30)	(30)
Balance at Dec. 31, 2013	14	98,820	(14,620)	51	84,265
Balance (in Shares) at Dec. 31, 2013	13,931,833				13,931,833
Issuance of common stock for employee purchase plan	0	451	0	0	451
Issuance of common stock for employee purchase plan (in Shares)	52,759
Exercise of stock options	0	3,307	0	0	3,307
Exercise of stock options (in Shares)	396,970				396,970
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards	0	(156)	0	0	(156)
Issuance of common stock in settlement of restricted stock units, net of shares withheld for employee taxes, and stock awards (in Shares)	65,388
Stock-based compensation expense	0	3,299	0	0	3,299
Net loss	0	0	(10,612)	0	(10,612)
Net change in unrealized gain (loss) on available-for-sale investments	0	0	0	(46)	(46)
Balance at Dec. 31, 2014	$ 14	$ 105,721	$ (25,232)	$ 5	$ 80,508
Balance (in Shares) at Dec. 31, 2014	14,446,950				14,446,950

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense [Line Items]
Allocated Share-based Compensation Expense	$ 3,299	$ 3,110	$ 3,160
Employee Stock Option [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense [Line Items]
Allocated Share-based Compensation Expense	1,811	2,201	2,421
Restricted Stock Units (RSUs) [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense [Line Items]
Allocated Share-based Compensation Expense	875	631	501
Performance Shares [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense [Line Items]
Allocated Share-based Compensation Expense	455	162	138
ESPP [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense [Line Items]
Allocated Share-based Compensation Expense	$ 158	$ 116	$ 100

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Note 14 - Valuation and Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2014

Valuation and Qualifying Accounts [Abstract]

Summary of Valuation Allowance [Table Text Block]

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Deferred tax assets valuation allowance
Year ended December 31, 2014	$	22,762	$	3,780	$	496	$	26,046
Year ended December 31, 2013	$	21,907	$	3,437	$	2,582	$	22,762
Year ended December 31, 2012(1)	$	20,551	$	1,773	$	417	$	21,907

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Allowance for doubtful accounts receivable
Year ended December 31, 2014	$	19	$	4	$	23	$	—
Year ended December 31, 2013	$	—	$	19	$	—	$	19
Year ended December 31, 2012	$	8	$	66	$	74	$	—

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Note 7 - Income Taxes (Details) - Deferred Tax Assets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Deferred Tax Assets [Abstract]
Net operating loss	$ 12,138	$ 11,014
Stock-based compensation	3,884	3,806
Other accruals and reserves	4,735	3,686
Credits	3,808	3,121
Foreign	295	360
Accrued warranty	417	441
Depreciation and amortization	998	224
Other	66	470
Deferred tax asset before valuation allowance	26,341	23,122
Valuation allowance	(26,046)	(22,762)
Deferred tax asset after valuation allowance	295	360
Deferred tax liability on goodwill	(71)	(39)
Net deferred tax asset	$ 224	$ 321

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Note 14 - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2014

Valuation and Qualifying Accounts [Abstract]

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Deferred tax assets valuation allowance
Year ended December 31, 2014	$	22,762	$	3,780	$	496	$	26,046
Year ended December 31, 2013	$	21,907	$	3,437	$	2,582	$	22,762
Year ended December 31, 2012(1)	$	20,551	$	1,773	$	417	$	21,907

	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Allowance for doubtful accounts receivable
Year ended December 31, 2014	$	19	$	4	$	23	$	—
Year ended December 31, 2013	$	—	$	19	$	—	$	19
Year ended December 31, 2012	$	8	$	66	$	74	$	—

(1)The Company revised the deferred tax assets valuation allowance balance for calendar year 2012 as a result of revisions to its deferred tax assets relating to stock-based compensation and the resulting valuation allowance for them. These changes had no impact to the Company’s balance sheets, statement of operations, earnings per share, statement of cash flows, or statement of equity for any period presented. The beginning balance for 2012 was reduced by $723,000, and the deductions for the year were increased by $276,000, which resulted in a net change in the ending balance for the year by $999,000.

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Note 1 - Summary of Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Long-Term Investment, Marketable Period	1 year
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities	$ 0	$ 0	$ 0
Number of Major Banks Used by Entity	3
Average Maturity Period of Interest Rate of Auction Securities	18 months
Inventories, Estimated Useful Lives	2 years
Inventory, Finished Goods, Gross	2,300,000	1,800,000
Depreciation	562,000	602,000	436,000
Impairment of Intangible Assets (Excluding Goodwill)	650,000
Impairment of Long-Lived Assets Held-for-use	0	0	0
Standard Warranty Period	1 year
Sales Revenue, Services, Net	17,839,000	17,689,000	17,220,000
Advertising Expense	$ 1,600,000	$ 1,600,000	$ 1,300,000
Uncertain Income Tax Position, Minimum Rate	50.00%
Disclosure on Geographic Areas, Long-Lived Assets in Entity's Country of Domicile, Percent	71.00%	83.00%
Sales Revenue, Net [Member] | Geographic Concentration Risk [Member] | UNITED STATES
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage	45.00%	42.00%	41.00%
Sales Revenue, Net [Member] | Geographic Concentration Risk [Member] | Outside the United States [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage	55.00%	58.00%	59.00%
Minimum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	11 months
Maximum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	10 years

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Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Property, Plant and Equipment, Useful Lives [Table Text Block]

	Useful Lives
Leasehold improvements	Lesser of useful life or term of lease
Office equipment and furniture (years)	3
Machinery and equipment (years)	3

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Note 7 - Income Taxes (Details) - Unrecognized Tax Benefits (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Unrecognized Tax Benefits [Abstract]
Balance	$ 535	$ 536	$ 583
Increases related to prior year tax positions		36
Increases related to current year tax positions	62	116	29
Decreases related to lapsing of statute of limitations		(153)	(76)
Balance	$ 597	$ 535	$ 536

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Consolidated Statements of Stockholders' Equity (Parentheticals) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Other comprehensive income (loss), tax	$ 18

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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Accounts receivable, allowance for doubtful accounts (in Dollars)	$ 0	$ 19
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	50,000,000	50,000,000
Common stock, issued	14,446,950	13,931,833
Common stock, outstanding	14,446,950	13,931,833
Convertible Preferred Stock [Member]
Convertible preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Convertible preferred stock, authorized	5,000,000	5,000,000
Convertible preferred stock, issued	0	0
Convertible preferred stock, outstanding	0	0

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Note 9 - Defined Contribution Plan

12 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

NOTE 9—DEFINED CONTRIBUTION PLAN

In the U.S., the Company has an employee savings plan (“401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary contributions to the 401(k) Plan up to 100% of their annual compensation, subject to statutory annual limitations. In 2014, 2013 and 2012, the Company made discretionary contributions under the 401(k) Plan of $211,000, $184,000 and $146,000 respectively.

For the Company’s Japanese subsidiary, it has established an employee retirement plan at its discretion. In addition, for some of the Company’s other foreign subsidiaries, the Company deposits funds with insurance companies, third-party trustees, or into government-managed accounts consistent with the requirements of local laws. The Company has fully funded or accrued for its obligations as of December 31, 2014, and the related expense for each of the three years then ended was not significant.

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Feb. 28, 2015	Jun. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	CUTERA INC
Document Type	10-K
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		14,685,960
Entity Public Float			$ 85,000,000
Amendment Flag	false
Entity Central Index Key	0001162461
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY

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Note 10 - Segment Information and Revenue by Geography and Products

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE 10—SEGMENT INFORMATION AND REVENUE BY GEOGRAPY AND PRODUCTS

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company’s chief decision maker, as defined under the FASB’s ASC 280 guidance, is a combination of the Chief Executive Officer and the Executive Vice President and Chief Financial Officer. To date, the Company has viewed its operations, managed its business, and used one measurement of profitability for the one operating segment – the sale of aesthetic medical equipment and services, and distribution of cosmeceutical and dermal filler products, to qualified medical practitioners. In addition, substantially all of the Company’s long-lived assets are located in the U.S.

The following table summarizes revenue by geographic region, which is based on the shipping location of where the product is delivered, and product category (in thousands):

	Year Ended December 31,
	2014		2013		2012
Revenue mix by geography:
United States	$	35,494	$	31,487	$	31,949
Japan		13,328		14,205		17,826
Asia, excluding Japan		11,023		11,263		8,902
Europe		7,792		7,358		4,958
Rest of the world		10,501		10,281		13,642
Consolidated total	$	78,138	$	74,594	$	77,277
Revenue mix by product category:
Products and upgrades	$	53,106	$	48,374	$	49,605
Titan and truSculpt hand piece refills		3,714		4,267		4,807
Dermal filler and cosmeceuticals		3,479		4,264		5,645
Total product revenue		60,299		56,905		60,057
Service		17,839		17,689		17,220
Consolidated total	$	78,138	$	74,594	$	77,277

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Note 14 - Valuation and Qualifying Accounts (Details) - Summary of the Allowance for Doubtful Accounts Receivable (Allowance for Doubtful Accounts, Current [Member], USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Allowance for Doubtful Accounts, Current [Member]
Allowance for doubtful accounts receivable
Balance at Beginning of Year	$ 19,000		$ 8,000
Additions	4,000	19,000	66,000
Deductions	23,000		74,000
Balance at End of Year		$ 19,000

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net revenue:
Products	$ 60,299	$ 56,905	$ 60,057
Service	17,839	17,689	17,220
Total net revenue	78,138	74,594	77,277
Cost of revenue:
Products	26,796	24,179	26,911
Service	7,969	8,533	8,826
Total cost of revenue	34,765	32,712	35,737
Gross profit	43,373	41,882	41,540
Operating expenses:
Sales and marketing	32,246	27,984	28,664
Research and development	10,543	9,216	8,427
General and administrative	11,203	9,938	11,276
Total operating expenses	53,922	47,138	48,367
Loss from operations	(10,619)	(5,256)	(6,827)
Interest and other income, net	226	455	497
Loss before income taxes	(10,393)	(4,801)	(6,330)
Income tax (benefit) provision	219	(54)	218
Net loss	$ (10,612)	$ (4,747)	$ (6,548)
Net loss per share:
Basic and diluted (in Dollars per share)	$ (0.74)	$ (0.33)	$ (0.46)
Weighted-average number of shares used in per share calculations:
Basic and diluted (in Shares)	14,254	14,421	14,089

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Note 4 - Balance Sheet Detail

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Supplemental Balance Sheet Disclosures [Text Block]

NOTE 4—BALANCE SHEET DETAIL

Inventories

Inventories consist of the following (in thousands):

	December 31,
	2014		2013
Raw materials	$	7,185	$	5,989
Finished goods		3,803		3,017
Total	$	10,988	$	9,006

Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	December 31,
	2014			2013
Leasehold improvements	$	641		$	625
Office equipment and furniture		2,964			3,285
Machinery and equipment		4,140			3,876
		7,745			7,786
Less: Accumulated depreciation		(6,284	)		(6,424	)
Property and equipment, net	$	1,461		$	1,362

Included in machinery and equipment are financed vehicles used by the Company’s North American sales employees. As of December 31, 2014 and 2013, the gross capitalized value of the leased vehicles was $647,000 and $577,000 and the related accumulated depreciation was $253,000 and $98,000, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006, intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit, and, customer relationships in the Benelux countries acquired from a former distributor in 2013. The components of intangible assets at December 31, 2014 and 2013 were as follows (in thousands):

	Gross Carrying Amount		Accumulated Amortization & Impairment Amount		Net Amount
December 31, 2014
Patent sublicense	$	1,218	$	1,206	$	12
Customer relationship intangible related to acquisition		2,510		1,998		512
Other identified intangible assets related to acquisition		780		780		—
Other intangible		155		84		71
Goodwill		1,339		—		1,339
Total	$	6,002	$	4,068	$	1,934
December 31, 2013
Patent sublicense	$	1,218	$	1,068	$	150
Customer relationship intangible related to acquisition		2,510		962		1,548
Other identified intangible assets related to acquisition		780		607		173
Other intangible		155		6		149
Goodwill		1,339		—		1,339
Total	$	6,002	$	2,643	$	3,359

As of December 31, 2014, the Company evaluated the recoverability of its long-lived assets. Relating to the purchased intangible assets associated with the Iridex acquisition in 2012, due to the discontinuation of the manufacture and sale of all products acquired, lower than projected future Service revenue, and lower than projected revenue expected from the distributor relationships acquired, the Company concluded based on future undiscounted cash flows that the remaining carrying value of these assets was impaired. As a result, the Company recorded an impairment charge of $650,000 in cost of revenue.

Amortization expense (excluding the impairment charge described above) in 2014, 2013, and 2012 for intangible assets was $773,000, $702,000, and $1.2 million, respectively.

Based on intangible assets recorded at December 31, 2014, 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):

Year ending December 31,	Amount
2015	$	452
2016		142
2017		1
Total	$	595

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	2014		2013
Payroll and related expenses	$	5,533	$	4,753
Sales tax		1,789		1,307
Warranty		1,167		1,202
Other		2,518		2,066
Total	$	11,007	$	9,328

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Note 3 - Acquisition

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

NOTE 3—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 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

The identifiable intangible assets and goodwill identified above shall be deductible for income taxes over a useful economic life of 15 years.

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Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block]

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) is a global provider of laser and other energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets laser and other energy-based product platforms for use by physicians and other qualified practitioners which enable them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following key product platforms: CoolGlide^®, xeo, solera^®, Genesis Plus, excel V, truSculpt, excel HR and enlighten. The Company’s products offer multiple hand pieces and applications, which allow customers to upgrade their systems. The sales of systems, upgrades, hand pieces, hand piece refills (Titan^® and truSculpt) and the distribution of third party manufactured dermal fillers and cosmeceuticals are classified as “Product” revenue. In the second quarter of 2014, the Company terminated its agreement with Merz Pharma GmbH (“Merz”) for the distribution of its Radiesse dermal filler product. In addition to Product revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan and truSculpt) and service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service” revenue.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries that are currently operational in Australia, Belgium, Canada, France, Japan, Switzerland and Hong Kong, that market, sell and service its products outside of the United States. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates their estimates, including those related to warranty obligation, sales commission, accounts receivable and sales allowances, valuation of inventories, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, fair values of options to purchase the Company’s common stock and other share based awards, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases their 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.

Cash and Cash Equivalents, Marketable Investments and Long-Term Investments, Policy [Policy Text Block]

Cash, Cash Equivalents,andMarketable Investments

The Company invests its cash primarily in money market funds and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and its foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities have been classified and accounted for as available-for-sale. Investments with remaining maturities more than one year are viewed by the Company as available to support current operations, and are classified as current assets under the caption marketable investments in the accompanying Consolidated Balance Sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

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. 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. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

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.

Marketable Securities, Policy [Policy Text Block]

Impairment of Marketable Investments

After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either temporary or other-than-temporary impairments is the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment has been less than cost, the financial condition and near-term prospects of the issuer. There were no other-than-temporary impairments in the years ended December 31, 2014, 2013, and 2012.

Allowances for Sales Returns and Doubtful Accounts, Policy [Policy Text Block]

Allowance for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of our products.

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily invested in deposits and money market accounts with three major financial institutions in the U.S. In addition, the Company has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks may exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are financially sound and, accordingly, believes that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The Company has also invested in other high grade investments such as commercial paper and corporate bonds. By policy, the Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity (interest reset date for auction-rate securities and variable rate demand notes) of generally less than eighteen months.

Accounts receivable are typically unsecured and are derived from revenue earned from worldwide customers. The Company performs credit evaluations of its customers and maintains reserves for potential credit losses. No single customer represented more than 10% of net accounts receivable as of either December 31, 2014 or 2013.

During the years ended December 31, 2014, 2013, and 2012, domestic revenue accounted for 45%, 42%, and 41%, respectively, of total revenue, while international revenue accounted for 55%, 58%, and 59%, respectively, of total revenue, for each of the years. No single customer represented more than 10% of total revenue for any of the years ended December 31, 2014, 2013, and 2012.  

The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technology innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, product liability, Food and Drug Administration and/ or international regulatory approvals required for new products and compliance with government regulations.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost or market, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis) and market being determined as the lower of replacement cost or net realizable value.

The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over an estimated economic life of two years. Amortization expense related to demonstration units is recorded in cost of revenue or in the respective operating expense line based on which function and purpose for which it is being used for. Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged to cost of revenue.

As of December 31, 2014 and 2013, demonstration inventories included in the “Finished goods inventory” balance was $2.3 million and $1.8 million, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation recognized is on a straight-line basis over the estimated useful lives of the assets, generally as follows:

	Useful Lives
Leasehold improvements	Lesser of useful life or term of lease
Office equipment and furniture (years)	3
Machinery and equipment (years)	3

Upon sale or retirement of assets, the costs and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to operations as incurred.

Depreciation expense related to property, equipment and leasehold improvements for 2014, 2013 and 2012, were $562,000, $602,000 and $436,000 respectively. Amortization expense for vehicles leased under capital leases is included in depreciation expense.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Goodwill and Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets, is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.

The Company’s intangible assets are comprised of purchased technology sub-licenses, acquired customer relationships, and those assets acquired in conjunction with an asset acquisition in February 2012 including, existing customer relationships, product portfolio and a manufacturing process for the products acquired. All identifiable intangibles have finite lives and are carried at cost, net of accumulated amortization. Amortization was recorded using the straight-line method, over their respective useful lives, which range from approximately 11 months to 10 years.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-lived Assets

Goodwill is not amortized, but is tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. The goodwill impairment test is generally performed annually during the fourth fiscal quarter (or earlier if impairment indicators arise). The Company continues to operate in one segment, which is considered to be the sole reporting unit and therefore, goodwill was tested for impairment at the enterprise level. As of December 31, 2014, there has been no impairment of goodwill.

The Company evaluates the recoverability of its long-lived assets, which include amortizable intangible and tangible assets. Acquired intangible assets with definite useful lives are amortized over their useful lives. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. The Company recognizes such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In 2014, the Company’s impairment review indicated that certain purchased long-lived assets associated with the Iridex acquisition were impaired and an impairment charge of $650,000 was recognized. No other impairment losses were incurred in the periods presented.

Standard Product Warranty, Policy [Policy Text Block]

Warranty Obligations

The Company provides a one-year standard 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.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Product, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceutical revenue is recognized when title and risk of ownership has been transferred, provided that:

● Persuasive evidence of an arrangement exists;

● The price is fixed or determinable;

● Delivery has occurred or services have been rendered; and

● Collectability is probable.

Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. For sales transactions when collectability is not reasonably assured, the Company recognizes revenue upon receipt of cash payment. Sales to customers and distributors do not include any return or exchange rights. In addition, the Company’s distributor agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as a component of cost of revenue.

Multiple-element arrangements

A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. The Company determined that its multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: system and upgrade sales; and service contracts.

For multiple-element arrangements revenue is allocated to each element based on their relative selling prices. Relative selling prices would be based first on vendor specified objective evidence (“VSOE”), then on third-party evidence of selling price (“TPE”) when VSOE does not exist, and then on best estimate of selling price (“BESP”) when VSOE and TPE do not exist. Because the Company has neither VSOE nor TPE for its systems, the allocation of revenue has been based on the Company’s BESPs. The objective of BESP is to determine the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines BESP for its systems by considering multiple factors including, but not limited to, prices charged for stand-alone sales, features and functionality of the system, geographies, type of customer, and market conditions. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met for each element.

In the first and second quarter of 2013, with respect to the sale of its truSculpt product, the Company provided promotions that included an unlimited number of “free” hand piece replacements during a stated trial period of 3 months or 12 months. These free refills were treated as an undelivered element under FASB ASC 605-25 in the original revenue transaction. The Company deferred the relative fair value related to the estimated number of hand piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the third quarter of 2013, the Company included unlimited refills as part of the truSculpt standard warranty and determined that this was no longer a separate deliverable under the multiple-element arrangement revenue guidance. Following this change, the Company recognized the revenue under the warranty model, in which the revenue for the system sale was recognized up-front along with an estimate of the costs which will be incurred under the warranty obligation recorded in cost of revenue.

The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Service revenue, from customers whose systems are not under a service contact, is recognized as the services are provided. Service revenue for the years ended December 31, 2014, 2013, and 2012 was $17.8 million, $17.7 million, and $17.2 million, respectively.

Cost of Sales, Policy [Policy Text Block]

Cost of Revenue

Cost of revenue consists primarily of material, finished and semi-finished products purchased from third-party manufacturers, labor, stock-based compensation expenses, overhead involved in our internal manufacturing processes, technology license amortization and royalties, costs associated with product warranties and any inventory or intangible write-downs.

The Company's system sales include a control console, universal graphic user interface, control system software, high voltage electronics and a combination of applications (referred to as hand pieces). Hand pieces are programmed to have a limited number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its Titan product and provides for refurbishment of other hand pieces under warranty or service contracts. When customers purchase a replacement hand piece (or “refill”) or are provided a replacement hand piece under a warranty or service contract, Cutera ships a previously refurbished unit. Upon the receipt of the expended hand piece from the customer the Company capitalizes the expended hand piece as inventory at the estimated fair value. Cost of revenue includes the costs incurred to refurbish hand pieces.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Expenditures

Costs related to research, design, development and testing of products are charged to research and development expense as incurred. Expenses incurred primarily relate to employees, facilities, material, third party contractors and clinical and regulatory fees.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for 2014, 2013 and 2012 were $1.6 million, $1.6 million and $1.3 million, respectively.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-based Compensation

The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions under U.S. GAAP. The Company’s stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units (“RSUs”), performance stock units (“PSUs”) and stock awards are measured based on the fair market values of the underlying stock on the dates of grant. Shares are issued on the vesting dates, net of the tax withholding requirements to be paid by the Company on behalf of its employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore, the Company records the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when the shares are issued. Also, the Company recognizes stock-based compensation using the straight-line method.

U.S. GAAP requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for stock-based awards for options exercised and RSUs vested during the period (excess tax benefits) to be classified as financing cash flows.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company recognizes income taxes under the liability method. The Company recognizes deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. For deferred tax assets which are not subject to a valuation allowance, the Company has determined that its future taxable income will be sufficient to recover all of the deferred tax assets. However, should there be a change in their ability to recover the deferred tax assets, the Company could be required to record a valuation allowance against the net carrying value of its deferred tax assets. This would result in an increase to the Company’s tax provision in the period in which they determined that the recovery was not probable.

The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax basis. The deferred tax assets and liabilities reflect management’s assessment that tax positions taken, and the resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax rates that the Company expects to apply and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which the Company operates. These matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.

Valuation allowances are established when necessary to reduce deferred income tax assets to amounts that the Company believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to determine whether adjustments to our valuation allowance are appropriate. In making this evaluation, the Company relies on its recent history of pre-tax earnings, estimated timing of future deductions and benefits represented by the deferred tax assets, and its forecasts of future earnings, the latter two of which involve the exercise of significant judgment. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax asset due to a history of operating losses.

The Company establishes reserves for uncertain tax positions in accordance with the Income Taxes subtopic of ASC 740. The subtopic prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Additionally, the subtopic provides guidance on de-recognition, measurement, classification, interest and penalties, and transition of uncertain tax positions. The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax years. The Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the determination that the tax position is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The Company will record an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the ultimate assessment to be.

Earnings Per Share, Policy [Policy Text Block]

Computation of Net Lossper Share

Basic net income per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of shares and dilutive potential shares outstanding during the period. Dilutive potential shares primarily consist of employee stock options. Dilute earnings per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would be anti-dilutive.

U.S. GAAP requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional-paid-in-capital (“APIC”) when the award becomes deductible are all assumed to be used to repurchase shares.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Comprehensive loss includes all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the unrealized gains or losses on the Company's available-for-sale investments, net of tax.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency

The U.S. Dollar is the functional currency of the Company’s subsidiaries. Monetary and non-monetary assets and liabilities are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured at average exchange rates in effect during each period, except for those expenses related to non-monetary assets which are re-measured at historical exchange rates. Gains or losses resulting from foreign currency transactions are included in net income (loss) and are insignificant for each of the three years ended December 31, 2014. The effect of exchange rate changes on cash and cash equivalents was insignificant for each of the three years presented in the period ended December 31, 2014.

Segment Reporting, Policy [Policy Text Block]

Segments

The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. As of December 31, 2014 and 2013, 71% and 83%, respectively, of all long-lived assets were maintained in the U.S. See Note 10 for details relating to revenue by geography.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled to for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company in the first quarter of fiscal year 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the Consolidated Financial Statements and related disclosures.

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Note 11 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 11—COMMITMENTS AND CONTINGENCIES

Facility Leases

As of December 31, 2014, the Company was committed to minimum lease payments for facilities and other leased assets under long-term non-cancelable operating leases as follows (in thousands):

Year Ending December 31,	Amount
2015	$	1,821
2016		1,745
2017		1,722
2018		78
2019		2
Future minimum rental payments	$	5,368

Gross rent expense in 2014, 2013 and 2012 was $1.5 million, $1.6 million and $1.6 million, respectively.

VehicleLeases

As of December 31, 2014, the Company was committed to minimum lease payments for leased vehicles under long-term non-cancelable capital leases as follows (in thousands):

Year Ending December 31,	Amount
2015	$	167
2016		211
2017		24
Future minimum lease payments	$	402

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 December 31, 2014 or 2013.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations, warranties, and indemnification obligations. For example, the Company has entered into indemnification agreements with each of its directors and executive officers and certain key employees. The Company’s exposure under its various indemnification obligations is unknown and not reasonably estimable as they involve future claims that may be made against the Company. As such, the Company has not accrued any amounts for such obligations.

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 December, 2014, the Company had accrued $74,000 related to pending product liability and contractual lawsuits.

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Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 7—INCOME TAXES

The Company files income tax returns in the U.S. federal and various state and local jurisdictions and foreign jurisdictions. The Company’s loss before provision for income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2014			2013			2012
U.S.	$	(10,592	)	$	(4,919	)	$	(6,767	)
Foreign		199			118			437
Loss before income taxes	$	(10,393	)	$	(4,801	)	$	(6,330	)

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	(7	)	$	(329	)	$	(13	)
State		19			7			(56	)
Foreign		110			159			366
		122			(163	)		297
Deferred:
Federal		32			33			(12	)
State		—			—			—
Foreign		65			76			(67	)
		97			109			(79	)
Tax (benefit) provision	$	219		$	(54	)	$	218

The Company’s deferred tax asset consists of the following (in thousands):

	December 31,
	2014			2013
Net operating loss	$	12,138		$	11,014
Stock-based compensation		3,884			3,806
Other accruals and reserves		4,735			3,686
Credits		3,808			3,121
Foreign		295			360
Accrued warranty		417			441
Depreciation and amortization		998			224
Other		66			470
Deferred tax asset before valuation allowance		26,341			23,122
Valuation allowance		(26,046	)		(22,762	)
Deferred tax asset after valuation allowance		295			360
Deferred tax liability on goodwill		(71	)		(39	)
Net deferred tax asset	$	224		$	321

The Company’s deferred tax asset balance is reported in the following captions in the Consolidated Balance Sheets (in thousands):

	December 31,
	2014			2013
Deferred tax asset (current portion)	$	26		$	31
Deferred tax asset, net of current portion		269			329
Accrued liabilities (non-current deferred tax liability)		(71	)		(39	)
Net deferred tax asset after valuation allowance	$	224		$	321

The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:

	Year Ended December 31,
	2014			2013			2012
U.S. federal statutory income tax rate		34.00	%		35.00	%		35.00	%
State tax rate, net of federal benefit		1.62			1.57			3.28
Benefit for research and development credit		7.24			19.91			3.40
Foreign rate differential		(1.04	)		(4.53	)		(1.49	)
Changes in unrecognized tax benefits		(0.53	)		2.60			1.06
Foreign income inclusion		—			—			(0.05	)
Income tax refund		0.08			0.19			1.07
Stock-based compensation		(5.56	)		(34.33	)		(21.31	)
Meals and entertainment		(1.11	)		(2.10	)		(1.68	)
Tax effect of other comprehensive income		—			—			0.28
Valuation allowance		(36.58	)		(17.82	)		(21.15	)
Other		(0.22	)		0.63			(1.86	)
Effective tax rate		(2.10	)%		1.12	%		(3.45	)%

The Company recognizes deferred tax assets for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. The Company records a valuation allowance to reduce the deferred tax assets to their estimated realizable value, when it is more likely than not that it will not be able to generate sufficient future taxable income to realize the net carrying value. The Company has recorded a full valuation allowance against its U.S. federal and state deferred tax assets due to its history of operating losses. In the years ended December 31, 2014, 2013 and 2012, there was a net increase in the valuation allowance of $3.3 million, $0.9 million, and $1.4 million, respectively.

As of December 31, 2014, the Company had cumulative net operating loss carry-forwards for federal and state income tax reporting purposes of approximately $34.3 million and $10.4 million, respectively. The federal net operating loss carry-forwards expire through the year 2034 and the state net operating loss carry-forwards expire at various dates through the year 2033. The Company maintained a valuation allowance against these net operating loss carry-forwards as of December 31, 2014.

As of December 31, 2014, the Company had research and development tax credits for federal and state income tax purposes of approximately $4.2 million and $5.1 million, respectively. The federal research and development tax credits expire through the year 2034. The state research and development credits can be carried forward indefinitely, except for $284,000, which will expire at various dates through the year 2020. The Company maintained a valuation allowance against these tax credits as of December 31, 2014.

Included in the net operating loss and research and development tax credit carryforwards are approximately $4.2 million of excess tax benefits from employee stock option exercises, for which the Company has not recorded a deferred tax asset. When such excess tax benefits are ultimately realized, the Company will record the deferred tax asset and the credit to additional paid in capital.

Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 of the Internal Revenue Code. Similar rules may apply under state tax laws. The Company has not conducted a study to-date to assess whether a limitation would apply under Section 382 of the Internal Revenue Code as and when it starts utilizing its net operating losses and tax credits. The Company will continue to monitor activities in the future. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

Undistributed earnings of the Company’s foreign subsidiaries at both December 31, 2014 and 2013 were approximately $2.6 million, are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes has been provided thereon. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability would be reduced by any foreign income taxes previously paid on these earnings. Because of the availability of U.S. foreign tax credits, the determination of the unrecognized deferred tax liability on these earnings is not practicable.

Uncertain Tax Positions

The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax years. If the Company ultimately determines that payment of these amounts are not more-likely-than-not, the Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the determination. The Company will record an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the ultimate assessment to be. The Company’s policy is to include interest and penalties related to gross unrecognized tax benefits within the provision for income taxes.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2004 through 2014 tax years generally remain subject to examination by U.S., federal and California state tax authorities due to the Company’s net operating loss and credit carryforwards. For significant foreign jurisdictions, the 2009 through 2014 tax years generally remain subject to examination by their respective tax authorities.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits in December 31, 2012 to December 31, 2014 (in thousands):

	Year Ended December 31,
	2014		2013			2012
Balance at beginning of year	$	535	$	536		$	583
Increases related to prior year tax positions		—		36			—
Increases related to current year tax positions		62		116			29
Decreases related to lapsing of statute of limitations		—		(153	)		(76	)
Balance at end of year	$	597	$	535		$	536

The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate at December 31, 2014 and 2013, were approximately $33,000. As of December 31, 2014 and 2013, the Company had accrued approximately $41,000 and $37,000 for payment of interest, respectively. Interest included in the provision for income taxes was not significant in all the periods presented. The Company has not accrued any penalties related to its uncertain tax positions as it believes that it is more likely than not that there will not be any assessment of penalties. The Company expects that the amount of unrecognized tax benefits will not materially change within the next 12 months.

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Stock-based Compensation Expense by Department (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 3,299	$ 3,110	$ 3,160
Cost of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	560	638	658
Selling and Marketing Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	641	744	657
Research and Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	581	397	514
General and Administrative Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 1,517	$ 1,331	$ 1,331

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Note 5 - Warranty and Service Contracts

12 Months Ended

Dec. 31, 2014

Product Warranties Disclosures [Abstract]

Product Warranty Disclosure [Text Block]

NOTE 5—WARRANTY AND SERVICE CONTRACTS

The Company has a direct field service organization in the U.S. Internationally, the Company provides direct service support through its wholly-owned subsidiaries in Australia, Belgium, Canada, France and Japan as well as through a network of distributors and third-party service providers in several other countries where it does not have a direct presence. The Company provides a warranty with its products, depending on the type of product. After the original warranty period, maintenance and support are offered on a service contract basis or on a time and materials basis. The Company currently provides for the estimated cost to repair or replace products under warranty at the time of sale.

Warranty Accrual (in thousands)

	December 31,
	2014			2013
Balance at beginning of year	$	1,202		$	1,212
Add: Accruals for warranties issued during the year		2,497			3,420
Less: Settlements made during the year		(2,532	)		(3,430	)
Balance at end of year	$	1,167		$	1,202

Deferred Service Contract Revenue (in thousands)

	December 31,
	2014			2013
Balance at beginning of year	$	11,637		$	8,539
Add: Payments received		13,913			15,026
Less: Revenue recognized		(12,601	)		(11,928	)
Balance at end of year	$	12,949		$	11,637

Costs incurred under service contracts in 2014, 2013 and 2012 amounted to $6.6 million, $6.9 million, and $7.2 million, respectively, and are recognized as incurred.

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 6—STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION EXPENSE

As of December 31, 2014, the Company had the following stock-based employee compensation plans:

2004 Equity Incentive Plan and 1998 Stock Plan 

In 1998, the Company adopted the 1998 Stock Plan, or 1998 Plan, under which 4,650,000 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants.

On January 12, 2004, the Board of Directors adopted the 2004 Equity Incentive Plan. A total of 1,750,000 shares of common stock were originally reserved for issuance pursuant to the 2004 Equity Incentive Plan. In addition, the shares reserved for issuance under the 2004 Equity Incentive Plan included shares reserved but un-issued under the 1998 Plan and shares returned to the 1998 Plan as the result of termination of options or the repurchase of shares. In 2012 the stockholders approved a “fungible share” provision whereby each full-value award issued under the 2004 Equity Incentive Plan results in a requirement to subtract 2.12 shares from the shares reserved under the Plan.

Options granted under the 1998 Plan and 2004 Equity Incentive Plan may be incentive stock options or non-statutory stock options. Stock purchase rights may also be granted under the 2004 Equity Incentive Plan. Incentive stock options may only be granted to employees. The Board of Directors determines the period over which options become exercisable. Options granted under the Plan to employees generally vest over a four year term from the vesting commencement date and become exercisable 25% on the first anniversary of the vesting commencement date and an additional 1/48th on the last day of each calendar month until all of the shares have become exercisable. During 2013 and 2012 the officers of the Company were granted options that vest over a three year term at the rate of 1/3^rd on the one year anniversary of the vesting commencement date and 1/36^th thereafter. In 2014 the officers of the Company were granted RSUs and PSUs but were not granted any options. The contractual term of the options granted in 2013 and 2012 was seven years.

In accordance with the 2004 Equity Incentive Plan, prior to 2012, the Company’s non-employee directors were granted $60,000 of grant date fair value, fully vested, stock awards annually on the date of the Company’s Annual Meeting of stockholders. Commencing with 2012, the Company’s non-employee directors get $60,000 of RSUs annually that cliff-vest on the one year anniversary of the grant date. In the years ended December 31, 2014, 2013 and 2012, the Company issued 38,688, 40,674 and 52,938 shares of stock to its non-employee directors, respectively.

In the years ended December 31, 2014 and 2013, the Company’s Board of Directors granted 211,250 and 148,004, respectively, of RSUs to its executive officers and certain members of the Company’s management. The RSUs granted to the employees vest at the rate of one-fourth on the one-year anniversary of the grant date, and one-fourth in each of the subsequent three years. The RSUs granted to the executive officers vest at the rate of one-third on the one-year anniversary of the grant date, and one-third in each of the subsequent two years. The Company measured the fair market values of the underlying stock on the dates of grant and recognizes the stock-based compensation expense using the straight-line method over the vesting period.

In addition, in the years ended December 31, 2014 and 2013 the Company’s Board of Directors granted its executive officers and certain senior management employees 105,000 and 33,751 of PSUs that had a vesting date of June 30, 2015, and June 1, 2014, respectively, subject to the recipient’s continued service through that date and achievement of the pre-established performance objectives. At the vest date, the Company issues fully-paid up common stock, based on the degree of achievement towards pre-established targets. The Company’s targets were based on revenue and operating loss improvements, compared to the same period in the prior year. The Company recognizes stock based compensation expense over the requisite services period if it is probable that the performance goals will be met.

2004 Employee Stock Purchase Plan

On January 12, 2004, the Board of Directors adopted the 2004 Employee Stock Purchase Plan. Under the 2004 Employee Stock Purchase Plan, or 2004 ESPP, eligible employees are permitted to purchase common stock at a discount through payroll deductions. The 2004 ESPP offering and purchase periods are for approximately six months. The 2004 ESPP has an evergreen provision based on which shares of common stock eligible for purchase are increased on the first day of each fiscal year by an amount equal to the lesser of:

i. 600,000 shares;

ii. 2.0% of the outstanding shares of common stock on such date; or

iii. an amount as determined by the Board of Directors.

The Company’s Board of Directors did not increase the shares available for future grant on January 1, 2014, 2013, 2012 and 2011. The price of the common stock purchased is the lower of 85% of the fair market value of the common stock at the beginning or end of a six month offering period. In the years ended December 31, 2014 and 2013, under the 2004 ESPP, the Company issued 52,759 and 51,338 shares, respectively. At December 31, 2014, 905,857 shares remained available for future issuance.

Option Activity

Activity under the 1998 Plan and 2004 Equity Incentive Plan is summarized as follows:

				Options Outstanding
	Shares Available For Grant			Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in $ millions)(1)
Balances as of December 31, 2011		474,537			3,549,022		$	9.92		4.6		0.4
Additional shares reserved(2)		1,910,000			—			—
Options granted		(921,500	)		921,500		$	7.04
Options exercised		—			(211,551	)	$	7.00
Options cancelled (expired or forfeited)		470,732			(470,732	)	$	9.45
Stock awards granted		(314,159	)		—			—
Stock awards cancelled (expired or forfeited)		24,746			—			—
Balances as of December 31, 2012		1,644,356			3,788,239		$	9.44		4.3	$	2.6
Options granted		(1,007,166	)		1,007,166		$	8.97
Options exercised		—			(612,210	)	$	8.16
Options cancelled (expired or forfeited)		391,033			(391,033	)	$	10.37
Stock awards granted		(399,997	)		—			—
Stock awards cancelled (expired or forfeited)		81,257			—			—
Balances as of December 31, 2013		709,483			3,792,162		$	9.42		4.2	$	5.1
Additional shares reserved(3)		200,000			—			—
Options granted		(486,300	)		486,300		$	9.78
Options exercised		—			(396,970	)	$	8.33
Options cancelled (expired or forfeited)		418,925			(418,925	)	$	11.15
Stock awards granted		(764,394	)		—			—
Stock awards cancelled (expired or forfeited)		52,046			—			—
Balances as of December 31, 2014		129,760			3,462,567		$	9.39		3.4	$	5.7
Exercisable as of December 31, 2014					2,330,762		$	9.62		2.7	$	3.7
Expected to vest, net of estimated forfeitures, as of December 31, 2014					909,562		$	8.86		4.96	$	1.7

(1)	Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(2)	Approved by stock holders in 2012.
(3)	Approved by Board of Directors in 2014, subject to stock holder’s approval in 2015.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the Company’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. The aggregate intrinsic amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised in 2014, 2013 and 2012 was $824,000, $2.1 million, and $397,000, respectively. The options outstanding and exercisable at December 31, 2014 were in the following exercise price ranges:

		Options Outstanding			Options Exercisable
Range of Exercise Price		Number Outstanding	Weighted-Average Remaining Contractual Life (in years)		Number Outstanding		Weighted-Average Exercise Price
$	6.54	17,125		1.30		17,125	$	6.54
$	6.88	460,530		4.37		278,266		6.88
$	7.11–$ 8.66	442,525		1.63		428.942		8.53
$	8.72	473,989		3.21		431,615		8.72
$	8.80	553,795		5.08		196,926		8.80
$	8.81–$9.65	432,778		5.47		114,960		9.15
$	9.74–$10.03	183,000		4.66		28,000		9.74
$	10.24	441,325		2.21		441,325		10.24
$	10.32–$14.78	354,500		1.36		290,603		11.14
$	16.25–$25.73	103,000		0.81		103,000		20.93
$	6.54–$25.73	3,462,567		3.42		2,330,762	$	9.62

As of December 31, 2013 there were 2,221,657 options that were exercisable at a weighted average exercise price of $10.14. 

Stock Awards(RSU and PSU)Activity Table

Information with respect to restricted stock units’ and performance stock units’ activity is as follows (in thousands):

	Number of Shares			Weighted-Average Grant- Date Fair Value		Aggregate Fair Value(1) (in thousands)			Aggregate Intrinsic Value(2) (in thousands)
Outstanding at December 31, 2011		55,253		$	9.55				$	412
Granted		148,188		$	6.85
Vested (3)		(41,522	)	$	9.79	$	279	(4)
Forfeited		(13,210	)	$	7.39
Outstanding at December 31, 2012		148,709		$	6.99				$	1,338
Granted		188,678		$	8.94
Vested (3)		(119,505	)	$	7.68	$	1,091	(5)
Forfeited		(38,417	)	$	8.11
Outstanding at December 31, 2013		179,465		$	8.34				$	1,827
Granted		360,563		$	9.72
Vested (3)		(81,157	)	$	8.62	$	777	(6)
Forfeited		(24,550	)	$	8.14
Outstanding at December 31, 2014		434,321		$	9.31				$	4,639

(1)	Represents the value of the Company’s stock on the date that the restricted stock units vest.
(2)	Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(3)	The number of restricted stock units vested includes shares that the Company withheld on behalf of the employees to satisfy the statutory tax withholding requirements.
(4)	On the grant date, the fair value for these vested awards was $407,000.
(5)	On the grant date, the fair value for these vested awards was $917,000.
(6)	On the grant date, the fair value for these vested awards was $699,000.

Performance Stock Units

In 2014 and 2013, the Company granted its executive officers and certain senior management 105,000 and 33,751 PSUs that vest on June 30, 2015 and June 1, 2014, respectively, subject to the recipient’s continued service through that date. At the vest date, the Company issues fully-paid up common stock based on the percentage achievement of each performance goal. For the July 1, 2014 to June 30, 2015 PSUs, there are three performance goals. For the June 1, 2013 to May 30, 2014 PSUs, there were also three performance goals, related to Company revenue and profitability targets, based on which the Company issued 5,625 shares of common stock on June 1, 2014.

Stock-Based Compensation

Stock-based compensation expense for stock options, restricted stock units, stock awards and ESPP shares for the year ended December 31, 2014, 2013 and 2012 was as follows (in thousands):

	Year Ended December 31,
	2014		2013		2012
Stock options	$	1,811	$	2,201	$	2,421
RSUs		875		631		501
PSUs		455		162		138
ESPP		158		116		100
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

As of December 31, 2014, the unrecognized compensation cost, net of expected forfeitures, was $4.9 million for stock options and stock awards, which will be recognized using the straight-line attribution method over an estimated weighted-average remaining amortization period of 2.31 years. For the ESPP, the unrecognized compensation cost, net of expected forfeitures, was $59,000, which will be recognized using the straight- line attribution method over an estimated weighted-average amortization period 0.33 years.

The Company issues new shares of common stock upon the exercise of stock options, vesting of RSUs and PSUs, and the issuance of ESPP shares. The amount of cash received from these issuances, net of taxes withheld and paid, in 2014, 2013 and 2012 was $3.6 million, $5.2 million and $1.7 million. The total direct tax benefit realized, including the excess tax benefit, from stock-based award activity was $6,000 in 2012. There was no direct tax benefit (deficit) in 2013 or 2014. The Company elected to account for the indirect effects of stock-based awards—primarily the research and development tax credit—through the Statement of Operations.

Total stock-based compensation expense recorded by department during the year ended December 31, 2014, 2013 and 2012 was as follows (in thousands):

	Year Ended December 31,
	2014		2013		2012
Cost of revenue	$	560	$	638	$	658
Sales and marketing		641		744		657
Research and development		581		397		514
General and administrative		1,517		1,331		1,331
Total stock-based compensation expense	$	3,299	$	3,110	$	3,160

Valuation Assumptions and Fair Value of Stock Options and ESPP Grants

The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted under its equity incentive plans and rights to acquire stock granted under its employee stock purchase plan. The Company based the weighted average estimated values of employee stock option grants and rights granted under the employee stock purchase plan, as well as the weighted average assumptions used in calculating these values, on estimates at the date of grant, as follows:

	Stock Options									Stock Purchase Plan
	2014			2013			2012			2014			2013			2012
Expected term (in years)(1)		4.18			4.30			4.17			0.50			0.50			0.50
Risk-free interest rate(2)		1.31	%		1.13	%		0.45	%		0.06	%		0.08	%		0.15	%
Volatility(3)		41	%		43	%		44	%		37	%		44	%		43	%
Dividend yield(4)		—	%		—	%		—	%		—	%		—	%		—	%
Weighted average estimated fair value at grant date	$	3.36		$	3.22		$	2.47		$	2.65		$	2.84		$	2.16

(1)	The expected term represents the period during which the Company’s stock-based awards are expected to be outstanding. The estimated term is based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.
(2)	The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.
(3)	Estimated volatility is based on historical volatility. The Company also considers implied volatility when there is sufficient volume of freely traded options with comparable terms and exercise prices in the open market.
(4)	The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.

The Company periodically estimates forfeiture rates based on its historical experience within separate groups of employees and adjusts the stock-based payment expense accordingly.

RSU Withholdings

For RSUs granted to employees, the number of shares issued on the date the RSUs vest is net of the tax withholding requirements paid on behalf of the employees. In 2014, 2013 and 2012, the Company withheld 15,769, 24,249, and 14,974 shares of common stock, respectively, to satisfy its employees’ tax obligations of $156,000, $222,000, and $101,000, respectively. The Company paid this amount in cash to the appropriate taxing authorities. Although shares withheld are not issued, they are treated as common stock repurchases for accounting and disclosure purposes, as they reduce the number of shares that would have been issued upon vesting.

Share Repurchase Program

On August 5, 2013, the Company’s Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in November 2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased. As modified, the stock buyback program permits the Company to purchase an aggregate of $20 million of its common stock through a 10b5-1 program based on predetermined pricing and volume as well as open-market purchases that are subject to management discretion and regulatory restrictions

In the year ended December 31, 2013, the Company repurchased 1,060,447 shares of its common stock at an average price of $9.43 per share, for approximately $10.0 million. The Company did not repurchase any shares of its common stock in 2014. As of December 31, 2014, there remained an additional $10.0 million of the Company's common stock to be purchased under the modified stock buyback program. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company's common stock, regulatory restrictions, and general market and business conditions.

On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock. The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.

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Note 8 - Net Loss Per Share

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 8—NET LOSS PER SHARE

Diluted earnings per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would be anti-dilutive. The following number of weighted 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 years presented because including them would have had an anti-dilutive effect (in thousands):

	Year Ended December 31,
	2014		2013		2012
Options to purchase common stock		3,489		3,830		3,746
Restricted stock units		213		173		97
Employee stock purchase plan shares		86		72		78
Performance stock units		37		34		8
Total		3,825		4,109		3,929

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Note 7 - Income Taxes (Details) - Income Tax Provision (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Current:
Federal									$ (7)	$ (329)	$ (13)
State									19	7	(56)
Foreign									110	159	366
									122	(163)	297
Deferred:
Federal									32	33	(12)
Foreign									65	76	(67)
									97	109	(79)
Tax (benefit) provision	$ 41	$ 97	$ 44	$ 37	$ 43	$ (169)	$ 90	$ (18)	$ 219	$ (54)	$ 218

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Note 7 - Income Taxes (Details) - Deferred Tax Asset Balance (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Deferred Tax Asset Balance [Abstract]
Deferred tax asset (current portion)	$ 26	$ 31
Deferred tax asset, net of current portion	269	329
Accrued liabilities (non-current deferred tax liability)	(71)	(39)
Net deferred tax asset after valuation allowance	$ 224	$ 321

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Note 7 - Income Taxes (Details) - Loss Before Provision for Income Taxes (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Loss Before Provision for Income Taxes [Abstract]
U.S.									$ (10,592)	$ (4,919)	$ (6,767)
Foreign									199	118	437
Loss before income taxes	$ (1,584)	$ (2,539)	$ (2,697)	$ (3,573)	$ (235)	$ (1,837)	$ (548)	$ (2,181)	$ (10,393)	$ (4,801)	$ (6,330)

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Note 13 - Supplementary Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information [Table Text Block]

Quarter ended:	Dec. 31, 2014			Sept. 30, 2014			June 30, 2014			March 31, 2014			Dec. 31, 2013			Sept. 30, 2013			June 30, 2013			March 31, 2013
Net revenue	$	25,499		$	18,726		$	17,724		$	16,189		$	22,239		$	16,828		$	19,560		$	15,967
Cost of revenue		11,679			7,935			7,848			7,303			9,202			7,651			8,442			7,417
Gross profit		13,820			10,791			9,876			8,886			13,037			9,177			11,118			8,550
Operating expenses:
Sales and marketing		9,356			7,805			7,754			7,331			7,804			6,554			7,170			6,456
Research and development		2,649			2,628			2,622			2,644			2,438			2,440			2,217			2,121
General and administrative		3,407			2,897			2,335			2,564			3,135			2,160			2,354			2,289
Total operating expenses		15,412			13,330			12,711			12,539			13,377			11,154			11,741			10,866
Income (loss) from operations		(1,592	)		(2,539	)		(2,835	)		(3,653	)		(340	)		(1,977	)		(623	)		(2,316	)
Interest and other income, net		8			—			138			80			105			140			75			135
Income (loss) before income taxes		(1,584	)		(2,539	)		(2,697	)		(3,573	)		(235	)		(1,837	)		(548	)		(2,181	)
Income tax provision (benefit)		41			97			44			37			43			(169	)		90			(18	)
Net income (loss)	$	(1,625	)	$	(2,636	)	$	(2,741	)	$	(3,610	)	$	(278	)	$	(1,668	)	$	(638	)	$	(2,163	)
Net income (loss) per share—basic	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Net income (loss) per share—diluted	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Weighted average number of shares used in per share calculations:
Basic		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408
Diluted		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408

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Note 4 - Balance Sheet Detail (Details) - Accrued Liabilities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Accrued Liabilities [Abstract]
Payroll and related expenses	$ 5,533	$ 4,753
Sales tax	1,789	1,307
Warranty	1,167	1,202
Other	2,518	2,066
Total	$ 11,007	$ 9,328

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Note 13 - Supplementary Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Text Block]

Quarter ended:	Dec. 31, 2014			Sept. 30, 2014			June 30, 2014			March 31, 2014			Dec. 31, 2013			Sept. 30, 2013			June 30, 2013			March 31, 2013
Net revenue	$	25,499		$	18,726		$	17,724		$	16,189		$	22,239		$	16,828		$	19,560		$	15,967
Cost of revenue		11,679			7,935			7,848			7,303			9,202			7,651			8,442			7,417
Gross profit		13,820			10,791			9,876			8,886			13,037			9,177			11,118			8,550
Operating expenses:
Sales and marketing		9,356			7,805			7,754			7,331			7,804			6,554			7,170			6,456
Research and development		2,649			2,628			2,622			2,644			2,438			2,440			2,217			2,121
General and administrative		3,407			2,897			2,335			2,564			3,135			2,160			2,354			2,289
Total operating expenses		15,412			13,330			12,711			12,539			13,377			11,154			11,741			10,866
Income (loss) from operations		(1,592	)		(2,539	)		(2,835	)		(3,653	)		(340	)		(1,977	)		(623	)		(2,316	)
Interest and other income, net		8			—			138			80			105			140			75			135
Income (loss) before income taxes		(1,584	)		(2,539	)		(2,697	)		(3,573	)		(235	)		(1,837	)		(548	)		(2,181	)
Income tax provision (benefit)		41			97			44			37			43			(169	)		90			(18	)
Net income (loss)	$	(1,625	)	$	(2,636	)	$	(2,741	)	$	(3,610	)	$	(278	)	$	(1,668	)	$	(638	)	$	(2,163	)
Net income (loss) per share—basic	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Net income (loss) per share—diluted	$	(0.11	)	$	(0.18	)	$	(0.19	)	$	(0.26	)	$	(0.02	)	$	(0.11	)	$	(0.04	)	$	(0.15	)
Weighted average number of shares used in per share calculations:
Basic		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408
Diluted		14,425			14,334			14,231			14,021			14,016			14,541			14,723			14,408

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Note 3 - Acquisition (Tables)

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

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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Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets [Line Items]
Finite-lived intangible assets, accumulated amortization amount	$ 4,068	$ 2,643
Intangible assets, net amount	595
Goodwill, gross carrying amount	1,339	1,339
Goodwill, net amount	1,339	1,339
Total intangible assets, gross carrying amount	6,002	6,002
Total finite-lived intangible assets, accumulated amortization amount	4,068	2,643
Total intangible assets, net amount	1,934	3,359
Patents [Member]
Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets [Line Items]
Intangible assets, gross carrying amount	1,218	1,218
Finite-lived intangible assets, accumulated amortization amount	1,206	1,068
Intangible assets, net amount	12	150
Total finite-lived intangible assets, accumulated amortization amount	1,206	1,068
Customer Relationships [Member]
Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets [Line Items]
Intangible assets, gross carrying amount	2,510	2,510
Finite-lived intangible assets, accumulated amortization amount	1,998	962
Intangible assets, net amount	512	1,548
Total finite-lived intangible assets, accumulated amortization amount	1,998	962
Other Intangible Assets [Member]
Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets [Line Items]
Intangible assets, gross carrying amount	780	780
Finite-lived intangible assets, accumulated amortization amount	780	607
Intangible assets, net amount		173
Total finite-lived intangible assets, accumulated amortization amount	780	607
Other Intangible [Member]
Note 4 - Balance Sheet Detail (Details) - Goodwill and Other Intangible Assets [Line Items]
Intangible assets, gross carrying amount	155	155
Finite-lived intangible assets, accumulated amortization amount	84	6
Intangible assets, net amount	71	149
Total finite-lived intangible assets, accumulated amortization amount	$ 84	$ 6

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Note 2 - Investment Securities (Details) - Estimated Fair Value of Marketable Investments and Long-term Investments (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Estimated Fair Value of Marketable Investments and Long-term Investments [Abstract]
Due in less than one year (fiscal year 2015)	$ 37,023
Due in 1 to 3 years (fiscal year 2016 - 2017)	34,320
	$ 71,343	$ 66,831

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Consolidated Statements of Comprehensive Loss (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net loss	$ (10,612)	$ (4,747)	$ (6,548)
Available-for-sale investments
Net change in unrealized gain (loss) on available-for-sale investments	(42)	(21)	959
Less: Reclassification adjustment for net gains on investments recognized during the year	(4)	(9)	(19)
Net change in unrealized gain (loss) on available-for-sale investments	(46)	(30)	940
Tax provision (benefit)			18
Other comprehensive income (loss), net of tax	(46)	(30)	922
Comprehensive loss	$ (10,658)	$ (4,777)	$ (5,626)

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Note 2 - Investment Securities

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) [Text Block]

NOTE 2—INVESTMENT SECURITIES

The following tables summarize cash, cash equivalents and marketable securities (in thousands):

	December 31,
	2014		2013
Cash and cash equivalents:
Cash	$	7,761	$	3,816
Cash equivalents:
Money market funds		242		9,926
Commercial paper		1,800		2,500
Total cash and cash equivalents		9,803		16,242
Marketable securities:
U.S. government notes		18,361		10,522
U.S. government agencies		19,800		25,858
Municipal securities		3,607		2,039
Commercial paper		10,695		10,242
Corporate debt securities		18,880		18,170
Total marketable securities		71,343		66,831
Total cash, cash equivalents and marketable securities	$	81,146	$	83,073

The following table summarizes unrealized gains and losses related to our marketable investments (in thousands):

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	9,803	$	—	$	—		$	9,803
Marketable investments
U.S. government notes		18,345		17		(1	)		18,361
U.S. government agencies		19,768		33		(1	)		19,800
Municipal securities		3,607		3		(3	)		3,607
Commercial paper		10,693		2		—			10,695
Corporate debt securities		18,875		13		(8	)		18,880
Total marketable securities		71,288		68		(13	)		71,343
Total cash, cash equivalents and marketable securities	$	81,091	$	68	$	(13	)	$	81,146

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	16,242	$	—	$	—		$	16,242
Marketable investments
U.S. government notes		10,516		11		(5	)		10,522
U.S. government agencies		25,823		38		(3	)		25,858
Municipal securities		2,043		1		(5	)		2,039
Commercial paper		10,239		3		—			10,242
Corporate debt securities		18,109		61		—			18,170
Total marketable securities		66,730		114		(13	)		66,831
Total cash, cash equivalents and marketable securities	$	82,972	$	114	$	(13	)	$	83,073

No investments were in a continuous unrealized loss position for longer than 12 months.

The following table summarizes the estimated fair value of our marketable investments classified by the contractual maturity date of the security as of December 31, 2014 (in thousands):

	Amount
Due in less than one year (fiscal year 2015)	$	37,023
Due in 1 to 3 years (fiscal year 2016 - 2017)		34,320
	$	71,343

Fair Value Measurements

The following table summarizes 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 (in thousands):

December 31, 2014	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	242	$	—	$	—	$	242
Commercial paper		—		1,800		—		1,800
Short term marketable investments:
Available-for-sale securities		—		71,343		—		71,343
Total assets at fair value	$	242	$	73,143	$	—	$	73,385

December 31, 2013	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	9,926	$	—	$	—	$	9,926
Commercial paper		—		2,500		—		2,500
Short term marketable investments:
Available-for-sale securities		—		66,831		—		66,831
Total assets at fair value	$	9,926	$	69,331	$	—	$	79,257

The Company’s Level 1 financial assets are money market funds with fair values are based on quoted market prices 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 December 31, 2014 is less than 36 months and all of these investments are rated by S&P and Moody’s at A or better.

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 Auction Rate Securities, for the year ended December 31, 2012 (in thousands):

	Amount
Balance at December 31, 2011	$	3,027
Total gains or losses (realized or unrealized)
Included in other comprehensive income (loss)		262
Settlements		(3,289	)
Balance at December 31, 2012, 2013 and 2014	$	—

At December 31, 2014, the Company evaluated the fair values of its intangible assets, which are classified within Level 3 of the fair value hierarchy. With respect to the purchased intangible assets associated with the Iridex acquisition in 2012, the Company determined that there was impairment in the value of these intangible assets based on an undiscounted cash flow model. Based on a discounted cash flow model, we measured the impairment of the purchased intangibles. This model relied on Level 3 inputs that included expected future cash flow streams as well as a market discount rate and is subject to uncertainties that are difficult to predict.

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Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Restricted Stock Units Activity (Restricted Stock Units (RSUs) [Member], USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Restricted Stock Units (RSUs) [Member]
Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense (Details) - Restricted Stock Units Activity [Line Items]
Number of shares outstanding, balance	434,321		179,465		148,709		55,253
Shares outstanding, weighted-average grant-date fair value	$ 9.31		$ 8.34		$ 6.99		$ 9.55
Shares outstanding, aggregate intrinsic value	$ 4,639	[1]	$ 1,827	[1]	$ 1,338	[1]	$ 412	[1]
Shares vested, number of shares	(81,157)	[2]	(119,505)	[2]	(41,522)	[2]
Shares vested, weighted-average grant-date fair value	$ 8.62	[2]	$ 7.68	[2]	$ 9.79	[2]
Shares vested, aggregate fair value	$ 777	[2],[3],[4]	$ 1,091	[2],[3],[5]	$ 279	[2],[3],[6]
Shares forfeited, number of shares	(24,550)		(38,417)		(13,210)
Shares forfeited, weighted-average grant-date fair value	$ 8.14		$ 8.11		$ 7.39
Number of shares granted	360,563		188,678		148,188
Shares granted, weighted-average grant-date fair value	$ 9.72		$ 8.94		$ 6.85

[1] Based on the closing stock price of the Company's stock of $10.68 on December 31, 2014, $10.18 on December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.

[2] The number of restricted stock units vested includes shares that the Company withheld on behalf of the employees to satisfy the statutory tax withholding requirements.

[3] Represents the value of the Company's stock on the date that the restricted stock units vest.

[4] On the grant date, the fair value for these vested awards was $699,000.

[5] On the grant date, the fair value for these vested awards was $917,000.

[6] On the grant date, the fair value for these vested awards was $407,000.

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Note 8 - Net Loss Per Share (Details) - Antidilutive Securities Excluded from Computation of Earnings Per Share In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	3,825	4,109	3,929
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	3,489	3,830	3,746
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	213	173	97
ESPP [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	86	72	78
Performance Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	37	34	8

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Note 4 - Balance Sheet Detail (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Schedule of Inventory, Current [Table Text Block]

	December 31,
	2014		2013
Raw materials	$	7,185	$	5,989
Finished goods		3,803		3,017
Total	$	10,988	$	9,006

Property, Plant and Equipment [Table Text Block]

	December 31,
	2014			2013
Leasehold improvements	$	641		$	625
Office equipment and furniture		2,964			3,285
Machinery and equipment		4,140			3,876
		7,745			7,786
Less: Accumulated depreciation		(6,284	)		(6,424	)
Property and equipment, net	$	1,461		$	1,362

Schedule of Intangible Assets and Goodwill [Table Text Block]

	Gross Carrying Amount		Accumulated Amortization & Impairment Amount		Net Amount
December 31, 2014
Patent sublicense	$	1,218	$	1,206	$	12
Customer relationship intangible related to acquisition		2,510		1,998		512
Other identified intangible assets related to acquisition		780		780		—
Other intangible		155		84		71
Goodwill		1,339		—		1,339
Total	$	6,002	$	4,068	$	1,934
December 31, 2013
Patent sublicense	$	1,218	$	1,068	$	150
Customer relationship intangible related to acquisition		2,510		962		1,548
Other identified intangible assets related to acquisition		780		607		173
Other intangible		155		6		149
Goodwill		1,339		—		1,339
Total	$	6,002	$	2,643	$	3,359

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year ending December 31,	Amount
2015	$	452
2016		142
2017		1
Total	$	595

Schedule of Accrued Liabilities [Table Text Block]

	December 31,
	2014		2013
Payroll and related expenses	$	5,533	$	4,753
Sales tax		1,789		1,307
Warranty		1,167		1,202
Other		2,518		2,066
Total	$	11,007	$	9,328

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Note 11 - Commitments and Contingencies (Details) - Minimum Lease and Other Leased Assets under Long-term Non-cancellable Operating Leases (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Minimum Lease and Other Leased Assets under Long-term Non-cancellable Operating Leases [Abstract]
2015	$ 1,821
2016	1,745
2017	1,722
2018	78
2019	2
Future minimum rental payments	$ 5,368

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Note 2 - Investment Securities (Details) (Fair Value, Inputs, Level 2 [Member])	12 Months Ended
	Dec. 31, 2014
Fair Value, Inputs, Level 2 [Member]
Note 2 - Investment Securities (Details) [Line Items]
Maturity of Money Market Fund	36 months

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Note 12 - Subsequent Events

12 Months Ended

Dec. 31, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 12—SUBSEQUENT EVENTS

On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock. The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.