PART IFORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking“forward-looking statements” that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “might,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” or variations of these terms and similar expressions, or variationsthe negative of these terms or similar expressions intended to identify forward-looking statements. TheseForward-looking statements are necessarily based on the beliefsestimates and assumptions of ourthat, while considered reasonable by Cutera and its management based on information currently available to management. Such forward-lookingtheir knowledge and understanding of the business and industry, are inherently uncertain. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included under Part I, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertakethe Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

The following discussion and analysis should be read in conjunction with and are qualified in their entirety by reference to the discussions included in Item 1A - Risk Factors, Item 7 - Management’s Discussion & Analysis of Financial Condition and Results of Operations, and elsewhere in this Annual Report on Form 10-K.

In thisthis Annual Report on Form 10-K, unless the context otherwise requires, references to the “Company,” “Cutera,” “we,” “us” and “our” refers to Cutera, Inc.

WeIn this Annual Report on Form 10-K, “Cutera,” “the Company,” “we,” “us” and “our” refer to Cutera, Inc. and its consolidated subsidiaries. Cutera^®, AcuTip^®, CoolGlide^®, CoolGlide excel^®, enlighten^®, excel HR^®, excel V^®, LimeLight^®, myQ^®, Pearl^®, PicoGenesis™, ProWave 770^®, Solera^®, Titan^®, truSculpt^®, Vantage^® and xeo^® are trademarks or registered trademarks of the Company.

Company Background

Cutera was formed in 1988 as a Deleware corporation and is a global medical device company founded as a Delaware corporation in 1998 and have our headquarters in Brisbane, California. We specialize in the design, development, manufacture, marketing and servicingprovider of laser and other energy based aestheticsenergy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets light and energy-based product platforms for use by physicians and other qualified practitioners (collectively, “practitioners”), enabling them to offer safe and effective aesthetic treatments to their customers. In addition, we distributethe Company distributes third-party sourced systems. We offermanufactured skincare products. The Company currently offers easy-to-use products based on the following key platforms:enlighten^®,excel HR^®,truSculpt^®,excel V^®, xeo^®, Juliet^®TM,and Secret^TM RF— each of which enables physicians and other qualified practitioners to perform safe and effective aesthetic procedures, including treatment for their customers. Eachbody contouring, skin resurfacing and revitalization, tattoo removal, removal of our laserbenign pigmented lesions, vascular conditions, hair removal, toenail fungus and other energy-basedwomen's health. The Company’s platforms consists of one or moreare designed to be easily upgraded to add additional applications and hand pieces, connectedwhich provide flexibility for the Company’s customers as they expand their practices. The Company’s ongoing research and development activities primarily focus on developing new products, as well as improving and enhancing the Company’s portfolio of existing products. The Company also explores ways to expand the Company’s product offerings through alternative arrangements with other companies, such as distribution arrangements. The Company introduced Juliet, a console that incorporates an intuitive user interface,product for women’s health, in December 2017, Secret RF, a laser or other energy-based module, control system softwarefractional RF microneedling device for skin revitalization, in January 2018, enlighten SR in April 2018, and high voltage electronics. However, depending on the application, the laser or other energy-based module may reside truSculpt iD in the hand piece itself.July 2018.

OurThe Company’s trademarks include: “Cutera,” “Acu “Acutip,Tip,”“CoolGlide, “CoolGlide,” “CoolGlide excel,” “enlighten,” “excel HR,” “excel V,”“GenesisPlus, “LimeLight,” ‘myQ,” “Pearl,” “Juliet,PicoGenesis,” “LimeLight,ProWave 770,” “Solera,” “Titan,” “truSculpt,” PicoGenesis,“Vantage” and “xeo.” “Titan,” “Pearl,” “truSculpt,””myQ,” and“xeo.” OurThe Company’s logo and our other trade names, trademarks and service marks appearing in this document are ourproperty. Other trade names, trademarks and service marks appearing in this annual reportAnnual Report on Form 10-K are the property of their respective owners. Solelyfor convenience, our trademarks and trade names referred to in this annual reportAnnual Report on Form 10-K appear without the ™ or ^® symbols, but those referencesare not intended to indicate, in any way, that wethe Company will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensorto these trademarks and trade names.

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

In addition to the above mentioned seven primary systems, we continuethe Company continues to generate revenue from ourits legacy products such asGenesisPlus,, CoolGlide, and the distribution of ZO’s skincare products, a third-party sourced system, myQ, forproduct sold in the Japanese market. The Company also generates revenue from the sale of post-warranty services, as well as the sales of Titan hand piece refills.

We offer ourThe Company offers its 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 and truSculpt 3D hand piece refills, and skincare products (Japanese market only). Commencing 2018, sale of replacement tips for Juliet and Secret RFare both expected to result in recurring revenue.

The Structure of Skin and Conditions that Affect Appearance

The skin is the body’s largest organ and is comprised of two layers: the epidermis and dermis. The epidermis is the outer layer, and serves as a protective barrier for the body. It contains cells that produce 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 and elastin, also found within the dermis, provide strength and flexibility to the skin.

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

In addition to these skin conditions, people seek to remove unwanted tattoos, as well as diminish 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. Medical Insight, an independent industry researchAccording to data presented at the IMCAS Global Market Summit in February 2019, the medical aesthetic global market has doubled from  $6.3 billion to $11 billion from 2014 to 2018, and analysis firm, estimates that total sales of products in the global aestheticis projected to reach $15 billion by 2022. The market exceeded $8.4 billion in 2016 and expects total sales to increase 10.5% annually through 2021. For North America, the American Society of Plastic Surgeons estimates that there were over 13.9 million minimally-invasive aesthetic procedures performed in 2016, a 3% increase over 2015growth rate for 2018 was 5.1% and a 180% increase over 2000.6.3% growth is estimated in 2019. Body sculpting is expected to grow at a CAGR of 9.7%.

We believe

The Company believes there are several factors contributing to the global growth of aesthetic treatment procedures and aesthetic laser equipment sales,sales, including:

● Broader Range of Safe and Effective Treatments – Technical developments, as well as an increase in treatable conditions due to new product introductions, lead 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 advancements enable practitioners to offer a broader range of treatments. These technical developments reduce treatment and recovery times, which in turn lead to greater patient demand.

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

Many alternative therapies are available for improving a person’sperson’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 common therapiesaesthetic procedures and their limitations are described below.

Non-Invasive Body Contouring -– Our radio-frequency technology based truSculpt system is designedTreatments for the non-invasive body contouring market. In performingsculpting can be done utilizing a variety of technologies including radio frequency, laser, cooling and ultrasound. Procedures address reduction of unwanted fat on the procedure, energy is appliedabdomen, flanks, arms, thighs, submentum and back, and can require one or more treatments. Systems with the ability to the body to achieve body sculpting and circumferentialinduce non-invasive lipolysis (breakdown of fat) offer a more permanent solution with an average fat reduction through heating of the subcutaneous fat. In December 2016 we received 510(k) clearance from the FDA to market truSculpt for the temporary reduction in circumference of the abdomen. Drawbacksgreater than 20%. Side effects to this approach may include indurationsnodules that typically resolve over time,, and the risk of burning the treatment area.

Tattoo removal – The most effective way to remove tattoos on the body is to utilize laser systems that deliver very short pulse durations with high peak power in order to break up the ink particles that comprise tattoos. According to a Tattoo Incidence Study published in ORC International in June 2015, up to 27% of Americans have one or more tattoos, and 1 in 4 tattoo bearing American adults have “tattoo regret”. Despite the effectiveness of lasers for tattoo removal, common complaints concerning laser tattoo removal include a low rate of complete clearance (sometimes no better than 50% after several treatments) as well as the high number of treatments for satisfactory clearance (often 10 or more treatments spaced four to eight weeks apart). However, the latest generation of tattoo removal lasers produce picosecond pulse durations, (pulses in the trillionths(a trillionth of a second) and thereby, can meaningfully improve tattoo clearance and reduce the total number of treatments.

Hair Removal – Techniques for hair removal include waxing, depilatories, tweezing, shaving, electrolysis, laser as well as other energy-based hair removal modalities. The only techniques that provide a long-lasting solution are electrolysis, laser, and other energy-based technology such as an Intense Pulsed Light (“IPL”). 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. In comparison, lasers can quickly treat large areas with a high degree of safety and efficacy.

Skin RejuvenationRevitalization – Skin rejuvenationrevitalization treatments include a broad range of popular alternatives, including Botox and collagen injections, chemical peels, microdermabrasions,peel, microdermabrasion, radio frequency treatmentstreatment and laserslaser 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.

Other skin rejuvenationrevitalization 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. The American Society of Plastic Surgeons estimates that approximately 4.6 million injections of Botox and 2.7 million injections of collagen and other soft-tissue fillers were administered in 2016.

Microneedling– (also known as collagen induction therapy) is a minimally invasive rejuvenationrevitalization treatment that involves using fine needles to create hundreds of tiny, invisible puncture wounds in the top layer of the skin, which stimulates the body's natural wound healing processes, resulting in cell turnover and increased collagen and elastin production. Our recently introduced Secret RF product is a RF fractional microneedling system that helps deliver tailored energy to improve fine lines, wrinkles, and scars from the inside out.

Women’sWomen’s Intimate Health – –Our Juliet laser platform is an Erbium-YAG laser that emits light atLasers and RF technology have emerged as a wavelength of 2940 nm and is usedtreatment for issues unique to address gynecologicwomen's health in postmenopausal women and treat symptoms associated withsuch as vulvar vaginal atrophy and genitourinary symptoms of menopause. The condition causes vaginal relaxation syndrome. The applicationdryness, inflammation and irritation, which can lead to painful or frequent urination. Traditional treatments use estrogen therapy to combat vulvar vaginal atrophy and genitourinary symptoms of menopause to restore vaginal health, but not all women suffering from the laser stimulates collagen and revitalizessymptoms are candidates. Lasers have been shown to ablate the vaginal tissue. generating a healing response that may lead to system improvement.

Leg and Facial Veins – Current aesthetic treatment methods for leg and facial veins include sclerotherapy,, as well as 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 270,000 sclerotherapy procedures were performed in 2016.

Laser and other energy-based non-surgical treatments for hair removal, veins, skin rejuvenationrevitalization 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 therapeutictherapeutic results by affecting structures within the skin. The development of safe and effective aesthetic treatments has resulted in a well-established market for these procedures.

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. Ablative skin resurfacing improves 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 improves the appearance of the skin by treating the underlying structure of the skin.

Safe and effective laser and energy-based treatments require an appropriateappropriate 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 the effective depth of the energy delivered.

For example, in the case ofof 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.

Technology and Design of Ourthe Company’s Systems

Our The Company’s enlighten, excel HR, excel V,Juliet, Secret RF,, truSculp truSculpt, t, and xeoplatforms provide the long-lasting benefits of laser and other energy-based aesthetic treatments. Our technology allows for a wide variety of applications in a single system. Key features of our solutions include:

● Upgradeable Platform – Some of our products allow our customers to upgrade their system to our newest technologies or add new applications to their system, each of which provide us with a source of incremental revenue. The Company believes 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 – For hair removal, our products are safe and effective 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 veins on the leg; to treat facial veins; and perform skin revitalization procedures for discoloration, texture, fine lines, and wrinkles on any type of skin. The ability to customize treatment parameters based on skin type enables practitioners to offer safe and effective therapies to a broad base of their patients.

● Ease of Use – The Company designs its products to be easy to use. Our proprietary hand pieces are lightweight and ergonomic, minimize user fatigue, and facilitate clear views of the treatment area, reducing the possibility of unintended damage and increasing the speed of application. Our control console contains an intuitive user interface with simple, independently adjustable controls from which to select a wide range of treatment parameters to suit each patient’s profile. For instance, the clinical navigation user interface on the xeo platform provides recommended clinical treatment parameter ranges based on patient criteria entered. Our Pearl and Pearl Fractional hand pieces include a scanner with multiple scan patterns to allow simple and fast treatments of the face. Finally, our truSculpt iD embodies the best of many of the above features. Unlike other body sculpting treatments on the market that require certain body types, or pinchable fat, truSculpt iD is "body agnostic" with the ability to customize treatments to the patient's needs and body type. In addition, our proprietary algorithms and navigation enable the practitioner to treat a 300cm2 area in only 15 minutes.

Business Strategy

OurThe Company’s goal is to maintain and expand ourits position as a leading worldwide provider of light and energy-based aesthetic devices and complementary aesthetic products by executing the following strategies:

Products

OurThe Company’s excel V, excel HR, enlighten, Juliet, Secret RF,, truSculpt, xeo, CoolGlide, and GenesisPlusmyQ ,and myQplatforms allow for the delivery of multiple laser and energy-based aesthetic applications from a single system. With ourxeoplatform, practitioners can purchase customized systems with a variety of our multi-technology applications.applications. Each of the Company’s products consists of a control console and one or more hand pieces, depending on the model.

The following table lists our currently offered products. Each checked box represents the applications included in the product in the years noted.

Energy Sources:

(a) 1064 nm Nd:YAG laser;

(b) Visible and near-infrared Intense Pulsed Light;

(c) Infrared Intense Pulsed Light;

(d) 2790 nm Er:YSGG laser;

(e) Combined frequency-doubled 532 nm and 1064 nm Nd:YAG laser;

(f) Radio frequency at 1 & 2 MHz – mono-polar– mono-polar

(g) Combined 755 nm Alexandrite laser and 1064 nm Nd:YAG laser;

(h) Dual wavelength 532 nm and 1064 nm Nd:YAG picosecond laser;

(i) Three wavelength 532 nm, 670 nm, and 1064 nm Nd:YAG picosecond laserlaser;;

(j) 2940 nm Er:YAG laser; laser; and

(k) Radio frequency at 2 MHz bi-monopolar-polar..

* OurThe Company’s CE Mark allows usit to market truSculpt in the European Union, Australia and certain other countries outside the U.S. for fat reduction, body shaping and body contouring. In the U.S. we havethe Company has 510(k) clearanceclearance for the temporary reduction in circumference of the abdomen, non-invasive lipolysis (breakdown of fat) of the abdoment  and 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.

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

Control Console

Our control console includes an intuitive user interface, control system software and high voltage electronics. All CoolGlide systems, GenesisPlus, 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. Our excel HR system also includes an Nd:YAG laser as well as a 755nm alexandrite laser to allow treatment on a variety of 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 20,000 watts of peak laser power, which permits therapeutic effects at short pulse durations. 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. The enlighten consoles contain an innovative Nd:YAG laser engine that produces high-energy, picosecond and nanosecond laser pulses for up to three laser wavelengths. This allows the user to quickly change laser treatment parameters during treatment through a touchscreen interface without changing external hardware such as hand pieces. Our truSculpt control console includes a high-powered, mono-polar RF generator at 1 and 2 MHz capable of delivering up to 300 watts of power. The Secret RF control console includes an RF card and is capable of delivering up to 75 watts of energy. The truSculpt and Secret RF systems dynamically adjusts current, voltage and power during treatment as needed to reach and maintain the appropriate treatment levels Our Juliet system consists on an Er:YAG laser at 2940nm with an intuitive user interface and software control for ease of use.

Hand Pieces

enlighten Hand Piece – The enlighten hand piece delivers 532 nm, 670 nm (in enlighten III only), and 1064 nm laser energy to treat benign pigmented lesions and remove 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 power calibration is automatic and built into the laser system, rather than requiring manual power calibration through a separate calibration port for the hand piece.

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 extracts up to 35 watts of heat 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 hypo- and hyper-pigmentation, as well as burns to the skin. The hand piece has a wide spot-size range between 3 to 18 mm (5 to 18 mm, alexandrite mode).

truSculpt Hand Pieces – The truSculpt, originally introduced in August 2012, and truSculpt 3D, introduced in May 2017, are used for the non-invasive heating of subcutaneous tissue as well as the temporary reduction in circumference. We sell two different truSculpt hand pieces: 40 cm ² for larger body parts and the 16cm ² for smaller parts of the body. Each of the truSculpt hand pieces are light weight and ergonomically designed for operator comfort, which allows for uniform distribution of heat 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. The truSculpt 3D hand pieces require a periodic “refilling” process, which provides us with a source of recurring revenue.

excel V Hand Piece – The excel V system introduced in February 2011 delivers 1064 nm and 532 nm laser energy to the skin for the treatment of vascular and benign pigmented lesion. The excel Vsystem 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. This hand piece offers a spot size range from 2 to 12 mm in 0.1 mm increments, and is capable of delivering either the 1064 nm or 532 nm laser energy. 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 to ensure that the fixed 8 mm spot size is maintained.

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. 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 embedded 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 device to be operated without user fatigue. The design permits 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-treatment cooling of the treatment area through a temperature-controlled copper plate to protect the outer layer of the skin.

GenesisPlus Hand Piece – Our GenesisPlus 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 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 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. The hand pieces can also be used for hair removal, and treatment of 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 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 platform.

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. We are aware that some practitioners use the Titan hand piece to treat skin laxity (although the hand piece is cleared in the U.S. by the 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. 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.

My Juliet and Microspot Hand Pieces – The My Juliet and Microspot hand pieces are part of the Juliet system for vaginal wellness. The Juliet is an Er:YAG laser, with a 2940 nm wavelength. The MyJuliet hand piece is a single use disposable hand piece designed to treat the vaginal cavity by delivering laser energy to the tissues. The hand piece is rotated, first delivering an ablative pulse and followed by a thermal pulse inducing collagen and vascularization in the area. The Microspot hand piece delivers fractionated energy to treat the vaginal and vulvar areas to induce skin resurfacing and improve skin quality, tone and texture. As both hand pieces are for a single use application, they provide us with a source of recurring revenue.

Secret RF Hand Pieces– TheSecret RFfractional RF microneedling system has two distinct hand pieces and treatment tips. The 64-pin hand piece is utilized for the body, while the 25-pin hand piece is ideal for treating the face. Both hand pieces support microneedles that are insulated or semi-insulated and inserted into the skin, delivering energy subdermally to the selected depth (0.5-3mm). Delivering the energy subdermally spares the epidermis, minimizing patient downtime and provides the ability to customize treatment based on skin types. Both hand pieces are for a single use application, providing a source of recurring revenue.

Upgrade

OurThe Company’s enlighten,truSculpt, andxeoproducts,, are designed to allow customers to cost-effectively upgrade to our newest technologies or add applications to their system, each of which provide us with a source of additional revenue.

Service

We offerThe Company offers post-warranty services to our customers through extended service contracts, that cover preventive maintenance and/or replacement parts, and labor, or by direct billing for detachable hand piece replacements parts (except for Titan, truSculpt 3D and labor.truSculpt iD ) and service labor for the repair and maintenance of products that are out of warranty, all of which are classified as “Service” revenue. These post-warranty services serve as additional sources of recurring revenue from our installed product base.

Hand Piece Refills

We treat our customer’sThe Company treats its customers' purchase of replacementTitan, truSculpt 3D and truSculpt iD , as well as single use disposable tips applicable to TitanJuliet and truSculptSecret RF 3Dhand pieces as “refill”“Consumables” revenue, which provides us with a source of recurring revenue from existing customers. Our recently launched Juliet and Secret RF products have single use disposable tips which need to be replaced after every treatment. Sale of these consumable tips further enhance our recurring revenue stream. Hand piece refills of our legacy truSculptproduct are includedin the standard warranty and service contract offerings for this product.

Skincare

We distribute ZO Skin Health, Inc.’s (“ZO”) physician-dispensed, topicalThe Company distributes third party manufactured skincare products to physicians("Skincare” revenue in the Japanese market.market).

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 treattreat the broadest range of conditions available with a single energy-based system.

Non-Invasive Body Contouring – OurtruSculpt technology allows practitioners 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 4515 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 (“EU”), Australia and certain other countries outside the U.S. for fat reduction, body shaping, body contouring and circumferential reduction. In the U.S.,truSculpt has 510(k) clearance for topical heating for the temporary reduction in circumferencepurpose of the abdomen, and elevating tissue temperature for the treatment of selected medical conditions, such as relief of pain and muscle spasms and increase in local circulation,circulation. Additionally, the 2 MHz setting for the 40 cm2 hand piece is indicated for reduction in circumference of the abdomen and non-invasive lipolysis (breakdown of fat) of the abdomen. The truSculpt massage device is intended to provide a temporary improvementreduction in the appearance of cellulite.

Tattoo Removal – Ourenlightensystems, delivering picosecond and nanosecond pulse duration, and ourmyQQ-switched laser are used for tattoo removal, the treatment of benign pigmented lesions, and a laser skin toning procedure that we referthe Company refers to as PicoGenesis.

Hair Removal – We have two platforms, – excel HROur laser technology allows our customers to treat and xeo, which address hair removal for all skin types andas well as hair thicknesses. Ourxeo platform allows practitioners to select between the 1064 nm mode for darker, course hair, and the ProWave LX hand piece designed to address finer, vellus hair.  Contact cooling is present on both hand pieces for epidermal protection. excel HR employs both a 1064 nm Nd:YAG andas well as a 755 nm Alexandrite lasers permits energy to safely penetrate through the epidermis of any skin type and into the dermis where thefor 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 on excel HR allow our customers to treat all skin types, while our ProWave 770 and ProWave LX hand pieces onremoval. Like the xeo, with pulsed light technology, treat the majority of skin types quickly and effectively.

For1064 nm wavelength addresses darker, course hair removal treatments,while the treatment site on755 nm wavelength is used for finer, lighter hair. Both wavelengths are transmitted through the skin is first cleaned and shaved. The practitioner then applies a thin layer of gel to improve contact and aid gliding of thesame CoolView hand piece acrosswith spot sizes up to 20 mm for the skin. In755 nm wavelength and up to 18 mm for the case1064 nm wavelength. The CoolView hand piece employs sapphire as a means of these 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 three to six treatments on average. Each treatment can take between five minutes to one hour depending on the size of the area and the condition being treated. On average, therecontact cooling – epidermal protection. Both platforms are six to eight weeks between treatments.cleared for treating all skin types.

Vascular LesionsLesions – – Our laser technology allows Both our customers to treat the widestxeo as well as excel V platforms are capable of treating a wide range of aesthetic vein conditions, including spider and reticular veins, and small facial veins. Our xeo 1064nmemploys the LimeLight hand piece for addressing small veins as well as vascular lesions while the Nd:YAG hand piece withis appropriate for deeper, larger vessels. LimeLight is a fixed spot size IPL while the Nd:YAG has adjustable spot sizes of 3, 5, 7 or 10 millimeters and theup to 10mm. excel V is a dual wavelength laser - 1064 nm and 532 nm hand piece– with adjustable spot sizes ranging from 2 mm to 12 mm, each allow 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.mm. The laser hand piece is532 nm wavelength can be used to cooltreat over 20 conditions ranging from small veins and vessels to a variety of vascular lesions while the treatment areaNd:YAG is appropriate for deeper, larger vessels. For both before and after the laser pulse has been applied. With the excel V hand piece the cooling can be performed before, during and after delivery of the laser pulse. The delivered energy damages the vein and, over time, it is absorbed by the body. Patientsthese devices, patients receive on average between one and six treatments, with six weeks or longer between treatments.

Skin RejuvenationRevitalization – Our – xeoOur, excel V, excel HR and enlighten platforms, utilizing an Nd:YAG laser, picosecond laser and other energy-based technologies allow our customers to perform non-invasive and minimally-invasive treatments that reduce redness, dyschromia, fine lines, and wrinkles, improve skin texture, and treat other aesthetic conditions.

Our recently launched Juliet laser is used to address gynecologic health in postmenopausal women and treat symptoms associated with vaginal atrophy and vaginal relaxation syndrome. The application of the laser stimulates collagen and revitalizes the vaginal tissue. The MyJuliet hand piece is rotated, first delivering an ablative pulse and followed by a thermal pulse inducing collagen and vascularization in the area. The Microspot hand piece delivers fractionated energy to treat the vaginal and vulvar area to induce skin resurfacing and improving skin quality, tone and texture.

Texture, Lines and Wrinkles – When using a 1064nm1064 nm Nd:YAG laser to improve skin texture 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 with a spacing of two to four weeks between treatments.

Texture, Lines and Wrinkles – The xeo platform can address fine lines and wrinkles using the Pearl and Pearl Fractional hand pieces.  When treating fine lines, texture and fine lineswrinkles with aPearl 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 only for skin resurfacing and coagulation.

Our recently launched Juliet laser is a versatile multi-application platform utilizing an Er:YAG laser with the 2940 nm wavelength. This Erbium wavelength produces noticeable results with fewer side effects, due to its high peak absorption in water. Additionally, Juliet’s Erbium technology allows for a controlled thermal delivery to tissue. The Microspot hand piece delivers fractionated energy to induce skin resurfacing and improved skin quality, tone and texture. 

Additionally, our recently launched Secret RF platform is a Radio Frequency microneedling device that employs fractionated RF energy (2 MHz) delivered at different pre-programmed depths in the dermis to produce new collagen. The Secret RF product iscomes with four treatment tips: a fractional RF microneedling system that utilizes microneedles to deliver heat into the deeper layers of the25-pin tip, both insulated and semi-insulated, and a 64-pin tip, both insulated and semi-insulated. The treatment has minimal side effects, negligible downtime and results in improved skin using controlled RF energy. The targeted energy revitalizes, rebuildstone and firms up tissue, effectively remodeling collagen, improving mild wrinkles and diminishing scars while leaving the outer layer of skin intact, minimizing downtime.texture as well as improvement in acne scars.

Dyschromia – Our pulsed-light technologies allow our customers to safely and effectively treat red and brown dyschromia (skin discoloration), benign pigmented lesions, and rosacea. The practitioner delivers a narrow spectrum of light to the surface of the skin through our LLimeLight imeLighthand 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.

The 532 nm wavelength green laser option of theexcel Vandenlightensystems, as well as the 755 nm infrared wavelength of theexcel HR,can be used to treat benign pigmented lesions in substantially the same way as described above with the pulsed light devices.way.

In treating benign pigmented lesions, the hand piece is placed directly on the skin and then the 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.

Practitioners can also treat dyschromia and other skin conditions with ourPearlhand piece. During these treatments, the heat delivered by thePearlhand 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 Quality – OurTitantechnology allows our customers to use deep dermal heating to tighten lax skin. The practitioner delivers a spectrum of light to the skin through ourTitanhand 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 compromised skin, the hand piece is placed directly on the skin andand 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 regrowth. 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 theTitanin the European Union,EU, 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.

Sales and Marketing

In the U.S. we marketthe Company markets and sell our sells its products through a direct sales organization. WeThe Company internally manage ourmanages its U.S. and Canadian sales organization as one North American sales region. As of December 31, 2017, we2018, the Company had 5868 territories and a direct sales force of 68 employees. In addition, the Company created a new commercial organization in 2018 dedicated to supporting consumable products for procedures performed in physicians’ practices. As of December 31, 2018, the Company had nine employees related to consumable sales support.

International sales are made both through a worldwide distributor network in over 40 countries, as well as a direct international sales force. As of December 31, 2017, we2018, the Company had a direct sales force in Australia, Belgium, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom with a total of 3441 direct sales employees. Our international revenue as a percentage of total revenue represented 38% in 2017, 45% in 2016, and 48% in 2015.

WeThe Company also sellsells certain items like Hand Piece Refillshand piece refills, cycle refills, consumable tips and marketing brochures through our web site www.cutera.com.www.cutera.com.

Customers generally demand quality, performance, ease of use, and high productivity in relation to the cost of ownership. We respondThe Company responds to these customer demands by introducing new products focused on these requirements in the markets we serve.it serves. Specifically, we believe that we introducethe Company believes it introduces new products and applications that are innovative, address the specific aesthetic procedures in demand, and are upgradeable on ourits customers’ existing systems. In addition, we providethe Company provides attractive upgrade pricing to new product families. To increase market penetration, wethe Company also marketmarkets to non-core practitioners in addition to our core specialties of plastic surgeons and dermatologists.

We seekThe Company seeks to establish strong ongoing relationships with ourits customers through the upgradeability of ourthe Company’s products, salessales of extended service contracts, the refilling ofhand pieces and replacement of disposable tips, ongoing training and support, and distributing skincare products in Japan. WeThe Company primarily target ourtargets its marketing efforts to practitioners through office visits, workshops, trade shows, webinars and trade journals. WeThe Company also marketmarkets to potential patients through brochures, workshops and ourits website. In addition, we offerthe Company offers 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

OurThe industry the Company operates in is subject to intense competition. OurThe Company’s products compete against conventional non-energy-based treatments, such as electrolysis, Botox and collagencollagen injections, chemical peels, microdermabrasion and sclerotherapy. OurThe products also compete against laser and other energy-based products offered by other public companies, such as Hologic (acquired Cynosure in March 2017), El.En S.p.A, XIO Group (acquired Lumenis in September 2015), Allergan (acquired Zeltiq in April 2017), Valeant (acquired Solta in January 2014)Bausch Health (Valeant), Vieve, as well as private companies, including Sisram, Syneron Candela(acquired (acquired in 2017 by an affiliate of private equity funds advised by Apax Partners), Sciton, InMode, BTL Industries and several others.

Competition among providers of laser and other energy-based devices for the aesthetic market is characterized by extensive research and development efforts, and innovative technology. While we attemptthe Company attempts to protect ourits 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 dothe Company does or product applications for certain sub-markets in which we dothe Company does not participate. Additional competitors may enter the market, and we arethe Company is likely to compete with new companies in the future. To compete effectively, we havethe Company has 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 haveThe Company has encountered, and expectexpects 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

OurThe Company focuses its research and development group develops newefforts on innovation and improvement for products and applications services that address unmet or underserved market needs. align with its mission: the Company consistently strives to understand its customers’ expectations for total excellence. The Company accomplishes this by its commitment to continuous improvement in design, manufacturing and service, which the Company believes provides for superior products and services to ensure on going customer satisfaction, trust and loyalty. The Company seeks to comply with all applicable domestic and international regulations to maintain the highest quality.

As of December 31, 2017, our2018, the Company’s research and development activities were conducted by a staff of 2838 employees with a broad base of experience in lasers, optoelectronics, software, and other related disciplines. We developThe Company develops working relationships with outside contract engineering and design consultants, giving our team additional technical and creative breadth. We workThe Company works closely with thought leaders and customers, to understand unmet needs and emerging applications in aesthetic medicine. Research and development expenses were approximately $12.9 million in 2017, $11.2 million in 2016, and $10.7 million in 2015.

Acquisitions, Investments, and InvestmentsDistribution Agreements

OurThe Company’s strategy of providing a broad range of therapeutic capabilities requires a wide variety of technologies, products and capabilities. The rapid pace of technological development in the aesthetic device industry and the specialized expertise required in different areas make it difficult for usthe Company to develop a broad portfolio of technological solutions. In addition to internally generated growth through research and development efforts, we havethe Company has considered, and expectexpects to continue to consider, acquisitions, investments and alliancesdistribution agreements to provide access to new products and technologies in both new and existing markets.

We expectThe Company expects to further our strategic objectives and strengthen ourits existing businesses by making future acquisitions, investments, or investmentsentering into new distribution agreements in areas that we believe wethe Company believes it can acquire or stimulate the development of new technologies and products. Mergers andand acquisitions of medical technology companies, as well as distribution relationships are inherently risky and no assurance can be given that any acquisition will be successful or will not materially adversely affect ourthe Company’s consolidated operations, financial condition and/or cash flows.

Service andand Support

OurThe Company’s 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 believeThe Company believes that quick and effective delivery of service is important to ourits customers. As of December 31, 2017, we2018, the Company had 5665 people in our global service department. Internationally, we providethe Company provides direct service support through ourin Australia, Austria, Belgium, Canada, France, Germany, Hong Kong, Japan, andSpain, Switzerland offices. We work with third-party service providers in Spain and the U.K,United Kingdom. Services and alsosupport outside of these direct markets are made through a worldwide distributor network of distributors in over 40 countries.

We provide a standard one-year warranty coverage for all of our systems. We provide initial warranties on our productsThe Company offers post-warranty services to cover parts and service and offerits customers through extended service planscontracts that vary by the typecover replacement parts and labor for a term of productone, two, or three years. The Company also offers services on a time-and-materials basis for detachable hand piece replacements, parts and the level of service desired. From time to time, we also have promotions whereby we include a post-warranty service contract with the sale of our products.labor. Customers are notified before their initial warranty expires and are able to purchase extended service plans covering replacement parts and labor.

In countries where we arethe Company is represented by distributor partners, customers are serviced through the distributor. Distributors areare generally provided 14 to 16 months warranty coverage for parts only, with labor customarily provided to the end customer by the distributor.

In the event a customer does not purchase an extended service plan, we offer to service the customer’s system and charge the customer for time and materials. 

Our The Company’s Titan, truSculpt 3D and truSculpt 3DiD hand pieces generally include a warranty for a set number of shots, instead of for a period of time.

Manufacturing

We manufacture ourThe Company manufactures its products with components and subassembliessubassemblies supplied by vendors. We assemblevendors, and testassembles and tests each of ourits products at ourthe Brisbane, California facility. Quality control, cost reduction and inventory management are top priorities of ourthe manufacturing operations.

We purchaseThe Company purchases certain components, subassemblies and subassembliesassembled systems from a limited number of suppliers. We haveThe Company has flexibility with ourits 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 same or similar components and subassemblies. We reduce theThe potential for disruption of supply disruptionis reduced 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 havethe Company has not experienced significant delays in obtaining any of ourits components or subassemblies. The Company uses small quantities of common cleaning products in its manufacturing operations, which are lawfully disposed of through a normal waste management program. The Company does not forecast any material costs due to compliance with environmental laws or regulations.

We areThe Company is required to manufacture our products in compliance with the FDA’sFDA’s Quality System Regulation (or “QSR”(“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. WeThe Company had an FDA full quality system audit in March 2017. There were no significant findings or observations as a result of this audit. Failureaudit, however 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 our business. In the event that one of our suppliers fails to maintain compliance with ourspecified quality requirements, wethe Company may have to qualify a new supplier and could experience manufacturing delays as a result. We haveThe Company has 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 (“EU”),EU, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the EU. In January 2018, wethe Company conducted our recertification audit to the requirements of ISO 13485:2003 under the Medical Device Single Audit Program (“MDSAP”) for the 5 regulatory jurisdictions signatory to MDSAP (FDA - US, Health Canada - Canada, Therapeutic Goods Administration (“TGA”) - Australia, Pharmaceuticals and Medical Devices Agency (“PMDA”) - Japan, and Agência Nacional de Vigilancia Sanitária (“ANVISA”) - Brazil); and for the EU under Europäische Norm (“EN”) International Standards Organization (“ISO”) 13485:2012 and Medical Device Directive (MDD”) 93/42/EEC. WeThe Company passed the recertification audit establishing compliance with ISO 13485:2003 under MDSAP; EN ISO 13458:2012; and MDD 93/42/EEC. The MDSAP and EU certification can be used to establish compliance with Good Manufacturing Practices (“GMP”), QSR, and Quality Management System (“QMS”) requirements for all six regulatory jurisdictions, replacing routine audits from each regulatory jurisdiction. Our manufacturing facility is ISO 13485 certified.

Patents and Proprietary Technology

We relyThe Company relies 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 February 28, 2018, we2019, the Company had 3332 issued U.S. patents and 5 pending U.S. patent applications. In the U.S. and several foreign countries, we register ourThe Company name and several of our product names as trademarks, including Cutera, Acutip 500, CoolGlide, excel, enlighten, Juliet, Limelight, myQ, Pearl, ProWave 770, ProWave LX,Secret RF, Solera (discontinued as of January 2018), Titan,truSculpt, and xeo. We may have common law rights in other product names, including excel V, Pearl Fractional, Solera, Titan and excel HR. We intendintends to file for additional patents and trademarks to continue to strengthen our intellectual property rights. Patents typically have a 20-year term from the application filing date. There can be no assurance that pending patent applications will result in the issuance of patents, that patents issued to or licensed by the Company will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to protect our technology or to provide the Company with a competitive advantage.

We licensedThe Company has also obtained certain patents from Palomar (acquired by Cynosure in 2013)trademarks and paid ongoing royalties based on salestrade names for our products and maintain certain details about our processes, products and strategies as trade secrets. In the U.S. and several foreign countries, the Company registers its Company name and several of applicable hair removal products. The royalty rate on these products ranged from 3.75% to 7.50% of revenue from sales of products that incorporate the licensed patents. The remaining U.S. patents expired in February 2015 and the remaining international patents expired in February 2016. As a result, all our revenue from February 2016 onwards is not subject to these royalties. Our revenue from systems that do not include hair removal capabilities (suchits product names as trademarks, including Cutera, AcuTip, CoolGlide, CoolGlide excel V, excel, enlighten, Juliet, LimeLight, GenesisPlus, myQ, Pearl, ProWave 770 , ProWave LX, Secret RF, Solera(discontinued as of January 2018), Titan, truSculpt and xeo. The Company may have common law rights in other product names, including excel V, Pearl Fractional, Solera, Titan and xeoexcel HR. ), as well as revenues from service contractsThe Company intends to file for additional patents and skincare products, were not subjecttrademarks to these royalties.continue to strengthen our intellectual property rights.

We relyThe Company relies on non-disclosure and non-competition agreements with employees, technical consultants and other parties to protect, in part, trade secrets and other proprietary technology. WeThe Company also requirerequires them to agree to disclose and assign to us all inventions conceived in connection with the relationship. There can be no assurance that these agreements will not be breached, that wethe Company will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and proprietary knowledge.

For additional information, please refer to Item 1A. Risk Factors of this Annual Report on Form 10-K, underunder the section entitled “Risk Factors - 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, and [w]ewe may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.”

Government Regulation

United States

OurThe Company’s products are medical devices subject to regulation by numerous government agencies, including the FDA and counterpart agencies outside the United States.U.S. To varying degrees, each of these agencies require us to comply with laws and regulations governing the research, development, testing, manufacturing, labeling, pre-market clearance or approval, marketing, distribution, advertising, promotion, record keeping, reporting, tracking, and importing and exporting of medical devices. In the Unites States,U.S., FDA regulations govern the following activities that we the Company performs 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;

● record keeping;

● pre-market clearance or approval;

● advertising and promotion;

● production;

● product sales and distribution; and

● complaint handling.

FDA’sFDA’s Pre-market Clearance and Approval Requirements

Unless an exemption applies, each medical device we wishthe Company wishes to commercially distribute in the U.S. will require either prior 510(k) clearance, de novo 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 more rigorous pre-market approval. All of our current products are class II devices.

510(k) Clearance Pathway

When a 510(k) clearance is required, wethe Company 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,"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.

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

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 havethe Company developed to date has requiredrequires pre-market approval, although development of future devices or indicationsclearances 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. AfterPursuant to FDA regulations, 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 requirerequires a new clearance or approval. The FDA requires each manufacturermanufacturers to make this determination initially, but the FDA can review any such decision and canmay disagree with a manufacturer’s determination. To date, the Company has modified aspects of our products after receiving regulatory clearance, and determined that new 510(k) clearances are not required for these modifications. If the FDA disagrees with our determination not to seek a new 510(k) clearance or PMA, the FDA may retroactively require usthe Company to seek 510(k) clearance or pre-market approval. The FDA could also require usthe Company 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, wethe Company 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“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 “IRB”(“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 submitthe Company submits and obtainobtains 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.

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 areThe Company is 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 believethe Company believes that we areit is 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 areThe Company is 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:

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

We areThe Company is 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 believeThe Company believes 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 timetime 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 clearance or approval requirements may be different from those in the United States.U.S.

In Japan, for instance, physicians can import medical devices that are not approved for sale in Japan, under their medical license if imported from a country where the productCompany is legally marketed and sold. We frequently sell and ship products into Japan under this regulatory allowance. If the regulations in Japan change and physicians are no longer able to import devices that are not approved for sale by the Japanese regulatory authority into Japan under their medical licenses, our business in Japan could be materially impacted. In Japan, we are actively seeking approvals for certain products to supplement our existing approvals for enlighten,, xeo, Solera excel V, excel HR, LimeLight, ProWave, Solera, Titan, truSculpt iD and Titanxeo.

In the European Economic Area, or EEA, (which is composed of the 28 Member States of the EU plus Norway, Liechtenstein and Iceland), a single regulatory approval process exists, and conformity with the legal requirements is represented by the CE mark. While it remains somewhat unresolved, the cabinet of the United Kingdom agrees that the UK should maintain conformity with the CE mark process following Brexit. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet EU requirements. The EU 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 withto the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the EEA 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 EEA, 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, wethe Company 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, wethe Company received our ISO 13485:2003 certification and in March 2006, March 2009, and January 2012 we passed ISO 13485 recertification audits. In January 2015, wethe Company passed a recertification audit establishing compliance with the requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC. In January 2018, wethe Company conducted our recertification audit to the requirements of ISO 13485:2003 under the Medical Device Single Audit Program (MDSAP) for the 5 regulatory jurisdictions signatory to MDSAP (FDA - US, Health Canada - Canada, TGA - Australia, PMDA - Japan, and ANVISA - Brazil); and for the EU under EN ISO 13485:2012 and MDD 93/42/EEC. WeThe Company passed the recertification audit establishing compliance with ISO 13485:2003 under MDSAP; EN ISO 13458:2012; and MDD 93/42/EEC. In January 2019, the Company passed the upgrade audit establishing compliance with ISO 13485:2016 and the surveillance audit under MDSAP. The MDSAP and EU certification can be used to establish compliance with GMP/QSR/QMS requirements for all six regulatory jurisdictions, replacing routine audits from each regulatory jurisdiction. For cause audits can still occur.

Applicability of Anti-CorruptionAnti-Corruption Laws and Regulations

OurThe Company’s worldwide business is subject to the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”“FCPA”), the United Kingdom Bribery Act of 2010 (the “UK Bribery Act”) and other anti-corruption laws and regulations applicable in the jurisdictions where we operate.the Company operates. The FCPA can be used to prosecute companies in the United StatesU.S. for arrangements with physicians, or other parties outside the United States,U.S., if the physician or party is a government official of another country and the arrangement violates the law of that country. The UK Bribery Act prohibits both domestic and international bribery, as well as bribery across both public and private sectors. There are similar laws and regulations applicable to Cutera outside the United States,U.S., all of which are subject to evolving interpretations. For additional information, please refer to Item 1A. Risk Factors of this Annual Report on Form 10-K, under the sections entitled “Risk“Risk Factors - Our– the Company’s failure to comply with rules relating to bribery, foreign corrupt practices, and privacy and security laws may subject usthe Company to penalties and adversely impact our reputation and business operations.”

Patient Privacy and Security Laws

Various laws worldwide protect the confidentiality of certain patient health and other consumer information, including patient medical records, and restrict the use and disclosure of patient health information by healthcare providers. Privacy standards in Europe and Asia are becoming increasingly strict, enforcement action and financial penalties related to privacy in the EU are growing, and new laws and restrictions are being passed. The management of cross-border transfers of information among and outside of EU member countries is becoming more complex, which may complicate our clinical research and commercial activities, as well as product offerings that involve transmission or use of data. The Company will continue its efforts to comply with those requirements and to adapt our business processes to those standards.

In the U.S., the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology and Clinical Health Act (“HITECH”) and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys new general authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. The Company potentially operates as a business associate to covered entities in a limited number of instances. In those cases, the patient data that the Company receives may include protected health information, as defined under HIPAA. Enforcement actions can be costly and interrupt regular operations of its business. While the Company has not been named in any such actions, if a substantial breach or loss of data from our records were to occur, the Company could become a target of such litigation.

In the EU, Regulation 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“General Data Protection Regulation” or “GDPR”) came into effect on May 25, 2018. The GDPR replaces Directive 95/46/EC (“Data Protection Directive”). While many of the principles of the GDPR reflect those of the Data Protection Directive, for example in relation to the requirements relating to the privacy, security and transmission of individually identifiable health information, there are a number of changes. In particular: (1) pro-active compliance measures are introduced, such as the requirement to carry out a Privacy Impact Assessment and to appoint a Data Protection Officer where health data is processed on a “large scale;” and (2) the administrative fines that can be levied are significantly increased, the maximum being the higher of €20 million, or 4%, of the total worldwide annual turnover of the group in the previous financial year. While we believe we are compliant with GDPR, the recent implementation of regulation, coupled with the early limited enforcement action make it difficult to assess.

Environmental Health and Safety Laws

We areThe Company is also subject to various environmental health and safety laws and regulations worldwide. Like other medical device companies, our manufacturing and other operations involve the use and transportation of substances regulated under environmentalenvironmental health and safety laws including those related to the transportation of hazardous materials. To the best of our knowledge at this time, we dothe Company does not expect that compliance with environmental protection laws will have a material impact on our consolidated results of operations, financial position or cash flows.

Employees

As of December 31, 2017, we2018, the Company had 367402 employees, compared to 297367 employees as of December 31, 2016.2017. Of the 367402 employees at December 31, 2017, 1492018, 161 were in sales and marketing, 101 89 in manufacturing operations, 5677 in technical service, 2838 in research and development and 3337 in general and administrative. We believeThe Company believes that ourits 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 ourthe Company believes its employee relations are good.

Available Information

We are subject toThe Company makes its periodic and current reports, including 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 reportCompany's Annual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.1934, as well as its charters for the Company's Audit and Compensation Committees and its Code of Ethics, available free of charge, on the Company’s website as soon as practicable after such material is electronically filed or furnished with the Securities and Exchange Commission (the “SEC”). The Company’s website address is www.cutera.com and the reports are filed under “SEC Filings,” on the Company-Investor Relations portion of our website. 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, Compensation, and Nominating and Corporate Governance 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. Information contained on, or that can be accessed through, our website does not constitute part of this report and inclusions of our website address in this report are inactive textual references only.www.sec.gov.

We operateThe Company operates in a rapidlyrapidly changing economic and technological environment that presents numerous risks, many of which are driven by factors that wethe Company cannot control or predict. OurThe Company’s 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,the Company, or that wethe Company 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.

Our

The Company’s annual and quarterly operating results may fluctuate in the future, which may cause our the Company’s share price to decline.

OurThe Company’s net sales, expenses and operating results may vary significantly from year to year and quarter to quarter for several reasons, including, without limitation:

● the ability of the Company’s sales force to effectively market and promote the Company’s products, and the extent to which those products gain market acceptance;

● the inability to meet the Company's debt repayment obligations under the Loan and Security Agreement with Wells Fargo Bank, N.A. (the“Revised Revolving Line of Credit”) due to insufficient cash;

● the possibility that cybersecurity breaches, data breaches, and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information;

● the existence and timing of any product approvals or changes;

● the rate and size of expenditures incurred on the Company’s clinical, manufacturing, sales, marketing and product development efforts;

● the Company’s ability to attract and retain personnel;

● the availability of key components, materials and contract services, which depends on the Company’s ability to forecast sales, among other things;

● investigations of the Company’s business and business-related activities by regulatory or other governmental authorities;

● variations in timing and quantity of product orders;

● temporary manufacturing interruptions or disruptions;

● the timing and success of new product and new market introductions, as well as delays in obtaining domestic or foreign regulatory approvals for such introductions;

● increased competition, patent expirations or new technologies or treatments;

● impact of the FDA communication letter regarding “vaginal rejuvenation” procedures using energy-based devices on sales of the Company's products;

● product recalls or safety alerts;

● litigation, including product liability, patent, employment, securities class action, stockholder derivative, general commercial and other lawsuits;

● volatility in the global market and worldwide economic conditions;

● changes in tax laws, including changes domestically and internationally, or exposure to additional income tax liabilities;

● the impact of the new EU privacy regulations (GDPR) on the Company’s resources;

● the financial health of our customers and their ability to purchase our products in the current economic environment; and

● other unusual or non-operating expenses, such as expenses related to mergers or acquisitions, may cause operating results to vary.

As a result of any of these factors, ourthe Company’s consolidated results of operations may fluctuate significantly, which may in turnturn cause ourits share price to fluctuate.

If defects are discovered in the Company’s products, the Company may incur additional unforeseen costs, customers may not purchasethe Company’s product and the Company’s reputation may suffer.

The Company’s success depends on the quality and reliability of its products. While the Company’s subject components are sourced and products manufactured to stringent quality specifications and processes, the Company’s products incorporate different components including optical components, and other medical device software, any of which may contain errors or exhibit failures, especially when products are first introduced. In addition, new products or enhancements may contain undetected errors or performance problems that, despite testing, are discovered only after commercial shipment. Because our products are designed to be used to perform complex surgical procedures, due to the serious and costly consequences of product failure, the Company and its customers have an increased sensitivity to such defects. In the past, the Company has voluntarily recalled certain products. Although our products are subject to stringent quality processes and controls, the Company cannot provide assurance that its products will not experience component aging, errors, or performance problems. If the Company experiences product flaws or performance problems, any or all of the following could occur:

If we do not continue● delays in product shipments;

● loss of revenue;

● delay in market acceptance;

● diversion of our resources;

● damage to develop,our reputation;

● product recalls;

● regulatory actions;

● increased service or acquire, and commercialize new products and identify new markets for our products and technology, we may not remain competitive, and our revenues and operating results could suffer.warranty costs; or

● product liability claims.

The aesthetic laser and light-based treatment system industry is subject to continuous technological development andCosts associated with product innovation. If we do not continue to innovate and develop new products and applications,flaws or performance problems could have a material adverse effect on our competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications. Accordingly, our success depends in part on developingbusiness, financial condition, results of operations, or acquiring new and innovative applications of laser and other light-based technology and identifying new markets for and applications of existing products and technology. If we are unable to develop and commercialize new products, identify and acquire complementary businesses, products or technologies, and identify new markets for our products and technology, our product and technology offerings could become obsolete and our revenues and operating results could be adversely affected.cash flows.

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

Revenue growth in our business is driven by several factors and one such factor is new product introductions. Our ability to sustain profitability depends on our ability to introduce new products that are adopted by our customers and on the extent to which we can increase revenue and control our costs to be able to leverage our expenses. In addition, we need to be able to 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, unforeseen litigation expenses, etc., we are unable to predict the extent of our future profitability or losses.

The success and continuing development of our products depends,products depends, in part, upon maintaining strong relationships with physicians and other healthcare professionals.

If we failthe Company fails to maintain our working relationships with physicians and other ancillary healthcare and aesthetic professionals, ourthe Company’s products may not be developeddeveloped and marketed in line with the needs and expectations of the professionals who use and support our products. Physicians assist us as researchers, marketing consultants, product consultants, and public speakers, and we relythe Company relies on these professionals to provide us with considerable knowledge and experience. If we arethe Company is unable to maintain these strong relationships, the development and marketing of our products could suffer, which could have a material adverse effect on our consolidated financial condition and results of operations.

We rely

The Company relies heavily on ourits sales professionalsprofessionals to market and sell ourits products worldwide. If we arethe Company is unable to hire, effectively train, manage, improve the productivity of, and retain our sales professionals, ourthe Company’s business will bebe harmed, which would impair ourits future revenue and profitability.

OurThe Company’s success largely depends on our ability to hire, train, manage, train, and improve the productivity levels of ourthe Company’s sales professionals worldwide. Because of ourthe Company’s focus on non-core practitioners in the past,past, several of ourits sales professionals do not have established relationships with the core market, consisting of dermatologists and plastic surgeons, or where those relationships exist, they are not veryappropriately strong.

We have experienced direct sales employee and sales management turnover in North America, Japan, and Europe. Competition for sales professionals who are familiar with, and trained to sell in, the aesthetic equipment market continues to be strong.robust. As a result, we have lost some ofthe Company occasionally loses our sales people to our competitors. OurThe Company’s 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, someSome of thoseits sales professionals have left our companyleave the Company for jobs that they perceive to be better opportunities, both within and outside of the aesthetic industry. For instance, in the second half of 2018, the Company experienced significant turnover of our sales professionals, including several people in key sales leadership positions. Most of these sales professionals went to work for a competitor. We believe the loss of these sales professionals negatively impacted our sales performance in the second half of 2018. The Company believes it has adequate measures in place to protect our proprietary and confidential information when employees leave our Company, however the ability to enforce these measures varies from jurisdiction to jurisdiction and we must make a case-by-case decision regarding legal enforcement action. For instance, covenants not-to-compete are not allowed in many states, and if allowed, difficult to enforce in many jurisdictions. Furthermore, such legal enforcement actions are expensive and we cannot give any assurance that these enforcement actions will be successful.

However, we havethe Company also hired a record number ofcontinues to hire and train new sales people, including several from our competitors. Several of ourthe Company’s sales employees and sales management have beenare recently hired or recently transferred into different roles, and it will take time for them to be fully trained to improve their productivity. In addition, due to the competition for sales professionals in our industry, we have recruitedthe Company also recruits sales professionals from outside the industry. Sales professionals from outside the industry typically take longer to train and to become familiar with our products and the procedures in which they are used. As a result of a lack of industry knowledge, these sales professionals may take longer to become productive members of our sales force.

We train ourThe Company trains its existing and recently recruited sales professionals to better understand our existing and new product technologies and how they can be positioned againstagainst 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 recentlynewly recruited sales professionals will be adequately trained in a timely manner, or that ourthe Company direct sales productivity will improve, or that wethe Company will not experience significant levels of attrition in the future.

Measures we implementthe Company implements 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 ourits operations, additional departures from our sales organization, or further reduce our revenue and harm our business. If we arethe Company is not able to improve the productivity and retention of our North American and international sales professionals, then ourthe Company’s total revenue, profitability and stock price may be adversely impacted.

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

We haveThe aesthetic light and energy-based treatment system industry is subject to continuous technological development and product innovation. If the Company does not continue to innovate and develop new products and applications, our competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications or enhancements to our current products. The Company created products to apply our technology to body contouring, hair removal, treatment of veins, tattoo removal, and skin rejuvenation,revitalization, including the treatment of diffuse redness, skin laxity, fine lines, wrinkles, skin texture, pore sizesize and benign pigmented lesions, etc. For example, the Company introduced Juliet, a product for women’s intimate health, in the fourth quarter of 2016, we addedDecember 2017, Secret RF, a required third wavelength (670 nm) to our enlighten platform to improve clearing of green, blue and purple tattoo inks and launched the product asfractional RF microneedling device for skin revitalization, in January 2018, enlighten IIISR . We also lunched in April 2018, and truSculpt 3D, Secret and Juliet iD in 2017.ToJuly 2018. To grow in the future, wethe Company 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.

To successfully expand the Company’s product offerings, the Company must, among other things:

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

● obtain regulatory clearance for these new products;

● 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.

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

Historically, product introductions have been a significant component of ourthe Company’s financial performance. To be successful in the aesthetics industry, we needthe Company believes it needs to continue to innovate. OurThe Company’s business strategy has therefore beenis based, in part, on ourits expectation that wethe Company will continue to increase ouror enhance its product offerings. We needThe Company needs to continue to devote substantial research and development resources to make new product introductions, which can be costly and time consuming to ourits organization.

WeThe Company also believebelieves that, to increase revenue from sales of new products, we needthe Company needs to continue to develop ourits clinical support, furtherfurther expand and nurture relationships with industry thought leaders, and increase market awareness of the benefits of ourits new products. However, even with a significant investment in research and development, wethe Company may be unable to continue to develop, acquire or effectively launch and market new products and technologies regularly, or at all. If we failthe Company fails to successfully commercialize new products ouror enhancements, its business may be harmed.

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

DemandDemand for our products in any of ourthe Company’s markets could be weakened by several factors, including:

If we dothe Company does not achieve anticipated demand for our products, there could be a material adverse effect on ourits total revenue, profitability, employee retention and stock price.

We dependThe search for a permanent President and Chief Executive Officer (“CEO”), may cause uncertainty regarding the future of the Company’s business, impact employee hiring and retention, increase the volatility in our stock price, and adversely impact the Company’s revenue, operating results, and financial condition.

On January 4, 2019, James A. Reinstein resigned as President and Chief Executive Officer and a member of the Company’s board of directors (“Board”). Since then the Company’s current Chief Operating Officer, R. Jason Richey has been acting as Chief Operating Officer and Interim CEO.

The Board is conducting a search for a new President and CEO. The Board’s search for a President and CEO, and any related speculation and uncertainty regarding our future business strategy and direction in connection with the search and the appointment of a President and CEO, may cause or result in:

If the Company is unable to mitigate these or other potential risks related to the uncertainty caused by the Board’s search for and appointment of a President and CEO, it may disrupt the Company’s business or adversely impact its revenue, operating results, and financial condition. Further, there can be no assurance that the Company will be able to attract a qualified permanent President and CEO who has the qualifications to lead the Company or that the Company can hire a President and CEO on acceptable terms.

The Company depends on skilled and experienced personnel to operate ourits global business effectively. Changes to management or the inability to recruit, hire, train and retain qualified personnel, could harm ourthe Company’s ability to successfully manage, develop and expand ourits business, which would impair ourthe Company’s future revenue and profitability.

Our success largely dependsThe Company is highly dependent on the skills, experience and effortsprincipal members of our officersmanagement, sales personnel and otherscientific personnel. For example, in the second half of 2018, the Company experienced significant turnover of our sales professionals, including several people in key employees.sales leadership positions. Most of these sales professionals went to work for a competitor. We believe the loss of these sales professionals negatively impacted our sales performance in the second half of 2018. Additionally, the Company’s product development plans depend, in part, on the Company’s ability to attract and retain engineers with experience in medical devices. Attracting and retaining qualified personnel will be critical to our success, and competition for qualified personnel is intense. The Company may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among technology and healthcare companies and universities. The loss of any of our executive officers could weaken our management expertise and harm our business, and we may not be able to find adequate replacements on a timely basis,these persons or at all. 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 and their knowledge of our business and industry would be difficult to replace. For instance, we announced on February 9, 2018, that Miguel Pardos resigned his position as Executive Vice President, International Sales of Cutera, effective on February 28, 2018, to pursue other opportunities. Cutera reassigned Mr. Pardos’ duties among existing members of the International team and we do not expect any adverse effects from his departure. 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.

We recently hired a new Executive Vice President and Chief Financial Officer (“CFO”). Prior to the confirmation, she performed the duties of the Chief Financial Officer on an interim consulting basis beginning July 12, 2017. Her prior experience included Chief Financial Officer in the medical device and our aesthetics industry specifically, and other Companies in the life science industry. However, recently hired executives may view the business differently than prior members of management, and over time may make changes to the existing personnel and their responsibilities, our strategic focus, operations or business plans. We can give no assurances that we will be able to properly manage any such shift in focus, or that any changes to our business, would ultimately prove successful. In addition, leadership transitions and management changes can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in key officers and employees. Our success depends in part on having a successful leadership team. If we cannot effectively manage the leadership transitions and management changes, it could make it more difficult to successfully operate our business and pursue our business goals. We cannot ensure that we will be able to retain the services of any members of our executive officers or other key employees. If we do not succeed in attracting well-qualified employees, retaining and motivating existing employees or integrating new executives and employees, our business could be materially and adversely affected.

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 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. FailureCompany’s inability to attract, train and retain qualified personnel particularly technicalcould harm our business and sales and marketing personnel, would materially harm our ability to compete effectively and grow our business.become profitable.

Security breaches and other disruptions could compromise our information and impact our business, financial condition or results of operationsoperations..

We relyThe Company relies on networks, information management software and other technology, or information systems, including the Internet and third-party hosted services, to support a variety of business processes and activities, including procurement and supply chain, manufacturing,manufacturing, distribution, invoicing, order processing and collection of payments. We useThe Company uses information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. In addition, we dependthe Company depends on information systems for digital marketing activities and electronic communications among our locations around the world and between company personnel as well as customers and suppliers. Because information systems are critical to many of our operating activities, our business processes may be impacted by system shutdowns or service disruptions. These disruptions may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, geopolitical events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. These events could result in unauthorized disclosure of material confidential information. If our information systems suffer severe damage, disruption or shutdown and ourthe Company business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results and we may lose revenue and profits as a result of our inability to timely manufacture, distribute, invoice and collect payments. Misuse, leakage or falsification of information could result in a violation of data privacy laws and regulations and damage our reputation and credibility, and could expose us to liability. WeThe Company may also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems. Like most major corporations, ourthe Company’s information systems are a target of attacks. As of December 2017,2018, we have not had any disruptions to our information systems that have materially affected our business, financial condition or results of operations. However, there can be no assurance that such disruptions will not have a material adverse effect on us in the future.

Changes in accounting standards and estimates could have a material adverse effect on our results of operations and financial position.

Generally accepted accounting principles and the related authoritative guidance for many aspects of our business, including revenue recognition, inventories, warranties, leases, income taxes and stock-based compensation, are complex and involve subjective judgments. Changes in these rules or changes in the underlying estimates, assumptions or judgments by our management could have a material adverse effect on our results of operations and may retroactively affect previously reported results. For example, recently issued authoritative guidance for lease accounting will result in a significant increase to long-term assets and liabilities given we have a significant number of leases.

The Company's ability to access credit on favorable terms, if necessary, for the funding of our operations and capital projects may be limited due to changes in credit markets.

The Company recently revised its Revolving Credit Facility with Wells Fargo Bank, N.A. The Original Revolving Line of Credit contained financial and other covenants as well as the maintenance of a leverage ratio not to exceed 2.5 to 1.0 and a TTM adjusted EBITDA of not less than $10 million. During the third quarter of 2018, the Company determined that it was in violation of certain financial covenants in the Original Revolving Line of Credit. Upon receipt of this notice, we entered into discussions with Wells Fargo to amend and revise certain terms of the Original Revolving Line of Credit.  Following the end of the Company’s third quarter, on or about November 2, 2018, it  entered into a First Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “First Amended Revolving Line of Credit”). The First Amended Revolving Line of Credit provided for an original principal amount of $15 million, with the ability to request an additional $10 million and a waiver of any existing defaults under the Original Revolving Line of Credit as long as the Company is in compliance with the terms of the First Amended Revolving Line of Credit, including revised financial and other covenants as well.

Subsequent to December 2018, the Company again determined that it was in violation of certain financial covenants in the First Amended Revolving Line of Credit. We again entered into discussions with Wells Fargo to amend and revise certain terms of the First Amended Revolving Line of Credit. On or about, March 11, 2019 the Company  entered into a Second Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “Second Amended Revolving Line of Credit”). The Second Amended Revolving Line of Credit requires the Company to maintain a minimum cash balance of $15 million at Wells Fargo, but removes all other covenants so long as no money is drawn on the line of credit. At such time as the Company elects to draw on the Second Amended Revolving Line of Credit, however, the Company must be in compliance with the various financial covenants or it will not be able to access the credit.

Additionally, although the Company does not currently carry any debt, in the past, the credit markets and the financial services industry have experienced disruption characterized by the bankruptcy, failure, collapse or sale of various financial institutions, increased volatility in securities prices, diminished liquidity and credit availability and intervention from the U.S. and other governments. Continued concerns about the systemic impact of potential long-term or widespread downturn, energy costs, geopolitical issues, the availability and cost of credit, the global commercial and residential real estate markets and related mortgage markets and reduced consumer confidence have contributed to increased market volatility. The cost and availability of credit has been and may continue to be adversely affected by these conditions. The Company cannot be certain that funding for our capital needs will be available from our existing financial institutions and the credit markets if needed, and if available, to the extent required and on acceptable terms. The Revolving Credit Facility terminates on May 30, 2021 and if the Company cannot renew or refinance this facility or obtain funding when needed, in each case on acceptable terms, such conditions may have an adverse effect on our revenues and results of operations.

The Company’s ability to report timely and accurate information could be negatively impacted by its plan to implement a new accounting and enterprise resource planning (“ERP”) system.

The Company is in the process of implementing a new accounting and ERP system. The Company has not previously had a comprehensive ERP system and to date has relied on a myriad of non-integrated systems, as well as manual processes. A system implementation of this magnitude entails a significant degree of inherent risk. The key elements of this implementation include the conversion of data from existing systems to the new system and the design of the new system to process and report financial and other transactions in an accurate and complete manner. If these, or other aspects of the implementation are not executed successfully, then its ability to report timely and accurate information could be negatively impacted. Failure to report required information in a timely or accurate fashion could result in financial penalties, fines and other administrative actions. Such events could have a material adverse effect on our total enterprise value and stock price.

Additionally, the process of implementing a new ERP system is capital intensive and includes the inherent risk of incurring significant additional costs should the time and resource requirements of the implementation be greater than what the Company currently anticipates.

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

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

In 2018, 37% of our total revenue was from customers outside of North America. The Company expects its sales from international operations and develop opportunitiesexport sales to continue to be a significant portion of our revenue. The Company has placed a particular emphasis on increasing its growth and presence in additional international territories, ourmarkets. The Company’s international revenue will beoperations and sales are subject, in varying degrees, to a number of risks including:inherent in doing business outside the U.S. These risks include:

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.of distance as well as language and cultural differences;

● increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations;

● lengthy payment cycles and difficulty in collecting accounts receivable;

● preference for locally-produced products, as well as protectionist laws and business practices that favor local companies; and

● outbreak or escalation of insurrection, armed conflict, terrorism or war

OurChanges in the geopolitical or economic environments in the countries in which the Company operates could have a material adverse effect on our financial condition, results of operations or cash flows. For example, changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, could also negatively impact our business. In 2018, the U.S. imposed tariffs on certain goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S. on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could adversely impact our financial condition and results of operations.

The Company’s global operations are required to comply with the U.S. Foreign Corrupt Practices Act of 1977, as amended ("FCPA"(“FCPA”), Chinese anti-corruption,anti-corruption laws, U.K. Bribery Law, and similar anti-bribery laws in other jurisdictions, and with U.S. and foreign export control, trade embargo and customs laws. If we failthe Company fails to comply with any of these laws, wethe Company could suffer civil and criminal sanctions.

Further,Additionally, the June 2016 referendumCompany continues to monitor Brexit and its potential impacts on our results of operations and financial condition. Volatility in foreign currencies is expected to continue as the United Kingdom ("UK") in which voters approved a withdrawal from the EU, commonly referred to as “Brexit,” has created uncertainty. Subsequent to the referendum, in March 2017, the UK formally initiatedexecutes its withdrawal from the EU by triggering Article 50 of the Treaty of Lisbon. As a result of the triggering of Article 50, the process of negotiating the terms of the UK’s exit from the EU. If the United Kingdom's membership in the EU terminates without an agreement (referred to as a “hard Brexit”), there could be increased costs from re-imposition of tariffs on trade between the United Kingdom and EU, increased transportation costs, shipping delays because of the need for customs inspections and procedures and shortages of certain goods. The United Kingdom will also need to negotiate its own tax and trade treaties with countries all over the world, which is expectedcould take years to take two years, has commenced. Although it is unknown what those terms will be, we may face new regulatory costscomplete and challenges that may havecould result in a material adverse effect on usimpact to our consolidated revenue, earnings and our operations. For example, any new regulations could add time and expensecash flow.

In addition to the conductgeneral risks that the Company faces outside the U.S., our operations in emerging markets could involve additional uncertainties for us, including risks that governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; governments may seek to nationalize our assets; or governments may impose or increase investment barriers or other restrictions affecting our business. In addition, emerging markets pose other uncertainties, including the difficulty of enforcing agreements, challenges collecting receivables, protection of our business, as well asintellectual property and other assets, pressure on the process by whichpricing of our products receive regulatory approval inand services, higher business conduct risks, ability to hire and retain qualified talent and risks of political instability. The Company cannot predict the UK, the EUimpact such events might have on our business, financial condition and elsewhere. Given the lackresults of comparable precedent, it is unclear what economic, financial, trade and legal implications the withdrawal of the UK from the EU would have and how such withdrawal may affect us.operations.

In addition, compliance with laws and regulations applicable to our international operations increases our cost of doing business in foreign jurisdictions. WeThe Company may be unable to keep current with changes in foreign government requirements and laws as theythey change from time to time. Failure to comply with these regulations could have adverse effects on our business. In many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or United StatesU.S. regulations applicable to us. In addition, although we havethe Company has implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all of our employees, contractors, distributors and agents will comply with these laws and policies. Violations of laws or key control policies by our employees, contractors, distributors or agents could result in delays in revenue recognition, financial reporting misstatements, fines, penalties, or the prohibition of the importation or exportation of our offerings and could have a material adverse effect on our business operations and financial results.

To successfully market and sell third party products internationally, wethe Company must address many issues that are unique to the related distribution arrangements which could reduce our available cash reserves and negatively impact our profitability.

We haveThe Company has entered into distribution arrangements pursuant to which we utilize ourthe Company utilizes its sales force and distributors to sellsell products manufactured by other companies. In Japan, we havethe Company has a non-exclusive right to distribute a Q-switched laser product manufactured by a third party OEM. WeThe Company also havehas an exclusive agreement with ZO to distribute certain of their proprietary skincare products in Japan. Each of these agreements requires us to purchase annual minimum dollar amounts of their products. Additionally, the Company has entered into distribution arrangements with other companies to promote and sell the Secret RF and Juliet products.

Each of these distribution agreements presents its own unique risks and challenges. For example, to sell skincare products we needthe Company needs to investinvest in creating a sales structure that is experienced in the sale of such products and not in capital equipment. We needThe Company needs to commit resources to train our sales force, obtain regulatory licenses, in Japan and develop new marketing materials to promote the sale of skincarethese products. In addition, the minimum commitments and other costs of distributing products manufactured by these companies may exceed the incremental revenue that we derivethe Company derives from the sale of their products, thereby negatively impacting our profitability and reducing our available cash reserves.

If we dothe Company does not make the minimum purchases required in the distribution contracts, or if the third party manufacturer revokes our distribution rights, wethe Company could lose the distribution rights of the products, to physicians in Japan, which would adversely affect ourthe Company’s future revenue, results of operations, cash flows and ourits stock price.

WeThe Company offers credit terms to some qualified customers and also to leasing companies to finance the purchase of our its products. In thethe event that any of these customers default onon the amounts payable to us, ourits earnings may be adversely affected.

WeThe Company generally offeroffers credit terms of 30 to 90 days to qualified customers. In addition, from time to time, we offerit offers certain key international distributors, with whom we havethe Company has had an extended period of relationship and payment history, payment terms that are significantly longer than the regular 30 to 90 day terms. This allows such international distributor partners to have ourits products in stock and provide ourits products to customers on a timely basis. As of December 31, 2017,2018, one international distributor partner accounted for 12%3.4% of our outstanding accounts receivable balance.

While we believe we havethe Company believes it has an adequate basis to ensure that we collect ourit collects its accounts receivable, wethe Company cannot provide any assurance that the financial position of customers to whom we haveit has provided payment terms will not change adversely before we receivethe Company receives payment. In the event that there is a default by any of the customers to whom we havethe Company has provided credit terms, wethe Company may recognize a bad debt charge in our general and administrative expenses. If this bad debt charge is material, it could negatively affect our future results of operations, cash flows and ourits stock price.

Additionally,, in the event of deterioration of general business conditions or the availability of credit, the financial strength and stability of our customers and potential customers may deteriorate over time, which may cause them to cancel or delay their purchase of ourits products. In addition, wethe Company may be subject to increased risk of non-payment of ourits accounts receivables. WeThe Company may also be adversely affected by bankruptcies or other business failures of our customers and potential customers. A significant delay in the collection of funds or a reduction of funds collected may impact our liquidity or result in bad debts.

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, Canadian Dollar, British Pound and Swiss Francs. As a result, changes in the exchange rates of these currencies to the U.S. Dollar will affect our results from operations. For example, in 2017 the U.S. Dollar devalued against the Euro and Australian dollar by approximately 12% and 8% respectively, which had a significant positive foreign exchange impact on our revenue − both from a re-measurement gain upon the conversion of our Euro and Australian dollar denominated revenue as well as the additional positive revenue impact due to the effective price decrease for the local customers importing our U.S. Dollar denominated systems into Europe and Australia. The U.S. Dollar also devalued against the Japanese Yen in 2016 which had a negative impact on our international revenue in 2016. Future foreign currency fluctuations could adversely impact and increase the volatility of our revenue, profitability and stock price.

OurThe Company’s ability to effectively compete and generate additional revenue from new and existing products depends upon our the Company’sability to distinguish our companythe Company and ourits products from our the competitors and their products, and to develop and effectively market new and existing products. Our successThe Company’s success is dependent on many factors, including the following: