	June 30, 2018		December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	18,432	$	14,184
Marketable investments		10,573		21,728
Accounts receivable, net		22,122		20,777
Inventories		30,138		28,782
Other current assets and prepaid expenses		3,469		2,903
Total current assets		84,734		88,374

Property and equipment, net		2,632		2,096
Deferred tax asset		21,219		19,055
Goodwill		1,339		1,339
Other long-term assets		5,807		374
Total assets	$	115,731	$	111,238

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,743	$	7,002
Accrued liabilities		22,756		26,848
Deferred revenue		9,288		9,461
Total current liabilities		42,787		43,311

Deferred revenue, net of current portion		2,519		2,195
Income tax liability		386		379
Other long-term liabilities		665		460
Total liabilities		46,357		46,345

Commitments and Contingencies (Note 14)

Stockholders’ equity:
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 13,824,252 and 13,477,973 shares at June 30, 2018 and December 31, 2017, respectively		14		13
Additional paid-in capital		66,291		62,025
Accumulated deficit		3,156		2,947
Accumulated other comprehensive loss		(87)		(92)
Total stockholders’ equity		69,374		64,893

Total liabilities and stockholders’ equity	$	115,731	$	111,238

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net revenue:
Products	$	37,650	$	31,727	$	66,914	$	56,202
Service		4,903		4,662		9,764		9,486
Total net revenue		42,553		36,389		76,678		65,688
Cost of revenue:
Products		17,045		13,840		30,967		24,984
Service		3,131		1,503		6,000		4,137
Total cost of revenue		20,176		15,343		36,967		29,121
Gross profit		22,377		21,046		39,711		36,567

Operating expenses:
Sales and marketing		15,535		12,787		28,623		23,560
Research and development		4,095		2,981		7,651		5,926
General and administrative		4,902		3,548		10,341		6,764
Total operating expenses		24,532		19,316		46,615		36,250
Income (loss) from operations		(2,155)		1,730		(6,904)		317
Interest and other income (expense), net		(129)		276		(31)		549
Income (loss) before income taxes		(2,284)		2,006		(6,935)		866
Provision (benefit) for income taxes		(712)		59		(3,331)		(59)
Net income (loss)	$	(1,572)	$	1,947	$	(3,604)	$	925

Net income (loss) per share:
Basic	$	(0.11)	$	0.14	$	(0.26)	$	0.07
Diluted	$	(0.11)	$	0.13	$	(0.26)	$	0.06

Weighted-average number of shares used in per share calculations:
Basic		13,709		13,935		13,649		13,888
Diluted		13,709		14,629		13,649		14,633

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018		2017
Net income (loss)	$	(1,572	)	$	1,947	$	(3,604)	$	925
Other comprehensive income (loss):
Available-for-sale investments
Net change in unrealized gains (losses) on available-for-sale investments		18			5		(4)		8
Less: Reclassification adjustment for gains (losses) on investments recognized during the period		—			—		9		(4)
Net change in unrealized gains and losses on available-for-sale investments		18			5		5		4
Tax provision		—			—		—		—
Other comprehensive income (loss), net of tax		18			5		5		4
Comprehensive income (loss)	$	(1,554	)	$	1,952	$	(3,599)	$	929

	Six Months Ended June 30,
	2018		2017
Cash flows from operating activities:
Net income (loss)	$	(3,604)	$	925
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation		3,893		2,626
Depreciation of tangible assets		544		492
Amortization of contract acquisition costs		822		—
Change in deferred tax assets		(3,324)		—
Provision for doubtful accounts receivable		487		(3)
Other		(25)		(42)
Changes in assets and liabilities:
Accounts receivable		(1,832)		(1,641)
Inventories		(1,356)		(1,936)
Other current assets and prepaid expenses		(569)		(545)
Other long-term assets		(1,578)		(1)
Accounts payable		3,741		1,695
Accrued liabilities		(4,325)		1,534
Other long-term liabilities		70		—
Deferred revenue		546		784
Income tax liability		7		2
Net cash provided by (used in) operating activities		(6,503)		3,890

Cash flows from investing activities:
Acquisition of property, equipment and software		(581)		(210)
Disposal of property and equipment		38		40
Proceeds from sales of marketable investments		13,044		6,754
Proceeds from maturities of marketable investments		2,500		24,812
Purchase of marketable investments		(4,390)		(25,863)
Net cash provided by investing activities		10,611		5,533

Cash flows from financing activities:
Repurchase of common stock		—		(7,041)
Proceeds from exercise of stock options and employee stock purchase plan		3,038		3,871
Taxes paid related to net share settlement of equity awards		(2,664)		(1,167)
Payments on capital lease obligations		(234)		(182)
Net cash provided by (used) in financing activities		140		(4,519)

Net increase in cash and cash equivalents		4,248		4,904
Cash and cash equivalents at beginning of period		14,184		13,775
Cash and cash equivalents at end of period	$	18,432	$	18,679

Supplemental disclosure of non-cash items:
Assets acquired under capital lease	$	533	$	257

Note1.SummaryofSignificantAccountingPolicies

Description of Operations and Principles of Consolidation

Cutera, Inc. ~~(“Cutera~~^®”(“Cutera” or the “Company”) is a global provider of laser and other energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, and markets laser and other energy-based product platforms for use by physicians and other qualified practitioners which enable them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following key system platforms: en~~lighten~~^®,excel V, excel HR, enlighten, Juliet, Secret RF, truSculpt ^®~~, truSculpt~~^®~~, excel V~~^®,and xeo^®. The Company’s systems offer multiple hand pieces and applications, which allow customers to upgrade their systems. The sales of (i) systems, system upgrades and hand pieces (“Systems” revenue); (ii) hand piece refills ~~(refills~~ applicable to Titan, truSculpt 3D ^®and truSculpt iD), as well as single use disposable tips applicable to Juliet, Secret RF (“Consumables” revenue); and (iii) the distribution of third party manufactured skincare products ("Skincare” revenue); and are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan, truSculpt 3D and truSculpt iD) and service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service” revenue.

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

Unaudited Interim Financial Information

~~The~~ ~~interim~~In the opinion of the Company, the accompanying unaudited condensed consolidated financial ~~information filed is unaudited. The Condensed Consolidated Financial Statements~~statements included in this report reflect all adjustments (consisting of only of normal recurring adjustments) ~~that the Company considers~~ necessary for ~~the~~a fair statement of ~~the~~its financial position as of June 30, 2018, its results of operations for the ~~interim~~three and six months periods ~~covered~~ended June 30, 2018, and of2017, comprehensive income (loss) for the ~~financial condition of~~three and six months periods ended June 30, 2018 and 2017, and cash flows for the ~~Company at the date of the interim balance sheet.~~six months ended June 30, 2018, and 2017. The December 31, ~~2016 Condensed Consolidated Balance Sheet~~2017 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The ~~Condensed Consolidated Financial Statements~~accompanying condensed consolidated financial statements should be read in conjunction with the Company’s previously filed audited financial statements and the related notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2016~~2017 filed with the Securities and Exchange Commission (the “SEC”) on March ~~15, 2017.~~26, 2018.

Use of Estimates

The preparation of interim Condensed Consolidated Financial Statements in conformity with GAAP requires the ~~Company~~’sCompany’s management to make estimates and assumptions that affect the amounts reported of assets and ~~disclosed in~~liabilities and disclosure of contingent assets and liabilities at the ~~Condensed Consolidated Financial~~date of the condensed consolidated financial Statements and the accompanying ~~notes.~~ ~~These estimates are based on management's best knowledge~~notes, and the reported amounts of ~~current events~~revenue and ~~actions we may undertake in~~expenses during the ~~future.~~ reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, the Company evaluates ~~these~~their estimates, including those related to ~~revenue elements,~~ warranty ~~obligations,~~obligation, sales ~~commissions,~~commission, accounts receivable and sales allowances, ~~provision for excess and obsolete~~valuation of inventories, fair values of ~~marketable investments, fair values of acquired intangible assets,~~goodwill, useful lives of ~~intangible assets and~~ property and equipment, assumptions regarding variables used in calculating the fair ~~values~~value of the Company's equity awards, expected achievement of performance ~~stock units~~based vesting criteria, fair value of investments, the standalone selling price of the Company's products and ~~options~~services, the customer life and period of benefit used to ~~purchase the Company’s stock,~~capitalize and amortize contracts acquisition costs, variable consideration, contingent liabilities, recoverability of deferred tax assets, ~~legal matters and claims,~~ and effective income tax rates, among others. Management bases ~~these~~their estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Risks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued acceptance of the Company's products, stability of world financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, management of international activities, competition from substitute products and larger companies, ability to obtain regulatory approval, government regulations, patent and other litigations, ability to protect proprietary technology from counterfeit versions of the Company's products, strategic relationships and dependence on key individuals. If the Company fails to adhere to ongoing Food and Drug Administration (the "FDA") Quality System Regulation, the FDA may withdraw its market clearance or take other action. The Company's manufacturers and suppliers may encounter supply interruptions or problems during manufacturing due to a variety of reasons, including failure to comply with applicable regulations, including the FDA's Quality System Regulation, equipment malfunction and environmental factors, any of which could delay or impede the Company's ability to meet demand.

~~Recent~~Comparability

The Company adopted the new revenue standard effective January 1, 2018, using the modified retrospective method. Prior period financial statements were not retrospectively restated. The consolidated balance sheet as of December 31, 2017 and results of operations for the three and six months ended June 30, 2017 were prepared using an accounting standard that was different than that in effect for the three and six months ended June 30, 2018. As a result the consolidated balance sheets as of June 30, 2018 and December 31, 2017 are not directly comparable, nor are the condensed consolidated statement of operations for the three and six months ended June 30, 2018 and June 30, 2017.

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Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("(“FASB”)~~, jointly with the International~~ issued Accounting Standards ~~Board, issued a comprehensive new standard on~~Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ~~standard's core principle~~amended guidance, herein referred to as Topic 606, is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1) identify the contract(s) with a customer, (2) identify the performance obligation in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance would require significantly expanded disclosures about revenue recognition. Provisions of this new standard are effective for annual ~~reporting periods (including~~and interim reporting periods ~~within those~~beginning after December 15, 2017, with early adoption permitted for public companies effective for annual ~~periods)~~and interim reporting periods beginning after December 15, 2016. The Company adopted the new revenue standard in the first quarter of fiscal year 2018 using the modified retrospective method. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented.

See Note 2 – Revenue Recognition, for additional accounting policy and transition disclosures.

Other Accounting Pronouncements Not Yet Adopted

In ~~April 2015,~~June 2018, the FASB ~~proposed a deferral~~issued ASU No. 2018-07, "Compensation –Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting". The new guidance changes the accounting for nonemployee awards including: (1) Equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of ~~this standard's~~the previous requirement to remeasure the awards through the performance completion date, (2) For performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (3) The current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC 606. The amendments in the new guidance are effective ~~date by one year. The proposed deferral allows~~for annual and interim reporting periods beginning after December 15, 2018, with early adoption atpermitted for public companies, but no earlier than an entity’s adoption date of Topic 606. The Company will adopt the ~~original~~new standard effective ~~date. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance.~~

January 1, 2019. The Company is still currently evaluating the ~~effects~~impact of adopting the new ~~guidance and have not yet selected a transition method or determined the potential effects of adoption on the consolidated financial statements.~~standard.

In February 2016, the FASB issued ASU No. 2016-02, ~~Leases~~~~. This guidance establishes a right-of-use (“ROU”) model that~~"Leases" (Topic 842), which amends the existing accounting standards for leases. The new standard requires ~~a lessee~~lessees to record a ~~ROU~~right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). The new standard also requires expanded disclosures regarding leasing arrangements. The new standard becomes effective for ~~all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting~~ the ~~pattern of expense recognition~~Company in the ~~Consolidated Statement~~first quarter of ~~Operations.~~fiscal year 2019 and early adoption is permitted. The ~~mandatory adoption date of this~~new standard is ~~for fiscal years beginning after December 15, 2018. A~~required to be adopted using the modified retrospective ~~transition~~ approach ~~is required for leases existing~~and requires application of the new standard at ~~or entered into, after~~ the beginning of the earliest comparative period ~~presented in~~presented. The Company finances its fleet of vehicles used by its field sales and service employees and has facility leases. Several of the ~~financial statements,~~Company’s customers finance purchases of its system products through third party lease companies and not directly with ~~certain practical expedients available.~~the Company. The Company does not believe that the new standard will change customer buying patterns or behaviors for its products. The Company will adopt the new standard effective January 1, 2019. The Company expects that upon adoption, ~~ROU~~right-of-use assets and lease liabilities will be recognized in the balance sheet in amounts that will be material.

Note 2. Revenue recognition

The Company adopted ASC Topic 606, "Revenue from Contracts with Customers," on January 1, 2018, applying the modified retrospective method to all contract agreements that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. A cumulative catch up adjustment was recorded to beginning retained earnings to reflect the impact of all existing arrangements under Topic 606.

Upon adoption of the Topic 606, the Company recorded an increase to retained earnings, net of deferred tax liability of $3.8 million (Note 12) for contracts still in force as of January 1, 2018 for the following items in the first and second quarters of 2018:

●	$237,000 reduction in deferred revenue balances for the differences in the amount of revenue recognition for the Company’s revenue streams as a result of allocation of revenue based on standalone selling prices to the Company’s various performance obligations.

●

$151,000 increase in deferred revenue balances, related to the accretion of financing costs for multi-year post-warranty service contracts for customers who pay more than one year in advance of receiving the service. The Company estimated interest expense for such advance payments under the new revenue standard.

●	$210,000 for variable consideration on sale transactions.

●	$4.7 million for the capitalization of the incremental contract acquisition costs, such as sales commissions paid in connection with system sales. These contract acquisition costs were capitalized and will be amortized over the period of anticipated support renewals. The Company expensed such costs when incurred under the prior guidance.
●	$1.2 million deferred tax liability related to the direct tax effect of the ASC 606 adoption.

The Company’s revenue consists of product and service revenue resulting from the sale of systems, training on the systems, extended service contracts, consumables and other accessories. The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Revenues are recognized when control of the promised goods or services are transferred to the Company’s customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

The Company's system sale arrangements generally contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company’s system sale arrangements include a combination of the following performance obligations: The System and software license (considered as one performance obligation), system accessories (hand pieces), training, other accessories, extended service contracts and marketing services. For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and marketing services (which are satisfied over time), the Company generally satisfies all of the performance obligations at a point in time. Systems, system accessories (hand pieces), training, and time and material services are also sold on a stand-alone basis.

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The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of June 30, 2018:

	As reported under Topic 606		Adjustments		Balances under Prior GAAP
	(In thousands)

Other long-term assets	$	5,807	$	5,325	$	482
Deferred tax asset		21,219		(1,160)		22,379
Accrued liabilities		22,756		(111)		22,867
Deferred revenue		11,807		(255)		11,552
Retained earnings (deficit)		3,156		4,530		(1,374)

The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated income statement for the three months ended June 30, 2018:

	As reported under Topic 606		Adjustments		Balances under Prior GAAP

	(In thousands)
Products revenue	$	37,650	$	55	$	37,595
Service revenue		4,903		69		4,834
Sales and marketing		15,535		(463)		15,998
Interest and other income, net*		(129)		(64)		(65)

The following table summarizes the effects of adopting Topic 606 on Company’s condensed consolidated income statement for the six months ended June 30, 2018:

	As reported under Topic 606			Adjustments			Balances under Prior GAAP

	(In thousands)
Products revenue	$	66,914		$	65		$	66,849
Service revenue		9,764			133			9,631
Sales and marketing		28,623			(648	)		29,271
Interest and other income, net*		(31	)		(129	)		98

* Included in interest and other income, net, is the estimated interest expense for advance payment related to service contracts under the new revenue standard.

Adoption of the standard had no impact on total net cash from or used in operating, investing, or financing activities within the condensed consolidated statements of cash flows.

As part of the Company's adoption of ASC 606, the Company elected to use the following practical expedients: (i) not to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; (iii) not to recast revenue for contracts that begin and end in the same fiscal year; and (iv) not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

~~Note 2.~~ ~~Cash~~,N ~~Cash~~ote 3 ~~Equivalents~~. Cash, Cash Equivalent andMarketable Investments

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

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

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The following ~~table~~stables summarize the components, and the unrealized gains and losses position, related to the Company’s cash, cash equivalents ~~marketable investments~~ and ~~restricted~~marketable investments (in thousands): as of June 30, 2018 and December 31, 2017:

June 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
June 30, 2018										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	11,604	$	—	$	—		$	11,604	$	15,545	$	—	$	—		$	15,545
Money market funds		982		—		—			982		2,887		—		—			2,887
Commercial paper		6,093		—		—			6,093
Total cash and cash equivalents		18,679		—		—			18,679		18,432		—		—			18,432

Marketable investments:
U.S. government notes		2,861		—		(6	)		2,855		6,012		—		(8	)		6,004
U.S. government agencies		2,005		—		(1	)		2,004
Municipal securities		200		—		—			200		200		—		(1	)		199
Commercial paper		14,319		2		(1	)		14,320
Corporate debt securities		12,891		8		(8	)		12,891		4,388		—		(18	)		4,370
Total marketable investments		32,276		10		(16	)		32,270		10,600		—		(27	)		10,573

Restricted investments:
Money market funds		25		—		—			25
U.S. government notes		2,266		—		(1	)		2,265
Total restricted investments		2,291		—		(1	)		2,290

Total cash, cash equivalents, marketable investments and restricted investments	$	53,246	$	10	$	(17	)	$	53,239
Total cash, cash equivalents and marketable investments										$	29,032	$	—	$	(27	)	$	29,005

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Market
Value

Cash and cash equivalents:

Cash
$ 6,672 $ — $ — $ 6,672
Money market funds
6,053 — — 6,053
Commercial paper
1,050 — — 1,050
Total cash and cash equivalents
13,775 — — 13,775

Marketable investments:

U.S. government notes
8,403 4 (9
)
8,398
U.S. government agencies
3,918 — (2
)
3,916
Municipal securities
1,325 — — 1,325
Commercial paper
12,299 2 (2
)
12,299
Corporate debt securities
14,366 3 (8
)
14,361
Total marketable investments
40,311 9 (21
)
40,299

Total cash, cash equivalents and marketable investments
$ 54,086 $ 9 $ (21
)
$ 54,074

December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	14,058	$	—	$	—		$	14,058
Money market funds		126		—		—			126
Total cash and cash equivalents		14,184		—		—			14,184

Marketable investments:
U.S. government notes		11,885		—		(15	)		11,870
Municipal securities		201		— —		(1	)		200
Commercial paper		1,836		—		(3	)		1,833
Corporate debt securities		7,838		2		(15	)		7,825
Total marketable investments		21,760		2		(34	)		21,728

Total cash, cash equivalents and marketable investments	$	35,944	$	2	$	(34	)	$	35,912

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As of June 30, ~~2017~~2018 and December 31, ~~2016, total gross~~2017, net unrealized losses were ~~$17,000~~$27,000 and ~~$21,000,~~$34,000, respectively, and were related to interest rate changes on available-for-sale marketable ~~and restricted~~ investments. The Company has concluded that it is more-likely-than-not that the securities will be held until maturity or the recovery of their cost basis. No securities were in an unrealized loss position for more than 12 months.

The following table summarizes the contractual maturities of the Company’s available-for-sale securities, classified as marketable investments ~~and restricted investments~~ as of June 30, ~~2017~~2018 (in thousands):

	Amount		Amount
Due in less than one year	$	30,361	$	9,573
Due in 1 to 3 years		4,174		1,000
Total marketable investments	$	34,535	$	10,573

Note 3. 4. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources ~~(observable~~(observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (~~unobservable inputs~~)(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ~~(Level~~(Level 1) and the lowest priority to unobservable inputs ~~(Level~~(Level 3). The three levels of the fair value hierarchy are described ~~below:~~below in accordance to ASC 820:

●

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

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

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

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

●

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

●

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

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

As of June 30, 2018, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):

June 30, 2018	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	2,887	$	—	$	—	$	2,887
Marketable investments:
Available-for-sale securities		—		10,573		—		10,573
Total assets at fair value	$	2,887	$	10,573	$	—	$	13,460

As of December 31, 2017, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):

June 30, 2017

Level 1

Level 2

Level 3

Total

Cash equivalents:

Money market funds
$ 982 $ — $ — $ 982
Commercial paper
— 6,093 — 6,093
Marketable investments:

Available-for-sale securities
— 32,270 — 32,270
Restricted investments:

Money market funds
25 — — 25
U.S. government notes
— 2,265 — 2,265
Total assets at fair value
$ 1,007 $ 40,628 $ — $ 41,635

~~As of December 31,~~ 2016, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2016	Level 1		Level 2		Level 3		Total
December 31, 2017									Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	6,053	$	—	$	—	$	6,053	$	126	$	—	$	—	$	126
Commercial paper		—		1,050		—		1,050
Marketable investments:
Available-for-sale securities		—		40,299		—		40,299
Marketable investments:
Available-for-sale securities										—		21,728		—		21,728
Total assets at fair value	$	6,053	$	41,349	$	—	$	47,402	$	126	$	21,728	$	—	$	21,854

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The ~~Company~~’sCompany’s Level 1 financial assets are money market funds with fair values that are based on quoted market prices. The Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The ~~weighted~~ average remaining maturity of the Company’s Level 2 investments as of June 30, ~~2017~~2018 is less than ~~1 year~~7 months and all of these investments are rated by S&P and Moody’s at A-A or better. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the quarter and year ended June 30, 2018 and December 31, 2017, respectively.

Note 4. 5.BalanceSheetDetails

Inventories

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, inventories consist of the following (in thousands):

	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Raw materials	$	12,248	$	10,966	$	17,875	$	19,160
Work in progress						2,846		2,744
Finished goods		4,665		4,011		9,417		6,878
Total	$	16,913	$	14,977	$	30,138	$	28,782

Accrued Liabilities

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, accrued liabilities consist of the following (in thousands):

	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Accrued payroll and related expenses	$	9,006	$	9,036	$	10,712	$	12,567
Sales and marketing accruals						2,283		3,710
Warranty liability		2,877		2,461		3,561		3,508
Sales tax		2,087		2,373		2,388		2,920
Other		5,003		3,527		3,812		4,143
Total	$	18,973	$	17,397	$	22,756	$	26,848

Note 5.6. Warranty

~~The Company provides~~ ~~a standard one-year warranty on all systems. For direct sales to end customers, warranty coverage provided is for labor~~ and parts necessary to repair the systems during the warranty period. For sales to distributors, we provide a 14 to 16 month warranty for parts only. The distributor provides the labor to their end customer.Service Contracts

The Company has a direct field service organization in the U.S. Internationally, the Company provides direct service support through its wholly-owned subsidiaries in Australia, Belgium, Canada, France,, Hong Kong, Japan, and Switzerland, as well as through third-party service providers in Spain and the United Kingdom. In several other countries, where itthe Company does not have a direct presence, the Company provides service through a network of distributors and third-party service providers.

After the original warranty ~~perio~~d,period, maintenance and support are offered on a service contract basis or on a time and materials basis. The Company provides for the estimated cost to repair or replace products under warranty at the time of sale. The following table provides the changes in the product warranty accrual for the three and six months ended June 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):

	Three Months Ended						Six Months Ended						Three Months Ended				Six Months Ended
	June 30,						June 30,						June 30,				June 30,
	2017			2016			2017			2016			2018		2017		2018		2017
Beginning Balance	$	2,735		$	1,819		$	2,461		$	1,819		$	3,373	$	2,735	$	3,508	$	2,461
Add: Accruals for warranties issued during the period		1,944			1,178			4,079			2,432			2,311		1,944		4,575		4,079
Less: Settlements made during the period		(1,802	)		(997	)		(3,663	)		(2,251	)		(2,123)		(1,802)		(4,522)		(3,663)
Ending Balance	$	2,877		$	2,000		$	2,877		$	2,000		$	3,561	$	2,877	$	3,561	$	2,877

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Note 7. Revenue

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over time accounted for approximately 9% of the Company’s total revenue for the six months ended June 30, 2018.

For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and marketing services (which are satisfied over time), the Company generally satisfies all of the performance obligations at a point in time. System, system accessories (hand pieces), training, time and material services are also sold on a stand-alone basis, and related performance obligations are satisfied at a point in time. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, on a relative basis using its standalone selling price. The stated contract value is the transaction price to be allocated to the separate performance obligations.

Nature of Products and Services

Systems

System revenue represents the sale of a system or an upgrade of an existing system. A system consists of a console that incorporates a universal graphic user interface, a laser and or other energy based module, control system software and high voltage electronics, as well as one or more hand pieces. However, depending on the application, the laser or other energy based module is sometimes contained in the hand piece such as with the Company’s Pearl and Pearl Fractional applications instead of within the console.

The Company offers customers the ability to select the system that best fits their practice at the time of purchase and then to cost-effectively add applications to their system as their practice grows. This provides customers the flexibility to upgrade their systems whenever they choose and provides us with a source of additional Systems revenue.

The Company has concluded that the system or upgrade and the right to use the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.

The Company considers set-up or installation an immaterial promise as set-up or installation for systems other than enlighten systems takes only a short time. The related costs to complete set-up or installation are immaterial to the Company. The enlighten system is one performance obligation and the calibration or installation service is a separate performance obligation.

For systems sold directly to end-customers that are credit approved, revenue is recognized when the Company transfers control to the end-customer, which occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. The Company recognizes revenue on cash basis for system sales to international direct end-customer sales that have not been credit approved, after satisfying all remaining obligations of the agreement. For systems sold through credit approved distributors, revenue is recognized at the time of shipment. The Company’s system arrangements generally do not provide a right of return. The Company provides a standard one-year warranty coverage for all systems sold to end-customers to cover parts and service, and extended service plans that vary by the type of product and the level of service desired.

The Company typically receives payment for its system consoles and other accessories within 30 days of shipment. Certain international distributor arrangements allow for longer payment terms.

Skincare products

The Company sells third-party manufactured skincare products in Japan. The Company purchases and inventories these third-party skincare products from the manufacturers and sells them to licensed physicians. The Company acts as the principal in this arrangement, as it determines the price to charge customers for the skincare products, and controls the products before they are transferred to the customer. Skincare products are typically sold in contracts in which the skincare products represent the sole performance obligations. The Company recognizes revenue for skincare products at a point in time, generally upon shipment.

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~~Note~~ 6~~. Deferred Service Contract Revenue~~Consumables (Other accessories)

The Company treats its customers' purchase of replacement Titan, truSculpt 3D and truSculpt iD hand pieces as Consumable revenue, which provides the Company with a source of recurring revenue from existing customers. The Company’s 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 the Company’s recurring revenue stream. Hand piece refills of the Company’s legacy truSculpt product are accounted for in accordance with the Company’s standard warranty and service contract policies.

Extended contract services

The Company offers post-warranty services to its customers through extended service contracts that cover preventive maintenance and or replacement parts and labor for a term of one, two, or three years, or by direct billing for detachable hand piece replacements, parts and labor. These post-warranty services serve as additional sources of recurring revenue from the Company’s installed product base. Service revenue is recognized over time as the customers benefit from the service throughout the service period. Revenue related to services performed on a time-and-materials basis is recognized when performed. For the Company's performance obligations recognized over time, revenue is generally recognized using a time-based measure of progress reflecting generally consistent efforts to satisfy those performance obligations throughout the arrangement term.

Training

Sales of system to customers include training on the system to be provided within 90 days of purchase. The Company considers training as a separate performance obligation as customers can immediately benefit from the training due to the fact that the customer already has the system. Training is also sold separately from systems. The Company recognizes revenue for training when the training is provided. Training is not required for customers to use the systems.

Customer Marketing Support

In North America, the Company offers marketing and consulting phone support to its customers who purchase its truSculpt 3D and truSculpt iD systems. These customer marketing support services include a practice development model and marketing training, performed remotely with ongoing phone consultations for six months from date of purchase. The Company considers customer marketing support a separate performance obligation, and allocates and recognizes revenue over the six-month term of support. The Company determines the standalone selling price based on cost plus a margin.

Significant Judgments

More judgments and estimates are required under Topic 606 than were required under the previous revenue recognition guidance, Topic 605. Revenue recognition under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms.

The enlighten system includes the related software license as one performance obligation and the calibration/installation services are accounted for as separate performance obligations. The calibration/installation is a separate performance obligation for the enlighten system because a knowledgeable third-party could perform this service.

The Company has however concluded that set-up or installation for all other systems (excluding the enlighten system) is perfunctory as the set-up or installation for systems other than enlighten take only a short time and the related costs to complete set-up or installation are immaterial.

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Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation. The Company estimates SSPs for each performance obligation as follows:

Systems: The SSPs for systems are based on directly observable sales in similar circumstances to similar customers. When SSP is not directly observable, the Company estimates SSP using the expected cost plus margin approach.

Training: SSP is based on observable price when sold on a standalone basis.

Extended warranty: SSP is based on observable price when sold on a standalone basis (by customer type).

Marketing program: SSP is estimated based on cost plus margin.

The Company will combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract. If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

The Company is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on the Company’s expectations of the term of the contract. Generally, the Company has not experienced significant returns or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.

Deferred Sales Commissions

Incremental costs of obtaining a contract, including sales commissions, are capitalized and amortized on a straight-line basis over the expected customer relationship period if the Company expects to recover those costs. The Company uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally two to three years for the Company’s product and service arrangements.

Total capitalized costs as of June 30, 2018 were $5.3 million and are included in other long-term assets in the Company’s condensed consolidated balance sheet. Amortization of this asset was $0.4 million and $0.8 million, respectively, during the three and six months ended June 30, 2018 and is included in sales and marketing expense in the Company’s condensed consolidated statements of operations.

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Note 8. Contract balance

The Company’s service contracts include an upfront payment for the one, two or three-year contract terms. The timing of receipt of payment and timing of performance of the services create timing differences that result in deferred revenue on the Company’s condensed consolidated balance sheet. The advance payments under these contracts are recorded in deferred revenue, and the Company recognizes the revenue when earned. Contracted but unsatisfied performance obligations were approximately $11.8 million as of June 30, 2018, of which the Company expects to recognize approximately 78% of the revenue over the next 12 months and the remainder thereafter.

The Company's deferred contract revenue consists of service revenue, training and product revenue. Deferred contract revenue balance is comprised mainly of Service revenue. The Company generates Service revenue from the sale of extended service contracts and from time and material services provided to customers who are not under a warranty or extended service contract. Service contract revenue is recognized on a straight-line basis over the period of the applicable contract. Service revenue from time and material services is recognized as the services are provided.

The following table provides changes in the deferred ~~service~~ contract revenue balance for the three and six ~~month~~months ended June 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):

	Three Months Ended						Six Months Ended						Three Months Ended				Six Months Ended
	June 30,						June 30,						June 30,				June 30,
	2017			2016			2017			2016			2018		2017		2018		2017
Beginning Balance	$	9,555		$	10,512		$	9,431		$	10,469		$	11,015	$	9,555	$	11,656	$	9,431
Add: Payments received		3,721			3,045			7,112			6,308			4,739		3,721		8,416		7,112
Less: Revenue recognized		(3,263	)		(3,334	)		(6,530	)		(6,554	)		(3,947)		(3,263)		(8,265)		(6,530)
Ending Balance	$	10,013		$	10,223		$	10,013		$	10,223		$	11,807	$	10,013	$	11,807	$	10,013

Costs for extended service contracts ~~were $1.0 million and $1.6 million~~ for the ~~three months ended June 30, 2017 and 2016, respectively, and $2.9 million~~ ~~and $3.2 million for the six months ended June 30, 2017 and 2016, respectively.~~

~~Note~~ 7. ~~Stockholders’ Equity and~~ ~~Stock-based Compensation Expense~~

~~Amended and Restated 2004 Equity Incentive Plan~~

~~In the second quarter ended June 30, 2017,~~ the Company’s board of directors (“Board”) and stockholders approved the amendment and restatement of the 2004 equity incentive plan (“Amended and Restated 2004 Equity Incentive Plan”). The amendments included the extension of the term of the plan to the date of the Annual Meeting of the Company’s stockholders in 2022, an increase in the number of shares available for future grant by 1,600,000 shares, and other terms of the plan. The Amended and Restated 2004 Equity Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares, and other stock or cash awards.

~~Share Repurchase Program~~

On February 8, 2016, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase Program by $10 million, under which the Company is authorized to repurchase shares of its common stock. As of December 31, 2016, there remained an additional $5.1 million in the Stock Repurchase Program to use for repurchasing the Company’s common stock. On February 13, 2017 the Company’s Board of Directors approved the expansion of its Stock Repurchase Program by an additional $5 million.

~~In the~~ three and six months ended June 30, ~~2017,~~2018, were $2.0 million and 3.9 million, respectively.

Note 9. Stockholders’ Equity and Stock-based Compensation Expense

In 1998, the Company ~~repurchased 193,844 and 334,244~~adopted the 1998 Stock Plan, or 1998 Plan, under which 4,650,000 shares of ~~its~~the Company’s common stock were reserved for ~~approximately $4.1 million~~issuance to employees, directors and ~~$7.0 million, respectively. As~~consultants. On January 12, 2004, the Board of ~~June 30, 2017, there remained an additional $3.1 million available in~~Directors adopted the ~~Stock Repurchase Program to repurchase~~2004 Equity Incentive Plan. A total of 1,750,000 shares of common ~~stock. All~~stock were originally reserved for issuance pursuant to the 2004 Equity Incentive Plan. In addition, the shares ~~repurchased were retired~~reserved for issuance under the 2004 Equity Incentive Plan included shares reserved but un-issued under the 1998 Plan and shares returned to ~~authorized but unissued status.~~

~~On July 28, 2017~~ the ~~Company's Board~~1998 Plan as the result of ~~Directors~~termination of options or the repurchase of shares. In 2012 the stockholders approved ~~an incremental $25 million~~a “fungible share” provision whereby each full-value award issued under the 2004 Equity Incentive Plan results in a requirement to ~~be added to~~subtract 2.12 shares from the ~~Stock Repurchase Program.~~

~~Stock-based~~ ~~Compensation Expense~~

~~Stock-based compensation expense~~ ~~by department recognized during~~shares reserved under the ~~three months ended June 30, 2017 and 2016 were as follows (in thousands):~~Plan.

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Cost of revenue
$ 147 $ 40 $ 276 $ 181
Sales and marketing
401 229 821 605
Research and development
239 105 476 285
General and administrative
444 376 1,053 1,011
Total stock-based compensation expense
$ 1,231 $ 750 $ 2,626 $ 2,082

Activity under the ~~Company~~’sCompany’s Amended and Restated 2004 Equity Incentive Plan, as amended, is summarized as follows:

				Options Outstanding							Options Outstanding
	Shares Available for Grant			Number of Stock Options Outstanding			Weighted- Average Exercise Price		Shares Available for Grant		Number of Stock Options Outstanding		Weighted- Average Exercise Price
Balance, December 31, 2016		721,657			1,116,472		$	9.56
Additional shares reserved		1,600,000			—			—
Balance, December 31, 2017										1,494,865		839,919	$	16.46
Options granted		(85,500	)		85,500			18.71		(21,010)		21,010		50.65
Stock awards granted⁽^{1) (2)}		(486,614	)		—			—
Stock awards granted⁽¹⁾										(395,511)		—		—
Options exercised		—			(370,162	)		8.88		—		(188,859)		9.98
Options canceled		31,393			(31,393	)		14.38		43,833		(43,833)		20.33
Stock awards canceled⁽¹⁾		97,823			—			—
Balance, June 30, 2017		1,878,759			800,417		$	10.66
Stock awards canceled⁽¹⁾										93,390		—		—
Balance, June 30, 2018										1,215,567		628,237	$	19.28

(1)

TheCompanyhasa“fungibleshare”provisioninitsAmendedandRestated2004EquityIncentivePlanwherebyforeachfull-valueaward(RSU/PSU)issuedorcanceledunderthePlan requires ~~the subtraction or add back of 2.12 shares from or to the Shares Available for Grant, respectively~~.

~~(2)~~

~~Included in 'Stock awards granted' of~~ ~~486,614~~~~, was~~ ~~221,540~~the ~~fungible shares relating to~~ ~~104,500~~subtractionoraddback of ~~PSUs granted. These PSUs~~ ~~may~~ ~~result in a~~ l~~ower number of shares of common stock that may~~ ~~be released~~ on ~~January~~2.12 1, ~~201~~8~~, based on PSUs forfeited due to employment terminations and the degree of achievement of~~ ~~two~~shares ~~performance goals compared to targets that were pre-determined by the Board and disclosed in a Form 8-K on~~ ~~January~~from 11or~~, 2017~~.totheSharesAvailableforGrant,respectively.

Under the ~~Amended and Restated~~ 2004 Equity Incentive Plan,, as amended, the Company issued ~~241,696 shares and 426,903~~346,279 shares of common stock during the ~~three and~~ six months ended June 30, ~~2017, respectively,~~2018, in conjunction with stock options exercised and the vesting of RSUs and PSUs.

As of June 30, ~~2017,~~2018, there was approximately ~~$4.9~~$19.8 million of unrecognized compensation expense, net of projected forfeitures, ~~related to non-vested equity~~for stock options and stock awards. The expense is expected to be recognized over the remaining weighted-average period of ~~1.81~~2.5 years. The actual expense recorded in the future may be higher or lower based on a number of factors, including, actual forfeitures experienced and the degree of achievement of the performance goals related to the PSUs granted.

Non-Employee Stock-Based Compensation

The Company granted 3,384 RSUs and 3,384 PSUs to non-employees during the six months ended June 30, 2018, and 7,745 stock options and 2,478 RSUs during the year ended December 31, 2017. The stock options vest over 4 years at 25% on the first anniversary of the grant date and 1/48th each month thereafter. The RSUs vest over 4 years at 25% on each anniversary of the grant date, whiles vesting of the PSUs is subject to the recipient's continued service and achievement of pre-established metrics. These RSUs/PSUs and stock options were granted in exchange for consulting services to be rendered and are measured and recognized as they are earned. The Company revalues stock options granted to non-employees at each reporting date as the underlying equity instruments vest.

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Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Cost of revenue	$	227	$	147	$	380	$	276
Sales and marketing
Employee		660		401		1,112		821
Non-Employee		55		—		92		—
Research and development		262		239		453		476
General and administrative		1,002		444		1,856		1,053
Total stock-based compensation expense	$	2,206	$	1,231	$	3,893	$	2,626

Note 8.10. Net ~~Income (Loss)~~Loss Per Share

Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money equity awards (stock options, restricted stock units, performance stock units and employee stock purchase plan contributions), which is calculated based on the average share price for each fiscal period using the treasury stock method. ~~Under~~In accordance with ASC 260, the assumed proceeds under the treasury stock method include the ~~amount~~average unrecognized compensation expense of in-the money stock options and restricted stock units. This results in the ~~employee must pay for~~assumed buyback of additional shares, thereby reducing the dilutive impact of equity ~~award, and the amount of compensation cost for future service that the Company has not yet recognized, are all assumed to be used to repurchase shares.~~ awards.

Diluted earnings per share is the same as basic earnings per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.

The following table sets forth the computation of basic and diluted net ~~loss~~income (loss) and the weighted average number of shares used in computing basic and diluted net ~~loss~~income (loss) per share (in thousands, except per share data):

	Three Months Ended					Six Months Ended					Three Months Ended June 30,				Six Months Ended June 30,
	June 30,					June 30,					2018		2017		2018		2017
	2017		2016			2017		2016
Numerator
Net income (loss) (in thousands)	$	1,947	$	(1,229	)	$	925	$	(3,280	)
Net income (loss)											$	(1,572)	$	1,947	$	(3,604)	$	925
Denominator
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic		13,935		13,131			13,888		13,071
Dilutive effect of incremental shares and share equivalents		694		—			745		—
Weighted average shares of common stock outstanding used in computing net
income (loss) per share, basic												13,709		13,935		13,649		13,888
Dilutive effect of incremental shares and share equivalents												—		694		—		745
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted		14,629		13,131			14,633		13,071			13,709		14,629		13,649		14,633
Net income (loss) per share:
Net income (loss) per share, basic	$	0.14	$	(0.09	)	$	0.07	$	(0.25	)	$	(0.11)	$	0.14	$	(0.26)	$	0.07
Net income (loss) per share, diluted	$	0.13	$	(0.09	)	$	0.06	$	(0.25	)	$	(0.11)	$	0.13	$	(0.26)	$	0.06

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

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Options to purchase common stock		66		1,993		53		2,059		710		66		758		53
Restricted stock units		3		448		2		426		449		3		422		2
Performance stock units		—		151		—		144		49		—		36		—
Employee stock purchase plan shares		—		83		—		83		73		—		73		—
Total		69		2,675		55		2,712		1,281		69		1,289		55

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Note 9.11. Income Taxes

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full ~~fiscal~~ year to “~~ordinary”~~"ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. When applicable, the year-to-date tax provision reflects adjustments from discrete tax items. InThe income tax benefits for the ~~quarter ended December 31, 2016, the Company adopted the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. As a result of the adoption of the ASU No. 2016-09, the~~three and six months ended June 30, ~~2017 tax provision includes the discrete accounting of the net~~2018 reflect a projected income tax benefit ~~of excess compensation cost (“windfalls”). In the periods prior~~for U.S. and non-U.S. operations resulting in an annual effective tax rate applied to the ~~adoption of ASU No. 2016-09, the~~year-to-date ordinary loss. This tax benefit ~~of windfalls~~is increased by excess tax benefits generated by stock deductions exercised or vested in the three and ~~tax deficiencies (“shortfalls”) were recorded in equity to the extent of previous windfalls, and then to the income statement.~~six months ended June 30, 2018.

For the three and six ~~month period~~months ended June 30, ~~2016,~~2018, the ~~Company used a discrete effective~~Company's income tax ~~rate method~~benefit was $712,000 and $3,331,000 respectively, compared to calculate the provision for income taxes. The Company determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the fiscal six-month period ended June 30, 2016.

~~The Company~~’s income tax expense of $59,000 and income tax benefit of $59,000 for the same periods in 2017. The income tax benefits for the three and six months ended June 30, ~~2017, respectively, related primarily to the Company’s U.S. and non-U.S. operations based on the annual effective tax rate method. In addition, it included~~2018 include a tax benefit for excess tax deductions of approximately ~~$59,000~~$1.14 million and ~~$110,000~~$2.6 million, respectively, recorded discretely in the three and six months ended June 30, 2017, respectively. The Company’s income tax expense for the three and six months ended June 30, 2016 was $30,000 and $54,000, respectively, and related primarily to income taxes of the Company’s non-U.S. operations.reporting period.

The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. As of ~~June 30, 2017, and~~ December 31, ~~2016,~~2017, the Company ~~had a 100%~~released its valuation allowance against ~~its~~ U.S. federal and all other domestic state net deferred tax ~~assets.~~assets except for California and Massachusetts. The Company maintained this valuation allowance position through June 30, 2018. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considered all available positive and negative ~~evidence giving greater weight to its recent cumulative losses and lesser weight to its projected financial results due to the subjectivity involved in forecasting future periods.~~evidence. The Company also considered, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences, ~~and~~ the implementation of feasible and prudent tax planning ~~strategies.~~strategies and the impact of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

Note 12. Correction of Prior Period Immaterial Error

During the three months ended June 30, 2018, management discovered that the Company had not recorded the tax effect of the adoption of ASC 606 in the balance sheet of the unaudited condensed consolidated financial statements as of March 31, 2018. Upon adoption of the Topic 606, the Company recorded an increase to retained earnings of $5.0 million for contracts still in force as of January 1, 2018. The tax effect of the 606 adoption was $1.2 million.

The Company evaluated the impact of the error on prior period and determined that the effect was not material to the financial statements as of and for the three months ended March 31, 2018 and six months ended June 30, 2018. The Company corrected the error in the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2018. The correction of the error increased deferred tax liability by $1.2 million and decreased retained earnings by $1.2 million (Note 2) as of January 1, 2018.

The Company’s condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the three months ended March 31, 2018, and the three and six months ended June 30, 2018 were not affected by this correction of the error. Accordingly, the Company's loss per share for the three months ended March 31, 2018, and the three and six months ended June 30, 2018 remains unchanged.

Note 13. Segment reporting

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer ("CEO"), who makes decision on allocating resources and in assessing performance. The CEO reviews the Company's consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geography and product. All of the Company’s principal operations and decision-making functions are located in the U.S. The Company’s CEO viewed its operations, managed its business, and used one measurement of profitability for the one operating segment — which sells aesthetic medical equipment and services, and distributes skincare products, to qualified medical practitioners. Substantially all of the Company’s long-lived assets are located in the U.S.

The following table presents a summary of revenue by geography for the three months ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended June 30,
	2018		2017
Revenue mix by geography:
United States	$	28,132	$	24,239
Japan		3,946		3,710
Asia, excluding Japan		4,231		2,830
Europe		1,803		1,219
Rest of the world		4,441		4,391
Total consolidated revenue	$	42,553	$	36,389
Revenue mix by product category:
Products	$	35,291	$	30,115
Consumables		1,057		649
Skincare		1,302		963
Total product revenue	$	37,650	$	31,727
Service		4,903		4,662
Total consolidated revenue	$	42,553	$	36,389

The following table presents a summary of revenue by geography for the six months ended June 30, 2018 and 2017 (in thousands):

	Six Months Ended June 30,
	2018		2017
Revenue mix by geography:
United States	$	49,268	$	40,783
Japan		7,501		7,590
Asia, excluding Japan		7,074		6,014
Europe		4,373		3,445
Rest of the World		8,462		7,856
Total consolidated revenue	$	76,678	$	65,688
Revenue mix by product category:
Products	$	62,530	$	53,107
Consumables		1,826		1,148
Skincare		2,558		1,947
Total product revenue	$	66,914	$	56,202
Service		9,764		9,486
Total consolidated revenue	$	76,678	$	65,688

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Note 1014. Commitments and Contingencies

TheOperating Leases

The Company leases space for operations in the United States, Spain, Japan and France. Future minimum lease commitments under the Company’s facility operating leases were as follows (in thousands):

Year Ending December 31	Amount
2018	$	1,494
2019		2,971
2020		2,913
2021		2,525
2022		2,495
2023 and beyond		214
Total future minimum lease payments	$	12,612

In addition to the above facility leases, the Company also routinely leases automobiles for certain sales and field service employees under capital leases. The remaining committed lease payments as of June 30, 2018 was $1.15 million.

Contingencies

The Company is named from time to time as a party to other legal proceeds product liability, commercial disputes, employee disputes, and contractual lawsuits ~~and other general corporate matters~~ in the normal course of business. ~~The Company routinely assesses~~A liability and related charge are recorded to earnings in the ~~likelihood of any adverse judgments or outcomes related to~~Company’s consolidated financial statements for legal ~~matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these~~ contingencies ~~is made after analysis of each known issue, historical experience, whether it is more likely than not that the Company shall incur a loss, and whether~~when the loss is ~~estimable.~~

considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including discussion with outside legal counsel. If a reasonable estimate of a known or probable loss cannot be made, but a range of probable losses can be estimated, the low-end of the range of losses is recognized if no amount within the range is a better estimate than any other. If a material loss is reasonably possible, but not probable and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. The Company is ~~not currently a party to any material~~expenses legal ~~proceedings.~~

~~Note 11. Subsequent Events~~

On May 2, 2017, the Company entered into a new building lease with the intent to relocate its corporate headquarters to a new facility in Fremont, California. On July 6, 2017, the Company terminated this lease in return for a lump sum receipt from the lessor of $4.0 million. In conjunction with this lease termination, the Company cancelled a standby letter of credit that it had provided to the landlordfees as ~~a security deposit, which removed all restrictions on $2.3 million of investments that were used to~~ ~~secure the standby letter of credit and recorded as “Restricted investments” in the balance sheet as of June 30, 2017.~~ ~~Simul~~taneously with the execution of the lease termination, the Company entered into an amendment to its existing lease agreement for the Company to maintain its corporate headquarters in its current facility in Brisbane, California. ~~This~~ ~~amendment extends the term of the lease from December 31, 2017 to January 31, 2023.~~incurred.

As of June 30, 2018 and December 31, 2017, the Company had ~~$3.1 million remaining under its Stock Repurchase Program. On July 28, 2017, the~~accrued $137,000 and $91,000, respectively related to various pending contractual and product liability lawsuits. The Company~~’s Board~~ does not believe that a material loss in excess of ~~Directors approved an additional $25 million to be added to the program.~~accrued amounts is reasonably possible.

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Note 15. Debt

Loan and Security Agreement

On May 30, 2018, the Company and Wells Fargo Bank, N.A. (“Wells Fargo”) entered into a Loan and Security Agreement (the “Revolving Line of Credit”) in the original principal amount of $25,000,000. The Revolving Line of Credit terminates on May 30, 2021. The purpose of the Revolving Line of Credit is to provide working capital and to fund the Company’s general business requirements.

The Revolving Line of Credit bears interest at a variable interest rate equal to the LIBOR Rate plus a defined LIBOR Rate Margin based on the then-current Leverage Ratio (a ratio of funded debt to the Trailing Twelve Month ("TTM") Adjusted EBITDA).

The Revolving Line of Credit provides for borrowing limits that range from $5,000,000 to a maximum of $25,000,000 during the term of the Revolving Line of Credit. Additionally, the Company agrees to pay a variable unused commitment fee to Wells Fargo equal to (a) 0.25% per annum if the Leverage Ratio is less than 1.0 to 1.0, (b) 0.30% per annum if the Leverage Ratio is equal to or greater than 1.0 to 1.0, but less than 2.0 to 1.0, and (c) 0.35% per annum if the Leverage Ratio is equal to or greater than 2.0 to 1.0.

The Revolving Line of Credit is secured by a pledge of security interest in all the shares of each material subsidiary, together with all proceeds, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted, and all other cash and noncash proceeds, as security for the performance of the obligations. As of June 30, 2018, there were no borrowings under the Revolving Line of Credit.

Covenants

The Loan and Security Agreement contains 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. A violation of any of the covenants could result in a default under the Loan and Security Agreement that would permit the lenders to restrict the Company’s ability to further access the revolving line of credit for loans and letters of credit and require the immediate repayment of any outstanding loans under the Loan and Security Agreement. As of June 30, 2018, the Company is in compliance with all financial covenants.

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product recalls or safety alerts;

~~affecting government regulation of our products, including, but not limited to, United States (“U.S.”) Food and Drug Administration (“FDA”) laws and regulations;~~

(1) ~~“Part II,~~Part I, Item ~~1A. Risk~~1A “Risk Factors” and elsewhere in this Form 10-Q, (2) ~~our 2016~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, (3) ~~our~~the Company’s reports and registration statements filed and furnished from time to time with the SEC, and (4) other announcements ~~we make~~the Company makes from time to time.

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Critical ~~Accounting Policies~~accounting policies, significant judgments and ~~Estimates.~~use of estimates

The Company's management discussion and analysis of financial condition and results of operations are based upon the Company’s unaudited condensed consolidated financial statements. For the three and six months ended June 30, 2018, the Company’s income tax benefit was $712,000 and $3,331,000, respectively, compared to income tax expense of $59,000 and income tax benefit of $59,000 for the same periods in 2017. In the six months ended June 30, 2018, the Company calculated the provision for income taxes for interim reporting periods by applying an estimate of the "annual effective tax rate" for the full year to ordinary income or loss for the reporting period. The Company’s income tax benefit for the six months ended June 30, 2018 reflects a projected income tax benefit for U.S. and non-U.S. operations resulting in an annual effective tax rate applied to the year-to-date ordinary loss. The income tax benefit includes excess tax benefits generated by stock deductions exercised or vested in the six months ended June 30, 2018.

For the Company’s income tax provision in the six months ended June 30, 2017, the tax benefit was primarily related to projected U.S. alternative minimum taxes and income taxes from non-U.S. operations. The income tax benefit resulted from applying the annual effective tax rate by the year-to-date ordinary loss. The projected income tax reflected utilization of net operating loss carryforwards. However, the tax effect of such utilization was offset by a change in valuation allowance for the six months ended June 30, 2017 condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”). The preparation of ~~our Condensed Consolidated Financial Statements and related disclosures in conformity with GAAP~~these condensed consolidated financial statements requires us to make estimates ~~judgments~~ and ~~assumptions~~judgments that affect the reported amounts of assets, liabilities ~~revenue~~ and expenses. ~~These~~On an ongoing basis, we evaluate the Company’s critical accounting policies and estimates. The Company based the estimates ~~judgments and assumptions are based~~ on historical experience and on various other ~~factors~~assumptions that ~~we believe~~the Company believes to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are ~~reasonable under the circumstances. We periodically review our estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences between~~not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and ~~actual results, our~~conditions. The Company’s significant accounting policies are more fully described in Note 1 of the accompanying unaudited condensed consolidated financial ~~condition or results of operations will be affected.~~

~~Critical accounting estimates, as defined by the~~ ~~SEC, are those that are most important~~statements and in Note 2 to the ~~portrayal~~Company’s audited consolidated financial statements contained in the Annual Report on Form 10-K filed on March 26, 2018 with the SEC. With the exception of ~~our financial condition~~the change in revenue recognition as a result of the adoption of ASC Topic 606, (see Notes 2 and ~~results of operations and require our management’s most difficult and subjective judgments and estimates of matters that are inherently uncertain. The~~7) there have been no new or material changes to the critical accounting policies and estimates discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, that ~~we consider to be critical, subjective, and requiring judgment in their application~~ are ~~summarized in “Item 7—Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations” in our 2016 Form 10-K. There have been no significant changes~~significance, or potential significance to the ~~accounting policies and estimates disclosed in our Form 10-K.~~Company.

Results of Operations

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

	Three Months Ended						Six Months Ended						Three Months Ended				Six Months Ended
	June 30,						June 30,						June 30,				June 30,
	2017			2016			2017			2016			2018		2017		2018		2017

Net revenue		100	%		100	%		100	%		100	%		100%		100%		100%		100%
Cost of revenue		42	%		42	%		44	%		43	%		47%		42%		48%		44%
Gross margin		58	%		58	%		56	%		57	%		53%		58%		52%		56%

Operating expenses:
Sales and marketing		35	%		39	%		36	%		39	%		37%		35%		37%		36%
Research and development		8	%		10	%		9	%		11	%		10%		8%		10%		9%
General and administrative		10	%		14	%		10	%		14	%		12%		10%		13%		10%
Total operating expenses		53	%		63	%		55	%		64	%		59%		53%		60%		55%

Income (loss) from operations		5	%		(5	)%		1	%		(7	)%		(5)%		5%		(9)		1%
Interest and other income, net		1	%		1	%		1	%		1	%
Interest and other income (expense), net														—		1%		—		1%
Income (loss) before income taxes		6	%		(4	)%		2	%		(6	)%		(5)%		6%		(9)		2%

Provision for income taxes		—	%		—	%		—	%		—	%
Provision (benefit) for income taxes														—		—		(4)%		—
Net income (loss)		6	%		(4	)%		2	%		(6	)%		(5)%		6%		(5)%		2%

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Revenue

The Company primarily generates revenue from the sale of systems, training on the systems, extended service contracts, consumables and other accessories. The timing of the Company’s revenue is significantly affected by the mix of system products, installation, training, consumables and extended contract services. The revenue generated in any given period is also impacted by whether the revenue is recognized over time or at a point in time, upon completion of delivery. For an additional description on revenue, see Note 2 in the notes to consolidated financial statements on the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Notes 2 and 7 in the accompanying unaudited condensed consolidated financial statements.

As of June 30, 2018, approximately 9% of the Company’s revenue is recognized over time, and the remainder of the revenue is recognized upon completion of delivery. Revenue recognized over time relates to revenue from the Company’s extended service contracts and customer marketing support. Revenue recognized upon delivery is primarily generated by the sales of system, consumables and skincare.

During the first and second quarters of fiscal year 2018, the Company recognized revenue based on the ASU No.2014-09, “Revenue from Contracts with Customers (Topic 606),” but revenue for the three and six months ended June 30, 2017 was recognized based on Topic 605. Therefore, the periods are not directly comparable. For additional information on the impact of the new accounting standard on the Company’s revenue, see Notes 2 and 7 in the accompanying unaudited condensed consolidated financial statements.

Total Net Revenue

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			% Change			2016			2017			% Change			2016			2018		% Change		2017		2018		% Change		2017
Revenue mix by geography:
United States	$	24,239			53	%	$	15,806		$	40,783			52	%	$	26,860		$	28,132		16%	$	24,239	$	49,268		21%	$	40,783
International		12,150			4	%		11,671			24,905			8	%		23,040			14,421		19%		12,150		27,410		10%		24,905
Consolidated total revenue	$	36,389			32	%	$	27,477		$	65,688			32	%	$	49,900		$	42,553		17%	$	36,389	$	76,678		17%	$	65,688

United States as a percentage of total revenue		67	%					58	%		62	%					54	%		66%				67%		64%				62%
International as a percentage of total revenue		33	%					42	%		38	%					46	%		34%				33%		36%				38%

Revenue mix by product category:
Systems – North America	$	22,626			63	%	$	13,888		$	37,086			62	%	$	22,912
Systems – International		7,489			7	%		6,976			16,021			11	%		14,465
Systems
- North America																			$	25,886		14%	$	22,626	$	44,830		21%	$	37,086
- Rest of World																				9,405		26%		7,489		17,700		10%		16,021
Total Systems		30,115			44	%		20,864			53,107			42	%		37,377			35,291		17%		30,115		62,530		18%		53,107
Hand Piece Refills		649			(10	%)		720			1,148			(11	%)		1,284
Consumables																				1,057		63%		649		1,826		59%		1,148
Skincare		963			11	%		870			1,947			11	%		1,749			1,302		35%		963		2,558		31%		1,947
Total Products																				37,650		19%		31,727		66,914		19%		56,202


Service		4,662			(7	%)		5,023			9,486			—	%		9,490			4,903		5%		4,662		9,764		3%		9,486
Consolidated total revenue	$	36,389			32	%	$	27,477		$	65,688			32	%	$	49,900
Total Net Revenue																			$	42,553		17%	$	36,389	$	76,678		17%	$	65,688

Total Net ~~Revenue~~Revenue:

~~Our~~The Company’s revenue increased by ~~32% in both~~17% for the three ~~month~~ and six ~~month~~months periods ended June 30, ~~2017,~~2018, compared to the same periods in ~~2016,~~2017, due primarily to increased system revenues.

~~an increase in the volume of systems sold~~.

Revenue by Geography:

~~Our~~

The Company’s U.S. revenue increased by ~~$8.4~~$3.9 million, or ~~53%~~16%, and ~~by $13.9~~$8.5 million, or ~~52%, in~~21% respectively for the three and six months ended June 30, ~~2017, respectively,~~2018, compared to the same periods in ~~2016.~~2017. This ~~growth~~increase was due primarily to ~~an increase~~new products introduced into the market in ~~the volume of systems sold, as the result of the launch of our second generation~~ ~~truSculpt 3D~~ ~~product in the second quarter ended June 30, 2017, as well as increased sales headcount and additional marketing and promotional activities.~~January 2018.

~~Our~~

The Company’s international revenue increased ~~by $479,000,~~$2.3 million, or 4%19%, and ~~by $1.9~~$2.5 million, or ~~8%, in~~10% for the three and six months ended June 30, ~~2017,~~2018, compared to the same periods in ~~2016. These increases were~~2017. The increase was due ~~primarily~~ to growth in ~~our direct~~the Company’s business in ~~Hong Kong and Japan as well as an increase in distributor business in~~Europe, the Middle East ~~partially offset by declines in revenue from our direct countries in Europe,~~ and ~~our~~ Asia ~~and Latin America distributors.~~including Japan.

Revenue by Product Type:

SystemsRevenue

Systems revenue in North America increased by ~~$8.7~~$3.3 million, or ~~63%~~14%, and ~~by $14.2~~$7.7 million, or ~~62%~~21% , inrespectively, for the three and six months ended June 30, ~~2017, respectively,~~2018, compared to the same periods in ~~2016. This growth was~~2017, due ~~primarily~~ to anstrong sales in the U.S. and new products launched since the second quarter of 2017. The Rest of the World systems revenue increased by $2.0 million or 26%, and $1.7 million, or 10%, respectively. The increase in ~~volume~~Rest of ~~truSculpt 3D~~ the World revenue was primarily a result of increase in the Company’s direct business in Asia, including Japan, as well as increases in the Company’s distributor business in the Middle East and ~~other platforms, which was driven~~Europe, partially offset by decreases in ~~part by additional sales headcount, higher productivity of our sales representatives,~~the Company’s direct business in Australia and ~~the positive impact of additional marketing and promotional activities.~~Europe.

~~Systems~~

ConsumablesRevenue

Consumables revenue ~~outside of North America (“International”)~~ increased by ~~$513,000,~~$408,000, or 7%63%, and ~~by $1.6 million,~~$678,000, or ~~11%, in~~59% for the three and six months ended June 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016. This growth~~2017. The increase in consumables revenue was ~~attributable primarily~~due to ~~increased~~the introduction of truSculpt 3D in May 2017, Secret RF and Juliet during January 2018, each of which have consumable elements.

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SkincareRevenue

The Company’s revenue from ~~xeo~~ ~~and~~ ~~excel HR~~,~~partially offset~~Skincare products in Japan increased by ~~declines in the volume of our first generation~~ ~~truSculpt~~ ~~product (~~~~truSculpt 3D~~ ~~has not yet been launched internationally).~~

~~Hand Piece~~ ~~Refill~~s ~~Revenue~~

~~Our Hand Piece Refills revenue decreased by $71,000,~~$339,000, or ~~10%~~35%, and ~~by $136,000,~~$611,000, or ~~11%, in~~31% for the three and six months ended June 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016. These decreases were caused~~2017. This increase was due primarily ~~by reduced utilization of the~~ to increased marketing and promotional activities.

~~Titan~~Service ~~hand pieces.~~Revenue

~~Skincare~~ ~~Revenue~~

~~Our~~The Company’s Service revenue ~~from Skincare products in Japan~~ increased by $~~93,000,~~$241,000, or ~~11%~~5%, and ~~by $198,000,~~$278,000, or ~~11%, in~~3% for the three and six months ended June 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016. These increases were~~2017. This increase was due primarily to increased ~~marketing and promotional activities for this distributed product.~~

~~Service Revenue~~

~~Our worldwide Service revenue decreased by $361,000, or 7%, in the three months ended June 30, 2017, compared to the same period in 2017. This decrease was due primarily to decreased~~ sales of system parts to ~~our~~the Company's network of international distributors. ~~Our worldwide Service revenue was flat in the six months ended June 30, 2017, when compared to the same period in 2016.~~

Gross Profit

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			% Change			2016			2017			% Change			2016			2018		% Change		2017		2018		% Change		2017
Gross profit	$	21,046			31	%	$	16,005		$	36,567			28	%	$	28,479		$	22,377		6%	$	21,046	$	39,711		9%	$	36,567
As a percentage of total net revenue		58	%					58	%		56	%					57	%		53%				58%		52%				56%

~~Our~~The Company’s cost of revenue consists primarily of material, personnel expenses, product warranty costs, ~~amortization of intangibles~~ and manufacturing overhead expenses.

Gross ~~margin~~margins in the three ~~months ended June 30, 2017, compared to same period in 2016, remained flat at 58%. This was due primarily~~ ~~to:~~

	●	~~An improvement in margins resulting from an $8.9 million increase in total net revenue, which improved the leverage of our manufacturing department expenses;~~
	●	~~An increase in the volume of~~ ~~truSculpt 3D~~ ~~system sales that have a higher margin than our~~ ~~enlighten~~and~~excel HR~~ ~~products; offset by~~
	●	~~Increased service and warranty related expenses for some of our system platforms that are more complex and have a higher material cost, compared to our legacy systems.~~

~~Gross margin in the~~ six months ended June 30, ~~2017~~2018 decreased ~~to 56%,~~by 5% and 4% respectively, compared to ~~57% in~~ the same period in ~~2016. This decrease was~~2017. In each of the three and six month periods, a higher percentage of product revenue came from our distributor network in Rest of the World. Reduced gross margins were due primarily to:

●	In the three months ended June 30, 2018, Rest of World product revenue generated from distributors increased to 65% from 50% for the same period in 2017;
●	In the six months ended June 30, 2018, Rest of World product revenue generated from distributors increased to 60% from 49% for the same period in 2017;

●	~~Margin improvements resulting from~~Slightly lower average system pricing across the ~~increased number~~legacy portfolio. The Company experienced continued pricing pressure on the average selling price of ~~systems sold that improved~~ the ~~leverage of our manufacturing department expenses;~~Company’s enlighten system due to ongoing sales programs and normal business activities; and
●	●	~~Improved margins from~~ ~~truSculpt 3D~~ ~~system sales that have~~ ~~a higher margin than our~~ ~~enlighten~~ ~~and~~ ~~excel HR~~ ~~products; offset by~~
	●	~~Reduced~~ ~~margins resulting from a higher percentage of total revenue coming from our e~~~~nlighten~~ ~~and~~ ~~excel HR~~ ~~products that have lower gross margins than our legacy and~~ ~~truSculpt~~ ~~products. In addition,~~ Reduction in ~~the quarter ended March 31, 2017 our~~ ~~enlighten~~ ~~average selling prices were negatively impacted due to the offering of favorable discounted pricing to our installed base of customers to upgrade to~~ ~~enlighten III~~ ~~as part of our normal market seeding of our product with key opinion leaders interested to act as future reference sites; and~~
	●	~~Reduction i~~n margins due to increased warranty related expenses for ~~some of our~~the Company’s system platforms that are more complex and have a higher material cost than ~~our~~the Company’s legacy products.

Sales and Marketing

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2017			% Change			2016			2017			% Change			2016			2018		% Change			2017		2018		% Change			2017
Sales and marketing	$	12,787			19	%	$	10,712		$	23,560			21	%	$	19,428		$	15,535		21	%	$	12,787	$	28,623		21	%	$	23,560
As a percentage of total net revenue		35	%					39	%		36	%					39	%		37%					35%		37%					36%

Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended workshops and trade shows, post-marketing studies, advertising and advertising. Sales and marketing expenses as a percentage of revenue declined to 35% and 36% during the three and six months ended June 30, 2017, respectively, compared to 39% during the three and six months ended June 30, 2016. This improvement was due primarily to i~~mproved leverage in our sales and marketing expenses as well as an improvement in our direct sales employee productivity.~~training.

The ~~$2.1~~$2.7 million increase in sales and marketing expenses during the three months ended June 30, ~~2017,~~2018, compared to the same period in ~~2016,~~2017, was due primarily to:

●

$~~1.4~~1.7 million net increase in personnel related expenses, which were driven primarily by higher headcount and commissions in North America due to higher revenue;

●

$~~275,000~~0.3 million of stock based compensation due to higher ~~marketing consulting services;~~headcount;

●

$~~190,000~~0.3 million of higher travel related expenses in North America, resulting from greater related activity and increased headcount; and

●

$~~163,000~~0.4 million of higher promotional and product demonstration expenses, primarily in North America.

~~Sales~~The $5.1 million increase in sales and marketing expenses ~~increased by $4.1 million in~~during the six months ended June 30, ~~2017,~~2018, compared to the same period in ~~the prior year,~~2017, was due primarily to:

●

$~~2.6~~2.8 million net increase in personnel related expenses, which were driven primarily by higher headcount and commissions in North America due to higher revenue;

●

$~~500,000~~0.5 million of stock based compensation due to higher ~~promotional and product demonstration expenses, primarily in North America;~~headcount;

●

$~~454,000~~0.7 million of higher travel related expenses in North America, resulting from greater related activity and increased headcount; and

●

$~~389,000~~1.1 million of higher ~~marketing consulting services.~~promotional and product demonstration expenses, primarily in North America.

Table of Contents

Research and Development (“(“R&D”&D”)

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			% Change			2016			2017			% Change			2016			2018		% Change		2017		2018		% Change		2017
Research and development	$	2,981			10	%	$	2,712		$	5,926			9	%	$	5,421		$	4,095		37%	$	2,981	$	7,651		29%	$	5,926
As a percentage of total net revenue		8	%					10	%		9	%					11	%		10%				8%		10%				9%

R&D expenses consist primarily of personnel expenses, clinical research,, regulatory and material costs. R&D expenses increased by ~~$269,000,~~$1.1 million or 37%, and represented 8%10% of total net revenue, in the three months ended June 30, ~~2017,~~2018, compared to ~~10%~~8% of total net revenue for the same period in ~~2016.~~2017. This increase in expense was due primarily ~~to:~~to $1.1 million of increased personnel and consulting related expenses.

●

$~~164,000 of increased personnel and consulting related expenses.~~

R&D expenses increased by $~~505,000,~~$1.7 million or 29%, and represented 9%10% of total net revenue, in the six months ended June 30, ~~2017,~~2018, compared to ~~11%~~9% of total net revenue for the same period in ~~2016.~~2017. This increase in expense was due primarily ~~to:~~to $1.7 million of increased personnel (including $0.6 million of stock-based compensation, due to headcount increase) and consulting related expenses.

●

$~~413,000 of increased personnel and consulting related expenses.~~

General and Administrative (“(“G&A”&A”)

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			% Change			2016			2016			% Change			2016			2018		% Change		2017		2018		% Change		2017
General and administrative	$	3,548			(11	)%	$	3,997		$	6,764			(6	)%	$	7,217		$	4,902		38%	$	3,548	$	10,341		53%	$	6,764
As a percentage of total net revenue		10	%					14	%		10	%					14	%		12%				10%		13%				10%

G&A expenses consist primarily of personnel expenses, legal fees, accounting, audit and tax consulting fees, and other general and administrative expenses. G&A expenses ~~decreased~~increased by ~~$449,000~~$1.4 million or 38%, and represented ~~10%~~12% of total net revenue in the three months ended June 30, ~~2017,~~2018, compared to ~~14%~~10% of total net revenue in the same period in ~~2016,~~2017, due primarily ~~to:~~

●

~~Litigation settlement expenses and legal fees associated with a litigation matter settled in the second quarter of 2016, which did not recur in 2017; partially offset by~~

●

~~$363,000 of increased~~ ~~fees related to consulting services;~~

●

~~$218,000 of increased personnel related expenses; and~~

●

~~$107,000 of increased legal fees.~~

to $1.4 million of increased personnel related expenses, including $1.0 million of stock-based compensation, due to headcount increase.

G&A expenses ~~decreased~~increased by ~~$453,000~~$3.6 million, and represented ~~10%~~13% of total net revenue in the six months ended June 30, ~~2017,~~2018, compared to ~~14%~~10% of total net revenue in the same period in ~~2016,~~2017, due primarily to:

●

~~Litigation settlement expenses and legal fees associated with a litigation matter settled in the second quarter of 2016, which did not recur in 2017; partially offset by~~

●

$~~417,000~~1.5 million of increased fees related to professional fees and consulting services;

●

$~~139,000~~1.8 million of ~~increased personnel related expenses; and~~stock based compensation due to headcount increase;

●

$~~114,000~~0.2 million of increased other personnel related expenses due to headcount increase; and

●	$0.1 million of increased legal fees.

Interest and Other Income (expense), Net

Interest and other income, net,, consists of the following:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

2017

% Change

2016

2017

% Change

2016

Interest income
$ 124 59
%
$ 78 $ 243 57
%
$ 155
Other income (expense), net
152 9
%
139 306 49
%
206
Total interest and other income, net
$ 276 27
%
$ 217 $ 549 52
%
$ 361

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2018			% Change		2017		2018		% Change		2017
Total interest and other income (expense), net	$	(129	)		(147)%	$	276	$	(31)		(106)%	$	549
As a percentage of total net revenue		0%					1%		0%				1%

Interest and other income, net, ~~increased $59,000~~decreased $405,000 or (147)% and $580,000 or (106)%, respectively, in the three and six months ended June 30, ~~2017,~~2018, compared to the same period in ~~2016.~~2017. This ~~increase~~decrease was due primarily to an increase ~~in interest income from our marketable investments resulting from an increased investment balance as well as higher rates of return.~~

I~~nterest and other income, net, increased $188,000 in the six months ended June 30, 2017, compared to the same period in 2016. This increase was due primarily to a reduction~~ in net foreign exchange losses as well as ~~an increase~~a decrease in interest income from ~~our~~the Company’s marketable investments resulting from ~~an increased~~a decrease in the investment ~~balance as well as higher rates~~balance.

Table of ~~return~~.

Contents

Provision for Income Taxes

	Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017		% Change			2016			2017			% Change			2016			2018		% Change		2017		2018		% Change		2017
Income (loss) before income taxes	$	2,006		267	%	$	(1,199	)	$	866			127	%	$	(3,226	)	$	(2,284)		(214)%	$	2,006	$	(6,935)		(901)%	$	866
Provision for income taxes		59		97	%		30			(59	)		(209	)%		54
Provision (benefit) for income taxes																			(712)		(1,307)%		59		(3,331)		5,546%		(59)

For the three ~~months ended~~ ~~June 30, 2017, our income tax expense was $59,000, compared to $30,000 in the same period in 2016. For the~~and six months ended June 30, ~~2017, our~~2018, the Company’s income tax ~~benefit was $59,000,~~benefits were $712,000 and $3,331,000, compared to aincome tax expense of ~~$54,000~~$59,000 and income tax benefits of $59,000 in the same ~~period~~periods in ~~2016.~~

2017. In the three and six months ended June 30, ~~2017, we~~2018, the Company calculated the provision for income taxes for interim reporting periods by applying an estimate of the ~~‘annual~~"annual effective tax ~~rate’~~rate" for the full ~~fiscal~~ year to ordinary income or ~~loss. Our~~loss for the reporting period. The Company’s income tax benefit for the three and six months ended June 30, 2018 reflect a projected income tax benefit for U.S. and non-U.S. operations resulting in an annual effective tax rate applied to the year-to-date ordinary loss. The income tax benefit includes excess tax benefits generated by stock deductions exercised or vested in the three and six months ended June 30, 2018.

The income tax provision (benefit) for the three and six months ended June 30, 2017 related primarily to U.S. alternative minimum taxes as ~~we are~~the Company was able to utilize ~~our~~the net operating losses brought forward against ~~our~~the Company’s projected income for fiscal year 2017. In addition, wethe Company recorded discretely the net tax benefit of excess equity compensation costs (“windfalls”) of approximately $59,000 and $110,000 in the three and six months ended June 30, 2017, respectively.

~~For our income tax~~ provision in the three and six months ended June 30, 2016, the tax expense was primarily related to income taxes of our non-U.S. operations as our U.S. operations were in a loss position and we had a 100% valuation allowance against them. We did not record a year-to-date tax benefit associated with the projected 2016 U.S. tax expense due to historical losses and uncertainties related to the projected income. We continue to maintain a 100% valuation allowance against our U.S. deferred tax assets in fiscal 2016 and 2017.

Due to the uncertainty regarding the timing and extent of our future profitability, we continue to record a full valuation allowance to offset our U.S. deferred tax assets, which primarily represent future income tax benefits associated with our operating losses because we do not currently believe that the positive evidence outweighs the negative evidence. In the near future, if we conclude that sufficient positive evidence (including our estimate of future taxable income) exists to support a reversal of all or a portion of the valuation allowance, we expect that a significant portion of any release of the valuation allowance will be recorded as an income tax benefit at the time of release. In addition, as and when we discontinue recording a valuation allowance against our deferred tax assets, we expect that our income tax expense recorded in future quarters will increase.

Liquidity and Capital Resources

Liquidity is the measurement of ~~our~~the Company’s ability to meet potential cash requirements, fund the planned expansion of ~~our~~the Company’s operations and acquire businesses. ~~Our~~The Company’s sources of cash include ~~operating activities,~~operations, sales and maturity of marketable investments, stock option exercises,~~, Employee Stock Purchase Plan contributions,~~ and ~~the liquidation of marketable investments. We~~employee stock purchases. The Company actively ~~manage our~~manages the cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet ~~our~~the Company’s daily needs. The majority of ~~our~~the Company’s cash and investments are held in U.S. banks and ~~our~~the Company’s foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.

At June 30, 2018 and December 31, 2017, the Company had $41.2 million and $45.1 million of working capital, respectively, and the Company’s cash and cash equivalents and marketable investments totaled $29.0 million and $35.9 million as of June 30, 2018 and December 31, 2017 respectively. The Company’s combined cash and cash equivalents and marketable investments balance decreased by $6.9 million for the six months ended June 30, 2018 principally due to the settlement of accounts payable, accrued liabilities, increased inventory purchases related to the increasing demand of the Company’s products, and an increase in investments in sales, service and other management headcount to facilitate continued revenue expansion. The following table summarizes the Company’s cash and cash equivalents and marketable investments:

Cash,, Cash Equivalents and Marketable Investments

The following table summarizes our cash, cash equivalents, marketable investments and restricted investments:

(Dollars in thousands)	June 30, 2017		December 31, 2016		Change			June 30, 2018		December 31, 2017		Change
Cash and cash equivalents	$	18,679	$	13,775	$	4,904		$	18,432	$	14,184	$	4,248
Marketable investments		32,270		40,299		(8,029	)		10,573		21,728		(11,155)
Restricted investments		2,290		-		2,290
Total	$	53,239	$	54,074	$	(835	)	$	29,005	$	35,912	$	(6,907)

Cash Flows

	Six Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			2016			2018		2017
Net cash flow provided by (used in):
Operating activities	$	3,890		$	(4,352	)	$	(6,503)	$	3,890
Investing activities		5,533			1,502			10,611		5,533
Financing activities		(4,519	)		(598	)		140		(4,519)
Net decrease in cash and cash equivalents	$	4,904		$	(3,448	)
Net increase in cash and cash equivalents							$	4,248	$	4,904

Table of Contents

Cash Flows from Operating Activities

Net cash ~~generated from~~used in operating activities was $6.5 million in the six months ended June 30, 2018, which was due primarily to:

●	$3.6 million net loss as adjusted for non-cash related items consisting primarily of stock-based compensation expense of $3.9 million, income tax benefit of $3.3 million, $0.5 million provision for doubtful accounts receivable, and $1.4 million depreciation and amortization expenses;

●	$3.7 million generated from an increase in accounts payable due primarily to increased material purchases;

●	$4.3 million cash used to decrease accrued liabilities;

●	$2.2 million cash used to increase pre-paid expenses and other long term assets.;

●	$1.8 million used as a result of increased accounts receivables;

●	$1.4 million used to increase inventories; and

●	$0.5 million generated from an increase in deferred revenue.

Net cash provided by operating activities was $3.9 million in the six months ended June 30, 2017, ~~was $3.9 million,~~ which was due primarily to:

●

$4.0 million generated due to the net income of $925,000 increased by non-cash related items of $3.1 million consisting primarily of stock-based compensation expense of $2.6 million and depreciation and amortization expenses of $492,000;

●

$1.7 million generated from an increase in accounts payable due primarily to increased material purchases;

●

$1.5 million generated from an increase in accrued liabilities due primarily to higher personnel and warranty ~~costs~~;costs; and

●

$~~784,000~~0.8 million generated from an increase in deferred revenue; partially offset by

●

$1.9 million used to increase inventories;

●

$1.6 million used as a result of increased accounts receivables; and

●

$~~545,000~~0.5 million used to increase pre-paid expenses.

~~Net cash used in operating activities in the six months ended June 30, 2016 was $4.4~~ ~~million, which was due primarily to:~~

●

$777,000 used due to the net loss of $3.3 million reduced by non-cash related items of $2.5 million consisting primarily of stock-based compensation expense of $2.1 million and depreciation and amortization expenses of $484,000;

●

$~~2.6 million used to increase inventories;~~

●

$~~861,000 used to increase pre-paid expenses;~~

●

$~~773,000 used to pay down the high year-end accrued liabilities balance;~~

●

$~~321,000 used by a decrease in deferred revenue; partially offset by~~

●

~~$793,000 generated from an increase in accounts payable; and~~

●

$~~464,000 generated from the collection of cash from the seasonally high accounts receivable balance as of December 31, 2015.~~

Cash Flows from Investing Activities

We ~~generated net~~Net cash provided by investing activities was $10.6 million in the six months ended June 30, 2018, which was attributable primarily to:

●	$15.5 million in net proceeds from the sales and maturities of marketable investments; partially offset by

●	$4.4 million of cash used to purchase marketable investments; and
●	$0.6 million of cash used to purchase property, equipment and software.

Net cash provided by investing activities was $5.5 million ~~in our investing activities~~ in the six months ended June 30, 2017, which was attributable primarily to:

● $~~31.6 million in net proceeds from the sales and maturities of marketable investments; partially offset by~~

~~● $25.9 million of cash used to purchase marketable investments; and~~

~~● $210,000 of cash used to purchase property, equipment and software.~~

~~We generated net cash of $1.5 million in our investing activities in the six months ended June 30, 2016, which was~~ ~~attributable primarily to:~~

~~● $15.6 million in net proceeds from the sales and maturities of marketable investments; partially offset by~~

~~● $14.0 million of cash used to purchase marketable investments; and~~

~~● $137,000 of cash used to purchase property, equipment and software.~~

$31.6 million in net proceeds from the sales and maturities of marketable investments; partially offset by

●	$25.9 million of cash used to purchase marketable investments; and

●	$0.2 million of cash used to purchase property, equipment and software.

Cash Flows from Financing Activities

Net cash provided by financing activities was $140,000 in the six months ended June 30, 2018, which was primarily due to:

●	$3.0 million proceeds from exercise of stock options and employee stock purchase plan, offset by

●	$2.7 million of cash used for taxes paid related to net share settlement of equity awards; and
●	$0.2 million of cash used to pay capital lease obligations.

Net cash used in financing activities was $4.5 million in the six months ended June 30, 2017, which was primarily due to:

●

$7.0 million used to repurchase common stock;

●

$1.2 million of cash used for taxes paid related to net share settlement of equity awards;

●

$~~182,000~~0.2 million used to pay down our capital lease ~~obligations of $182,000;~~obligations; partially offset by

●

$3.9 million ~~of cash generated~~proceeds from ~~the issuance~~exercise of ~~common stock due to employees exercising their~~ stock options and ~~purchasing~~employee stock ~~through the ESPP program.~~

~~Net cash used in financing activities was $598,000 in the six months ended June 30, 2016, which was primarily due to:~~

●

~~$2.9 million used to repurchase common stock;~~

●

$~~556,000 of cash used for taxes paid related to net share settlement of equity awards; partially offset by~~

●

$~~3.0 million generated from the issuance of common stock due to employees exercising their stock options and purchasing stock through the ESPP program.~~purchase plan.

A~~dequacy~~Adequacy of Cash Resources to Meet Future Needs

C~~ash~~ R~~esources~~ to M~~eet~~ F~~uture~~ N~~eeds~~

WeThe Company had cash, cash equivalents, and marketable investments of ~~$50.9~~$29.0 million as of June 30, ~~2017.~~2018. For the first six months of ~~2017, we financed our operations through our operating activities,~~2018, the ~~sales~~Company’s principal source of liquidity is cash from maturity and ~~maturities~~sales of marketable investments and cash generated from the ~~sale o~~fissuance of common stock ~~due to employees exercising their~~through exercise of stock options and the Company’s employee stock purchasing ~~stock through the ESPP~~ program. ~~In July 2017, our Board of Directors approved an incremental $25.0 million to be added to the $3.1 million~~The Company believes that ~~was available to repurchase stock as of June 30, 2017. We believe~~ the existing ~~capital~~cash resources ~~including cash, cash equivalents and investments of $53.2 million,~~ are sufficient to meet ~~our operating~~the Company’s anticipated cash needs for working capital and capital ~~requirements~~expenditures for at least the next several ~~years,~~years.

Table of Contents

Loan and ~~enable us to repurchase stock pursuant to our Share Repurchase Program.~~ Security Agreement

~~In July 2017, we terminated~~On May 30, 2018, the ~~building lease for a new facility in Fremont, California, that we had~~Company and Wells Fargo Bank, N.A. (“Wells Fargo”) entered into a Loan and Security Agreement (the “Revolving Line of Credit”) in the original principal amount of $25,000,000. The Revolving Line of Credit terminates on May ~~2017. In conjunction~~30, 2021. The purpose of the Revolving Line of Credit is to provide working capital and to fund the Company’s general business requirements. The Revolving Line of Credit bears interest at a variable interest rate equal to the LIBOR Rate plus a defined LIBOR Rate Margin based on the then-current Leverage Ratio (a ratio of funded debt to the Trailing Twelve Month ("TTM") Adjusted EBITDA).

The Revolving Line of Credit provides for borrowing limits that range from $5,000,000 to a maximum of $25,000,000 during the term of the Revolving Line of Credit. Additionally, the Company agrees to pay a variable unused commitment fee to Wells Fargo equal to (a) 0.25% per annum if the Leverage Ratio is less than 1.00 to 1.00, (b) 0.30% per annum if the Leverage Ratio is equal to or greater than 1.00 to 1.00, but less than 2.00 to 1.00, and (c) 0.35% per annum if the Leverage Ratio is equal to or greater than 2.00 to 1.00.

The Revolving Line of Credit is secured by a pledge of security interest in all the shares of each material subsidiary, together with ~~this lease termination, we received~~all proceeds, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted, and all other cash and noncash proceeds, as security for the performance of the Obligations. As of June 30, 2018, there were no borrowings under the Revolving Line of Credit.

Covenants

The Loan and Security Agreement contains financial and other covenants as well as the maintenance of a ~~lump sum termination payment~~leverage ratio not to exceed 2.5:1.0 and a TTM adjusted EBITDA not less than $10 million. A violation of ~~$4.0 million from~~any of the ~~landlord. In addition, we cancelled~~covenants could result in a ~~standby letter~~default under the Loan and Security Agreement that would permit the lenders to restrict the Company’s ability to further access the revolving line of credit ~~that we had provided~~for loans and letters of credit and require the landlord as a security deposit, which removed all restrictions on $2.3 million of investments that were used to secure the letter of credit. Except for the foregoing, cash used to fund our operating activities in certain historical quarters, purchase fixed assets and repurchase our common stock, we are unawareimmediate repayment of any ~~other known trends or any known demands, commitments, events or uncertainties, including collectability~~outstanding loans under the Loan and Security Agreement. As of ~~our accounts receivable, that will result~~June 30, 2018, the Company is in ~~or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.~~compliance with all financial covenants.

Commitments and Contingencies

~~There have been~~During the six months ended June 30, 2018, there were no material changes to ~~our~~the Company’s commitments and contingencies ~~from those disclosed~~described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in ~~our~~the Annual Report on Form 1~~0-K~~10-K for the year ended December 31, ~~2016,~~2017, filed with the SEC on March ~~15, 2017.~~26, 2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

A summary of the key market risks facing the Company is disclosed below. For a detailed discussion, please see ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the SEC on March ~~15, 2017.~~26, 2018.

Interest Rate ~~Fluctuations:~~Fluctuations

~~Our exposure to interest rate risk relates primarily to our~~The Company holds cash equivalents as well as short-term and long-term fixed income securities. The Company’s investment portfolio ~~which~~ includes ~~primarily debt instruments of~~fixed and floating rate securities. Changes in interest rates could impact the ~~U.S. Government and its agencies, municipal bonds, corporate debt securities~~ ~~and commercial paper.~~Company’s anticipated interest income. Fixed rate securities may have their fair market value adversely impacted ~~if there is an increase~~due to fluctuations in interest ~~rates. While it is our intent~~rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to ~~hold~~ these ~~securities~~factors, the Company’s future investment income may fall short of expectation due to ~~maturity,~~changes in interest rates or we may suffer losses in principal if ~~for some reason we need~~forced to sell ~~a security that has~~securities which have declined in market value due to changes in interest ~~rates, then~~rates. The primary objective of the Company’s investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we ~~may suffer losses~~invest in ~~principal.~~debt instruments of the U.S. Government and its agencies and municipal bonds, high grade corporate bonds, commercial paper, CDs and money markets, and, by policy, restrict the Company’s exposure to any single type of investment or issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at a weighted average maturity of generally less than eighteen months. ~~Based~~

As at June 30, 2018, the Company had not drawn on ~~discounted cash flow modeling with respect~~the Revolving Line of Credit. Overall interest rate sensitivity is primarily influenced by any amount borrowed on the line of credit and the prevailing interest rate on the line of credit facility. The effective interest rate on the line of credit facility is based on a floating per annum rate equal to ~~our total investment portfolio~~the LIBOR rate. The LIBOR rate was 2.09% as of June 30, ~~2017, assuming a hypothetical~~2018, and accordingly the Company may incur additional expenses if the Company has an outstanding balance on the line of credit and the LIBOR rate increase in ~~interest rates of one percentage point (or 100 basis points), the fair value of our total investment portfolio would have potentially declined by approximately $134,000.~~future periods.

Inflation

The Company does not believe that inflation has had a material effect on the Company’s business, financial condition, or results of operations. If the Company’s costs were to become subject to significant inflationary pressures, the Company may not be able to fully offset such higher costs through price increases. The Company’s inability or failure to do so could harm the Company’s business, financial condition, and results of operations.

Foreign Exchange ~~Fluctuations:~~Fluctuations

~~We do not actively hedge our exposure to currency rate fluctuations.~~ ~~Although~~The Company generates revenue in Japanese Yen, Euros, Australian Dollars, Canadian Dollars, British Pounds and Swiss Francs. Additionally, a ~~significant proportion~~portion of ~~our revenue~~the Company’s operating expenses and ~~costs~~assets and liabilities are denominated in each of these currencies. Therefore, fluctuations in these currencies against the U.S. ~~Dollars, we are exposed~~dollar could materially and adversely affect the Company’s results of operations upon translation of the Company’s revenue denominated in these currencies, as well as the remeasurement of the Company’s international subsidiaries’ financial statements into U.S. dollars.

The Company has historically not engaged in hedging activities relating to the Company’s foreign currency ~~fluctuations in countries where we have~~denominated transactions, given the Company has a ~~direct operation. The three major currencies that we have exposure~~natural hedge resulting from the Company’s foreign cash receipts being utilized to ~~and have assets and liabilities denominated in~~fund the respective local ~~currencies in, are Japanese Yen, Euro and Australian Dollar.~~currency expenses.

Table of Contents

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation as of June 30, 2018 was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company’s “disclosure controls and procedures.” Rule 13a-15(e) under the Exchange Act defines “disclosure controls and procedures” as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at June 30, 2018.

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

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

~~Definition of Disclosure Controls~~Changes in Internal Control over Financial Reporting

~~Disclosure Controls are controls and~~ procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specifiedThere were no changes in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components ofCompany’s internal control over financial reporting ~~which consists of control processes designed~~that occurred the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to ~~provide reasonable assurance regarding~~materially affect, the ~~reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our~~Company’s internal control over financial ~~reporting are included within Disclosure Controls, they are included in the scope of our annual controls evaluation.~~reporting.

~~Limitatio~~nsLimitations on the Effectiveness of Controls

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

~~Changes in Internal Control over Financial Reporting~~

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

Table of Contents

PART II. OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~We are~~ ~~named from~~

ITEM 1. LEGAL PROCEEDINGS

From time to time, asthe Company may be involved in legal and administrative proceedings and claims of various types. For a ~~party~~description of the Company’s material pending legal and regulatory proceedings and settlements refer to ~~product liability~~Note 12 to the Company’s consolidated financial statements entitled “Litigation and ~~contractual lawsuits~~Related Matters,” in the ~~normal course of business. We routinely assess~~Annual Report on Form 10-K for the ~~likelihood of any adverse judgments or outcomes related to legal matters and claims, as well as ranges of probable losses. A determination of~~year ended December 31, 2017, filed with the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that we shall incur a loss, and whether the loss is estimable. We are not currently a party to any material legal proceedings.SEC on March 26, 2018.

~~ITEM 1A.~~

~~RISK FACTORS~~

~~Our~~ITEM 1A. RISK FACTORS

The Company’s business faces many risks. Any of the risks referenced ~~below or elsewhere~~ in this ~~Report on~~ Form 10-Q or ~~our~~the Company’s other SEC filings could have a material impact on ~~our~~the Company’s business and consolidated financial position or results of operations. Additional risks and uncertainties not presently known to usthe Company or that wethe Company currently ~~believe~~believes to be immaterial may also impair ~~our~~the Company’s business operations.

There have been no material changes in the risk factors set forth in Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. For ~~additional~~ detailed discussion of risk factors that should be understood by any investor contemplating investment in ~~our~~the Company’s stock, please refer to ~~“Part I.~~Part I, Item ~~1A. Risk Factors”~~1A, "Risk Factors" in ~~our 2016 Form 10-K and elsewhere as described in this~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 26, 2018 and elsewhere in this Form 10-Q.

~~Our failure to attract and retain qualified personnel and any changes in our key personnel, including officers, could adversely affect our operations.~~

Our employees are vital to our success and our ability to grow in the future will depend upon our ability to attract, hire and retain highly qualified employees. On April 17, 2017, we announced the resignation of Ronald J. Santilli, our Executive Vice President and Chief Financial Officer, effective following a transition period once his successor is named. On July 12, 2017 we announced the retention of Sandra A. Gardiner as Chief Financial Officer on a consulting basis as the Company continues a search for a permanent CFO. We are currently engaged in an ongoing effort to identify and hire a successor. We believe that we have thus far been successful in attracting and retaining qualified personnel in a highly-competitive labor market due, in large part, to our competitive compensation and benefits and our rewarding work environment, and providing employees with opportunities to contribute to our continued growth and success. However, our failure to attract and retain qualified personnel and any changes in our key personnel, including officers, could adversely affect our operations.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~The following table summarizes the activity related to stock repurchases for the~~ ~~six months ended June 30, 2017~~ ~~(in thousands except per share data)~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

Period

Total Number
of Shares
Purchased

Average Price
Paid
per Share

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs

Approximate Dollar Value of Shares
That May Yet
Be Purchased
Under the Plans
or Program

February 21-28, 2017
30 $ 21.06 30 $ 9,509
March 1-31, 2017
110 20.57 110 7,238
April 1-30, 2017
75 19.64 75 5,766
May 1-30, 2017
44 20.29 44 4,866
June 1-30, 2017
75 23.55 75 3,110
February 21-June 30, 2017
334 $ 21.03 334 $ 3,110

~~As of December 31, 2016, we had $5.1 million available in our Stock Repurchase Program. On February 13, 2017 our Board of Directors approved an additional $5 million to be added to the program.~~

In the six months ended June 30, 2017, we repurchased 334,244 shares of our common stock for approximately $7.0 million. As of June 30, 2017, there remained an additional $3.1 million available in the Stock Repurchase Program to repurchase shares of commo~~n stock. All shares repurchased were retired and returned to authorized but unissued status.~~None.

~~On July 28, 2017 our Board of Directors approved an incremental $25 million to be added to the Stock Repurchase Program.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

~~DEFAULTS UPON SENIOR SECURITIES~~

None.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

N~~one.~~ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

~~OTHER INFORMATION~~

None.

Table of Contents

ITEM 6.EXHIBITS

Exhibit No.		Description
~~3.2~~ 3.1	⁽¹⁾	Amended and Restated Certificate of Incorporation of the Registrant ~~(Delaware).~~(filed as Exhibit 3.5 to our Quarterly Report on Form 10-Q filed on November 7, 2017 and incorporated herein by reference)
3.2
~~3.4~~	⁽¹⁾	Bylaws of the ~~Registrant.~~

~~3.5~~	⁽³⁾	~~Second Amended~~Registrant (filed as Exhibit 3.4 to our Current Report on Form 8-K filed on January 8, 2015 and ~~Restated Certificate of Incorporation of the Registrant (Delaware).~~
		incorporated herein by reference)
4.1	⁽²⁾	Specimen Common Stock certificate of the ~~Registrant.~~Registrant (filed as Exhibit 4.1 to our Annual Report on Form 10-K filed on March 25, 2005 and incorporated herein by reference)
10.18
~~10.24~~	⁽⁴⁾	~~6530 Paseo Padre Parkway Fremont, California Lease dated May 2, 2017~~Loan and Security Agreement in the original principal amount of $25,000,000 by ~~and between the Company and SI 28, LLC.~~

~~10.25~~	⁽³⁾	Cutera, Inc. ~~2004~~ ~~Amended~~in favor of Wells Fargo Bank, N.A. effective May 30, 2018 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 4, 2018 and ~~Restated Equity Incentive Plan.~~

~~10.26~~	⁽⁵⁾	~~6530 Paseo Padre Parkway Fremont, California Lease Termination Agreement dated July 6, 2017~~incorporated herein by ~~and between the Company and SI 28, LLC.~~

~~10.27~~	⁽⁵⁾	~~Second Amendment to Brisbane Technology Park Lease dated July 6, 2017 by and between the Company and BMR-Bayshore Boulevard LP.~~
		reference)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 ~~U.S.C~~U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
101.INS
~~101.ins~~		XBRL Instance Document

~~101.sch~~101.SCH		XBRL Taxonomy Extension Schema Document

~~101.cal~~101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.def~~101.DEF		XBRL Taxonomy Extension Definition ~~Linkbase~~ Document

~~101.lab~~101.LAB		XBRL Taxonomy Extension Label Linkbase Document

~~101.pre~~101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

~~(1)~~

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

~~(2)~~

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

~~(3)~~	~~Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on May 1, 2017~~.
~~(4)~~	~~Incorporated by reference from Current Report on From 8-K filed May 9, 2017.~~ ~~Incorporated by reference from Current Report of From 8-K filed May 9, 2017.~~
~~(5)~~	~~Filed herewith.~~

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of The Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Brisbane, State of California, on the 7th day of August, ~~2017.~~2018.

	CUTERA, INC.

	/S/SANDRAA.GARDINER
	Sandra A. Gardiner
ExecutiveVicePresidentandChiefFinancialOfficer (PrincipalFinancialandAccountingOfficer)	~~Consultant~~ ~~Chief Financial Officer~~
	~~(Principal Financial and Accounting Officer)~~

2532


Delaware	(Stateorotherjurisdictionofincorporationororganization)	77-0492262
~~(State or other jurisdiction of incorporation or organization)~~		(I.R.S.employeridentificationno.)

PART I	FINANCIAL INFORMATION		~~Page~~
~~PART I~~		~~FINANCIAL INFORMATION~~

Item 1		Financial Statements (unaudited)	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive Income (Loss)	5
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7
Item 2		~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	1421
Item 3		Quantitative and Qualitative Disclosures About Market Risk	21 29
Item 4		Controls and Procedures	2230

PART II		OTHER INFORMATION

Item 1	Legal Proceedings	~~Legal Proceedings~~	2331
Item 1A	Risk Factors	~~Risk Factors~~	2331
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds	2431
Item 3		Defaults Upon Senior Securities	2431
Item 4		Mine Safety Disclosures	2431
Item 5	Other Information	~~Other Information~~	2431
Item 6	Exhibits	~~Exhibits~~	2532
	Signature	~~Signature~~	2532

	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	18,679		$	13,775
Marketable investments		32,270			40,299
Restricted investments		2,290			—
Accounts receivable, net		18,191			16,547
Inventories		16,913			14,977
Other current assets and prepaid expenses		2,840			2,251
Total current assets		91,183			87,849

Property and equipment, net		1,867			1,907
Deferred tax asset		381			377
Intangibles, net		—			2
Goodwill		1,339			1,339
Other long-term assets		381			380
Total assets	$	95,151		$	91,854

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,293		$	2,598
Accrued liabilities		18,973			17,397
Deferred revenue		8,901			8,394
Total current liabilities		32,167			28,389

Deferred revenue, net of current portion		1,982			1,705
Income tax liability		170			168
Other long-term liabilities		604			582
Total liabilities		34,923			30,844

Commitments and Contingencies (Note 10)

Stockholders’ equity:
Convertible preferred stock, $0.001 par value; authorized: 5,000,000 shares; none issued and outstanding		—			—
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 14,003,583 and 13,773,389 shares at June 30, 2017 and December 31, 2016, respectively		14			14
Additional paid-in capital		86,403			88,114
Accumulated deficit		(26,121	)		(27,046	)
Accumulated other comprehensive loss		(68	)		(72	)
Total stockholders’ equity		60,228			61,010

Total liabilities and stockholders’ equity	$	95,151		$	91,854

	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	925		$	(3,280	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation		2,626			2,082
Depreciation and amortization		492			484
Other		(45	)		(63	)
Changes in assets and liabilities:
Accounts receivable		(1,641	)		464
Inventories		(1,936	)		(2,624	)
Other current assets and prepaid expenses		(545	)		(861	)
Other long-term assets		(1	)		(64	)
Accounts payable		1,695			793
Accrued liabilities		1,534			(773	)
Other long-term liabilities		—			(164	)
Deferred revenue		784			(321	)
Income tax liability		2			(25	)
Net cash provided by (used) in operating activities		3,890			(4,352	)

Cash flows from investing activities:
Acquisition of property, equipment and software		(210	)		(137	)
Disposal of property and equipment		40			6
Proceeds from sales of marketable investments		6,754			5,051
Proceeds from maturities of marketable investments		24,812			10,585
Purchase of marketable investments		(25,863	)		(14,003	)
Net cash provided by investing activities		5,533			1,502

Cash flows from financing activities:
Repurchase of common stock		(7,041	)		(2,865	)
Proceeds from exercise of stock options and employee stock purchase plan		3,871			2,950
Taxes paid related to net share settlement of equity awards		(1,167	)		(556	)
Payments on capital lease obligations		(182	)		(127	)
Net cash used in financing activities		(4,519	)		(598	)

Net increase (decrease) in cash and cash equivalents		4,904			(3,448	)
Cash and cash equivalents at beginning of period		13,775			10,868
Cash and cash equivalents at end of period	$	18,679		$	7,420

Supplemental disclosure of non-cash items:
Repurchase of common stock acquired but not settled	$	—		$	84
Assets acquired under capital lease	$	257		$	365

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents:
Cash	$	6,672	$	—	$	—		$	6,672
Money market funds		6,053		—		—			6,053
Commercial paper		1,050		—		—			1,050
Total cash and cash equivalents		13,775		—		—			13,775

Marketable investments:
U.S. government notes		8,403		4		(9	)		8,398
U.S. government agencies		3,918		—		(2	)		3,916
Municipal securities		1,325		—		—			1,325
Commercial paper		12,299		2		(2	)		12,299
Corporate debt securities		14,366		3		(8	)		14,361
Total marketable investments		40,311		9		(21	)		40,299

Total cash, cash equivalents and marketable investments	$	54,086	$	9	$	(21	)	$	54,074

June 30, 2017	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	982	$	—	$	—	$	982
Commercial paper		—		6,093		—		6,093
Marketable investments:
Available-for-sale securities		—		32,270		—		32,270
Restricted investments:
Money market funds		25		—		—		25
U.S. government notes		—		2,265		—		2,265
Total assets at fair value	$	1,007	$	40,628	$	—	$	41,635

●	●	~~changes in our profitability;~~
	●	~~regulatory activities and announcements, including~~ the inability for the Company to access cash due to insufficient cash or the failure to meet the debt repayment obligations under the Revolving line of credit;

●	●	~~fluctuations in future quarterly operating results;~~
	●	~~failure to comply with, or changes in, laws, regulations or administrative practices~~ ~~affecting government regulation of our products, including, but not limited to, United States (“U.S.”) Food and Drug Administration (“FDA”) laws and regulations;~~
	●	~~failure to establish, expand or maintain market acceptance or payment for the purchase of our products;~~
	●	~~failure to maintain the current regulatory approvals for our indications;~~
	●	~~unfavorable results from clinical studies;~~
	●	~~variations in sales and operating expenses relative to estimates;~~
	●	~~our dependence on certain suppliers and manufacturers to provide certain materials, components and contract services necessary for the production of our products;~~
	●	~~product liability-related losses and costs;~~
	●	~~protection, expiration and validity of our intellectual property;~~
	●	~~changes in technology, including the development of superior or alternative technology or devices by competitors;~~
	●	~~failure to comply with applicable domestic laws and regulations, including federal and state privacy and security laws and regulations;~~
	●	~~failure to comply with foreign law and regulations;~~
	●	~~international operational and economic risks and concerns;~~
	●	~~failure to attract or retain key personnel;~~
	●	~~losses or costs from pending or future lawsuits and governmental investigations;~~
	●	~~changes in accounting rules that adversely affect the characterization of our consolidated results of income, financial position or cash flows;~~
	●	~~changes in customer spending patterns;~~
	●	continued volatility in the global market and worldwide economic ~~conditions;~~conditions, including, but not limited to, the impact of events such as Brexit;

	●	~~Use~~use of clinical results to support new aesthetic products and ~~applications.~~applications;
	●	~~Increaed collaboration with key opinion leaders of our industry to assist us in selling efforts.~~

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Program
February 21-28, 2017		30	$	21.06		30	$	9,509
March 1-31, 2017		110		20.57		110		7,238
April 1-30, 2017		75		19.64		75		5,766
May 1-30, 2017		44		20.29		44		4,866
June 1-30, 2017		75		23.55		75		3,110
February 21-June 30, 2017		334	$	21.03		334	$	3,110