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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                AMENDMENT NO. 4
                           FORM 10-K/A ANNUAL REPORT

                   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                          COMMISSION FILE NO. 000-22755

                                ----------------

                              COMPUTER MOTION, INC.
             (Exact name of Registrant as specified in its charter)

                  DELAWARE                               77-0458805
        (State or other jurisdiction                  (I.R.S. Employer
      of incorporation or organization)              Identification No.)

                               130-B CREMONA DRIVE
                                GOLETA, CA 93117
                    (Address of principal executive offices)

                                 (805) 968-9600
              (Registrant's telephone number, including area code)

                                ----------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

                                ----------------

        Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months; and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, or will not be contained, to
the best of the Registrant's knowledge, in definitive proxy information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $28.4 million at August 24, 2001 when the
closing sale price of such stock, as reported on the NASDAQ National Market was
$3.92 per share.

        The number of shares outstanding of the Registrant's Common Stock, $.001
par value, as of August 24, 2001 was 10,215,954 shares.


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                                     PART I

ITEM 1. BUSINESS

        This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the securities exchange act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to "Risk Factors that May Affect Future
Results" below.

COMPANY OVERVIEW

        Computer Motion, Inc. ("Computer Motion" or the "Company") is committed
to developing, manufacturing and marketing proprietary robotic and computerized
surgical systems that are intended to enhance a surgeon's performance and
centralize and simplify the surgeon's control of the operating room ("OR").

        The Company believes that its products have the potential to
revolutionize surgery and the OR by providing surgeons with the precision and
dexterity necessary to perform complex, minimally invasive surgical procedures,
and by enabling surgeons to control critical devices in the OR through simple
verbal commands. Computer Motion believes that its products have the potential
to broaden the scope and increase the effectiveness of minimally invasive
surgery ("MIS"), improve patient outcomes and create a safer, more efficient and
cost effective OR.

        Traditionally, the vast majority of all surgeries have been open,
requiring large incisions measuring up to 18 inches to access the operative
site. Although this approach can be highly effective, it often results in
significant trauma, pain and complications, as well as significant costs related
to lengthy convalescent periods for the patient. In an effort to minimize these
negative factors, minimally invasive surgical techniques and related
technologies have been developed. MIS has proven to be as effective as
traditional open surgery while offering patients substantially reduced pain and
trauma, shortened convalescent periods and decreased overall patient care costs.
While these benefits are significant, the minimally invasive approach presents
challenges to surgeons, including the intricate reconstruction of patient tissue
by suturing, delicate manipulation of small anatomical features and constrained
access to, and limited visualization of, the operative site.

        The Computer Motion vision is to bring the power of computers and
robotics to the operating room to facilitate a surgeon's ability to perform
complex surgical procedures and enable new, minimally invasive microsurgical
procedures that are currently very difficult or impossible to perform. The
Company works with the leading practitioners in multiple disciplines to develop
new procedures using the Company's products to provide better visualization and
improved dexterity for the surgeon, particularly for minimally invasive
techniques.

        The Company has developed four major products and a suite of supporting
supplies, accessories and services. The four major products are the
AESOP(R)Endoscope Postioner, a surgical robot capable of positioning an
endoscope in response to a surgeon's commands; the ZEUS(TM) Robotic Surgical
System, a robotic platform designed to improve a surgeon's ability to perform
complex surgical procedures and enable new, minimally invasive microsurgical
procedures that are currently impossible or very difficult to perform; the
HERMES(TM) Control Center, a voice activated operating room control system
designed to enable a surgeon to directly control multiple OR devices, including
the Company's AESOP system, through simple verbal commands; and the SOCRATES(TM)
Telementoring System, an interactive telecollaborative system allowing a surgeon
to mentor another surgeon during an operation.

        ROBOTIC SYSTEMS

        The Company's line of computer and robotic systems enhance a surgeon's
ability to perform complex, minimally invasive surgeries. The Company has
developed the EVOLVE surgical continuum to support a gradient learning curve for
surgeons to safely and economically develop the skills required to transition
from open to endoscopic surgery. All four of the Company's robotic products are
integral to the EVOLVE process.

        AESOP PLATFORM LINE

        The Computer Motion AESOP system is a surgical robot which approximates
the form and function of a human arm and allows control of the endoscope (a
specially designed optical tube which, when connected to a medical video camera
and light source, is


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passed into the body to allow the surgeon to view the operative site on a video
monitor) using simple verbal commands. This eliminates the need for a member of
a surgical staff to manually control the camera and provides a more stable
endoscopic image and more precise positioning. The Company estimates that over
100,000 MIS procedures have been successfully assisted by 535 AESOP systems in
more than 400 hospitals and surgery centers around the world.

        The AESOP platform is the world's first Food and Drug Administration
("FDA") cleared surgical robot and incorporates the world's first FDA-cleared
voice control interface for use in the operating room. The AESOP system was
introduced in the fourth quarter of 1994. AESOP 2000 with voice control was
introduced in the fourth quarter of 1996. The AESOP 3000 platform, introduced in
December 1997, is the world's first FDA cleared surgical robot capable of
assisting in advanced minimally invasive cardiothoracic procedures. The AESOP
3000 robotic arm features added flexibility and functionality over its
predecessor, providing the range of motion necessary for endoscopic viewing in
the thoracic (chest) cavity. The AESOP HR platform allows for control of AESOP
through the HERMES Control Center. AESOP HR enables the operative surgeon to
view the status of the AESOP device, saved memory positions, and the AESOP menu
structure on a surgical monitor. The AESOP HR platform also allows the surgeon
to adjust AESOP's speed to an optimal setting based on the constraints of the
procedure.

        The introduction of the Alpha(TM) Virtual Port in June 2000 enabled the
application of AESOP in open procedures. The Alpha Virtual Port provides a
free-space pivot point for the use of AESOP in sternotomy accessed cardiac
procedures as well as open abdominal procedures. The application of the Alpha
Virtual Port in conjunction with AESOP is the first step in the EVOLVE program's
step-wise transition from open to closed procedures. The Alpha Virtual Port
allows the operative surgeon in-training to gain experience with the technology
prior to advancing to a closed procedure approach.

        Computer Motion has leveraged the core technologies underlying the AESOP
platform to develop the ZEUS Robotic Surgical System, the HERMES Control Center,
and the SOCRATES Telementoring System.

        ZEUS PLATFORM

        The Computer Motion ZEUS Robotic Surgical System is designed to
fundamentally improve a surgeon's ability to perform complex, minimally invasive
surgical procedures and to enable new, minimally invasive microsurgical
procedures that are currently very difficult or impossible to perform with
conventional surgical methods. The Company believes that these new minimally
invasive surgical procedures will result in reduced patient pain and trauma,
fewer complications, lessened cosmetic concerns and shortened convalescent
periods, and will increase the number of patients qualified for certain surgical
procedures. As a result, the Company believes that an increase in minimally
invasive procedures will produce lower overall healthcare costs to patients,
hospitals and healthcare payors.

        The ZEUS platform is comprised of three surgeon-controlled robotic arms,
one of which positions an endoscope while the other two hold disposable and
reusable surgical instruments. The ZEUS robotic arms are directly attached to
the surgical table to maintain a constant orientation to the patient. A surgeon
controls the movement of the robotic arms by manipulating two corresponding
robotic instrument handles, which are housed in a mobile console. These
instrument handles are similar to conventional surgical instrument handles. A
surgeon's precise manipulation of the instrument handles is communicated to a
proprietary computer controller which filters, scales and translates the
movements to the robotic surgical instruments. A surgeon can operate these
instrument handles from a comfortable, ergonomic position. The surgeon controls
the robotic arm, which holds the endoscope through means of simple verbal
commands spoken into a headset microphone. A video display of the endoscopic
image is placed directly in front of the surgeon, and a second monitor is
positioned next to the patient for use by the other members of the surgical
team.

        Computer Motion has completed multi-center Phase I clinical testing with
the ZEUS in May 2000 system and has begun clinical testing under the approved
Investigation Device Exemption involving multi-center, pivotal clinical
evaluation of the product. The Company is currently enrolling patients into
three randomized controlled clinical trials in the area of Coronary Artery
Bypass Grafting, Internal Mammary Artery Harvesting and General Laparoscopic
Surgeries. Feasibility studies are underway in several other surgical
applications.

        The Company believes that the ZEUS platform will provide clinicians with
the following significant benefits:

        - IMPROVED PRECISION. The ZEUS platform incorporates technology that is
          designed to enable a surgeon to scale his or her movements, allowing
          manipulation of instruments on a microsurgical scale while utilizing
          normal hand and arm movements. For instance, in microsurgical
          procedures which involve extremely small anatomical structures and
          which utilize sutures ranging from 20 to 40 microns (1/3 to 2/3 the
          width of a human hair), if a surgeon selects a scaling ratio of 4 to
          1, each one inch movement by the surgeon would result in a 1/4 inch
          movement by the robotic surgical instruments.

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        - IMPROVED DEXTERITY. The ZEUS platform is designed to enhance a
          surgeon's performance by enabling robotic manipulation of surgical
          instruments, as opposed to hand-held instruments, which are very
          difficult or impossible to manipulate manually when performing
          challenging minimally invasive surgery. For instance, a surgeon can
          activate and deactivate the instrument handles to further extend
          his/her range of motion to complete a particular movement, such as
          suturing, without having to physically contort his/her arms. In
          addition, in order to gain anatomical access to certain regions of the
          body in a minimally invasive manner, the instruments must be placed in
          positions that would be extremely difficult for a surgeon to
          manipulate manually using conventional minimally invasive surgical
          techniques due to the distance between the instruments and their
          relative positions to each other.

        - ELIMINATION OF INVOLUNTARY HAND TREMOR. The ZEUS platform is designed
          to hold the surgical instruments and the endoscope in a steady manner,
          eliminating a surgeon's incidental and unintended hand motions and
          tremors which are intensified when holding surgical instruments for
          extended periods of time.

        - ENHANCED VISUALIZATION. The ZEUS platform incorporates a robotic arm,
          which controls the endoscope to produce a steady, magnified video
          image displayed directly in front of the surgeon, which facilitates
          performance of minimally invasive surgical procedures.

        - IMPROVED MINIMALLY INVASIVE ANATOMICAL ACCESS. The ZEUS platform is
          designed to provide a surgeon with access to confined areas in the
          body and critical anatomical structures that are currently only
          accessible by means of highly invasive, open surgical procedures or
          multiple "less invasive" incisions. In the case of cardiac surgery,
          these less invasive approaches can require multiple 3 to 5 inch
          incisions and often involve the removal of rib cartilage. In contrast,
          the ZEUS system is designed to provide a surgeon with complete access
          to the heart through several 3 to 5 millimeter ports.

        - MINIMIZED SURGEON FATIGUE. The ZEUS platform allows a surgeon to
          operate the surgical instrument handles in a comfortable, ergonomic
          position, including sitting down and positioning his or her forearms
          on armrests. The Company believes this enhanced ergonomic design can
          extend the professional lives of surgeons and increase the efficiency
          and effectiveness of demanding and lengthy microsurgical procedures.

        The ZEUS system is designed as an open system. This allows products
from other corporations to integrate into the system. The Company has entered
into alliances with these outside companies to develop complementary products to
the ZEUS system, and to often offer their products as components of the ZEUS
system. Included in these are visualization systems from Karl Storz, GMBH and
Vista Medical Technologies, Inc.; instrumentation from Scanlan International,
Inc., and sutures from W.L. Gore & Associates. The Company has also entered into
a co-marketing agreement with Medtronic, Inc. covering sales of the ZEUS system
in international markets.

        HERMES PLATFORM

        The modernization of the OR has resulted in numerous medical devices
that aid a surgeon, but also increase the complexity and costs of the OR. In
many instances, these devices are manually controlled and monitored by someone
other than a surgeon in response to a surgeon's spoken commands and request for
status. The HERMES Control Center is designed to enable a surgeon to directly
control multiple OR devices, including the Company's AESOP system, through
simple verbal commands. The HERMES Control Center provides standardized visual
and digitized voice feedback to a surgical team. The Company believes that the
enhanced control and feedback provided by the HERMES Control Center will improve
safety, increase efficiency, shorten procedure times and reduce costs.

        The HERMES system is comprised of a control unit which can be networked
with multiple HERMES compatible ("HERMES-Ready"(TM)) devices and is controlled
by a surgeon using simple verbal commands or an interactive touch screen
pendant. The 27 FDA-cleared devices controlled by the HERMES system include the
endoscopic camera and light source, insufflator, arthroscopic shaver and pump,
VCR, video printer, video frame grabber, operating room lights, surgical table,
electrosurgical unit, telephone and the Computer Motion AESOP system. The HERMES
system provides both visual and digitized voice feedback to the surgical team.
The visual feedback is displayed on the endoscopic video monitor and the
digitized voice feedback is device-specific. Both feedback features are
customizable by a surgeon in real time, allowing a surgeon to modify the amount
and type of feedback received.

        To leverage its proprietary voice recognition technology in the
arthroscopic and laparoscopic markets, Computer Motion has partnered with
Stryker Corporation, a leading manufacturer of endoscopic equipment. Stryker
purchases the HERMES system as an original equipment manufacturer ("OEM") and
markets the HERMES system as an integrated component with several of its
laparoscopic and arthroscopic products. The Company expects to make additional
510(k) submissions to the FDA in 2001 for HERMES control of STERIS Corporation's
next generation operating room table, lights and overhead camera, SKYTRON
Corporation's operating room lights and ConMed Corporation's electrosurgical
unit. Also, the Company plans to include HERMES-Ready devices in the ZEUS
product line for the control of key functions currently accessed by touch-screen
only.


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        Computer Motion intends to partner with other leading medical device
manufacturers to expand the number and type of devices to be integrated with the
HERMES controller, including electrocautery devices, various imaging systems and
devices for the cardiac catheter laboratory and other medical clinic
environments.

        SOCRATES PLATFORM

        The SOCRATES Telementoring System is the latest generation technology
platform currently under development by Computer Motion. SOCRATES enables remote
access to HERMES networked devices via proprietary software and standard
teleconferencing components. The SOCRATES system allows an operative surgeon to
virtually, cost effectively, and on an as-needed basis, communicate with a
remote mentor surgeon. SOCRATES enables the remote surgeon to help direct a
surgical procedure thereby augmenting the operative surgeon's prior training
experience.

        The SOCRATES system enhances the utility of the HERMES Control Center
with the AESOP-HR system by providing shared-remote control capability of the
endoscope. The SOCRATES system provides the remote surgeon with an interface to
the AESOP-HR system, enabling the remote surgeon to share control of the
endoscope with the operative surgeon. AESOP's precision and stability ensure the
remote surgeon's views are tremor-free and accurately positioned. It is common
for surgeons to remotely collaborate, however, without the SOCRATES system a
remote surgeon is typically only able to view video of a procedure and provide
feedback through video overlay and verbal commands. The SOCRATES system enhances
this collaboration by making it more interactive.

        In 2001, the Company made a 510(k) submission to the FDA for approval of
the SOCRATES system.

MANUFACTURING AND SUPPLIERS

        The Company's manufacturing operations are required to comply with the
FDA's Quality System Regulation ("QSR"), which addresses the design, controls,
methods, facilities and quality assurance used in manufacturing, packing,
storing and installing medical devices. In addition, certain international
markets have quality assurance and manufacturing requirements. Specifically, the
Company is subject to the compliance requirements of ISO 9001, EN46001, the
Medical Device Directive and Conformity Europeane ("CE") mark directives which
impose certain procedural and documentation requirements with respect to device
design, development, manufacturing and quality assurance activities. The Company
has obtained such certification and is subject to audit on an annual basis for
compliance. Company assembles all four of its product lines (Aesop, Zeus, Hermes
and Socrates) in its 7,200 square foot manufacturing facility in Goleta,
California. A limited number of accessories and components are produced by
qualified third party vendors and for sale by the Company. The manufacturing and
assembly of the Company's products is a complex and lengthy process involving an
significant number of parts, assemblies and procedures.

        The Company purchases both custom made and stock components from a large
number of qualified suppliers and subject them to stringent incoming quality
inspections. As part of the Company's supplier qualification process, the
Company periodically conducts quality audits of its suppliers. The Company
relies on independent manufacturers, some of which are single source suppliers
for the manufacture of the principal components of its products. Shortages of
raw materials, production capacity constraints or delays on the part of the
Company's suppliers could negatively affect the Company's ability to ship
products and derive revenue. In some instances, the Company relies on companies
that are sole suppliers of key components of its products. If one of these sole
suppliers goes out of business, the Company could face significant production
delays until an alternate supplier is found, or until the product could be
redesigned and revalidated to accommodate a new supplier's replacement
component.

COMPETITION

        There are three levels of competition for the Company's products;
traditional methods of surgery, new approaches to minimally invasive surgery,
and direct competition in robotic surgery. All four of the Company's major
systems face different levels of competition in each of these areas.

        Traditional methods of surgery have been in effect for hundreds of
years. These methods often involve large incisions in the patient's body and
long recovery times. The challenge for the Company is to convince surgeons and
administrators to convert to a minimally invasive approach to surgery. This
requires the surgeons and hospitals to expend significant amounts of time and
money in installation of the equipment and training on new procedures. The
Company also needs to convince potential patients of the safety and benefits of
surgery using the Company's products. Many medical conditions that can be
treated by the Company's products can also be treated with pharmaceuticals or
other medical devices and procedures. Many of these alternative treatments are
widely accepted in the medical community and have a long history of use.

        The field of minimally invasive surgery is growing rapidly. Several
companies have developed new minimally invasive technologies and techniques
which are alternatives to the techniques and products the Company offers. Many
of these companies are well established in the medical industry including Boston
Scientific Corporation, C.R. Bard, Inc., Guidant Corporation, Heartport, Inc.
and Ethicon Endo-Surgery, Inc., divisions of Johnson & Johnson, Inc., Medtronic
Inc., and United States Surgical Corporation, a division of Tyco International
Ltd. These companies offer non-robotic surgical tools and techniques involving
hand held instruments and manually controlled visualization or catheter based
therapies such as stenting (mechanical devices which hold an blocked or occluded
blood vessel open) and Percuaneous Transluminal Coronary Angioplasty (often
referred to as PTCA, which is the introduction of a small balloon into a vessel
to force open the blocked or occluded vessel).

        Direct competition with the Company's products is relatively limited.
The Company's Aesop product is fairly unique with only a single competitor,
Armstrong Healthcare Ltd. Besides this single competitor, there is no direct
competition other than a person physically holding an endoscope or the use of a
static arm fixed positioner.

        The Company understands that Karl Storz GmbH & Co. is in the early
stages of launching a voice activated operating room control system which
competes with HERMES. Several companies produce operating room control centers
which are not voice controlled, including Karl Storz, Olympus Optical Co., Ltd.,
and Siemens, AG.

        There are a limited number of companies that have developed computer
assisted and robotic surgical systems that compete to varying degrees with the
Company's Zeus system. These include Brock Rogers Surgical, Inc. and Intuitive
Surgical, Inc. Several other companies produce computer assisted and robotic
surgical devices that do not directly compete with the potential surgical
procedures for Zeus. These include Integrated Surgical Systems, Inc., Johns
Hopkins University Engineering Research Consortium, Maquet AG, MicroDexterity
Systems, Inc, Ross-Hime Designs, Inc and Stereotaxis, Inc.

        The Company's Socrates system is unique in its ability to remotely
control a robotic arm. There are numerous video conferencing products and
companies which could provide remote audio and video feeds from the operating
room.

        In an emerging market such as medical robotics, competition occurs on
many fronts. As new features are introduced by either the Company or its
competitors, a competitive advantage is gained by the innovator. The Company's
customers are looking for economic justification for the purchase of major
capital equipment. The company that can demonstrate this, either through price
or benefits will successfully compete. Safety, reliability and effectiveness
needs to be demonstrated for patients and customers to trust the Company's
products. In a regulated environment, the company which can gain approvals most
rapidly will earn an advantage.

MARKETING

        The Company's products are sold throughout the world. Payment terms
worldwide are consistent with local practice. Orders are shipped as they are
received and, therefore, no material backlog has existed to date. For the year
ended December 31, 2000 the Company had one distributor, Kino Corporation of
Japan, that accounted for approximately 21% of the revenue for the year and 18%
of accounts receivable and a second customer, Endoscopic Technologies, Inc.,
that accounted for approximately 10% of the revenue for the year and 15% of
accounts receivable. At December 31, 1999 and 1998 no single customer accounted
for more than 10% of revenue or accounts receivable respectively.

        Through June of 2001 the Company has not recorded any significant
revenue from Kino Corporation. In calendar year 2000, Kino Corporation ordered
products totaling approximately $4.8 million, which were delivered in 2000 and
resulted in revenue of more than $4.5 million in calendar year 2000 (the first
year of the distribution agreement). These products are being used to start
government testing and subsequent clinical trials in both cardiac and general
surgery applications and the Shonin regulatory process (Japanese government),
and commitments to purchase additional units is expected upon receiving Shonin
approval. It is anticipated that the Shonin regulatory approval process should
take between 24 and 36 months. The Company will continue to work with Kino
Corporation for additional revenue during the approval process.

        Should the Company cease to use these organizations to distribute
products in Japan and elsewhere in the world, it would have to identify new
distributors to service these markets. While there may therefore be a delay in
revenues in the short term, in the long term, securing a new distributor would
be very possible.

        In the United States, the Company sells directly to hospitals through an
employee based sales organization. In Western Europe, the Company also has an
employee based sales organization, which is principally focused on sales in
France and Germany. The Company co-markets the ZEUS product line with Medtronic,
Inc. in Europe, the Middle East and Africa. Throughout the rest of the world,
the Company uses independent distributor organizations including Kino
Corporation and the Ethicon Endo-Surgery Division of Johnson & Johnson, Inc.
Under the Company's OEM agreement with Stryker Corporation, Stryker may
distribute the Company's HERMES product for control of various Stryker
endoscopic devices on a worldwide basis.


RESEARCH AND DEVELOPMENT

        The Company's research and development function is focused on the
development of new procedures, new medical products and improvements to existing
products. In addition, research and development expense reflects the Company's
efforts to obtain FDA


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approval of certain products and processes and to maintain the highest quality
standards of existing products. The Company's research and development expenses
were $11,564,000 (53% of revenue), $9,528,000 (53% of revenue), and $7,905,000
(75% of revenue), in 2000, 1999, and 1998 respectively.

GOVERNMENT REGULATION

        The medical devices manufactured and marketed by the Company are subject
to regulation by the FDA and, in most instances, by state and foreign
governmental authorities. Under the Federal Food, Drug and Cosmetic Act, and
regulations thereunder, manufacturers of medical devices must comply with
certain policies and procedures that regulate the composition, labeling,
testing, manufacturing, packaging and distribution of medical devices. Medical
devices are subject to different levels of government approval requirements, the
most comprehensive of which require the completion of an FDA approved clinical
evaluation program and submission and approval of a pre-market approval ("PMA")
application before a device may be commercially marketed. In July 2000, the FDA
notified the Company that in the future, robotic surgical systems would be
reviewed and cleared for market under the less stringent 510(k) premarket
notification pathway that is currently applied to the AESOP and HERMES products.
The 510(k) submissions require a minimum 90 day review cycle compared to the
six-month minimum for PMA devices. Both the SOCRATES and ZEUS systems are
expected to follow the 510(k) approved process, however, it is likely that many
FDA submissions for ZEUS 510(k) clearance will continue to require clinical
studies. The Company recently submitted a 510(k) application for SOCRATES. The
product is now undergoing this approval process. If this review follows the
standard 90-day approval process, the Company would expect to receive approval
by the middle of October 2001.

        The Company is currently enrolling patients into the following
controlled clinical trials:

        o       Coronary Artery Bypass Grafting: The Company is now enrolling
                patients into a FDA-approved multi-center, randomized,
                controlled trial. This study, which will eventually involve
                several Zeus sites, is a pivotal study required for FDA market
                clearance and is the only FDA-approved pivotal coronary artery
                bypass grafting robotic trial underway in the United States. The
                Company anticipates continuing clinical trials throughout 2002.

        o       Internal Mammary Artery Harvesting: The Company has also
                received FDA approval to conduct a clinical trial at six sites
                using the Zeus system to harvest the left internal mammary
                artery, a procedure that is part of a standard coronary artery
                bypass grafting surgery. The Company initiated this study in
                February 2001 and anticipates submitting a 510(k) application
                for non intracardiac thoracoscopic clearance in mid 2002.

        o       General Lapraroscopic: The Company has been very active in
                clinical research in the area of general laparoscopic surgery.
                The FDA has granted Computer Motion IDE approval for a study on
                laparoscopic cholecystectomy (a procedure to remove the gall
                bladder) and laparoscopic cholecystectomy (a procedure to
                correct acid reflux disease). The Company is currently enrolling
                patients into randomized, controlled trials for both of these
                proceedures and anticipates filing a 510(k) submission late in
                the first quarter of 2002.

        In addition to these trials, the Company is currently conducting
feasibility studies in several other surgical applications.

        The FDA may require testing and surveillance programs to monitor the
effect of approved products which have been commercialized, and it has the power
to prevent or limit further marketing of a product based on the results of these
post-marketing programs. The FDA also conducts inspections to determine
compliance with both good manufacturing practice regulations and medical device
reporting regulations. If the FDA were to conclude that the Company was not in
compliance with applicable laws or regulations, it could institute proceedings
to detain or seize products, issue a recall, impose operating restrictions,
assess civil penalties against employees and recommend criminal prosecution.
Furthermore, the FDA could proceed to ban, or request recall, repair,
replacement or refund of the cost of, any device manufactured or distributed.

        The FDA also regulates record keeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA-cleared devices. Aggressive regulatory action may be
taken due to adverse experience reports. FDA device tracking and post-market
surveillance requirements are expected to increase future regulatory compliance
costs.

        Diagnostic-related groups ("DRG") reimbursement schedules regulate the
amount the United States government, through the Health Care Financing
Administration ("HCFA"), will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. While the Company is unaware of specific
domestic price resistance as a result of DRG reimbursement policies, changes in
current DRG reimbursement levels could have an adverse effect on its domestic
pricing flexibility.

        The Company's business outside the United States is subject to medical
device laws in individual foreign countries. These laws range from extensive
device approval requirements in some countries to requests for data or
certifications in other countries. Generally, regulatory requirements are
increasing in these countries. In addition, government funding of medical
procedures is limited and in certain instances being reduced. In the European
Economic Union ("EEU"), the regulatory systems have been harmonized and approval
to market in EEU countries can be obtained through one agency. The Company's
AESOP, HERMES and ZEUS products, are approved for CE-marking, enabling marketing
of these devices throughout the EEU countries. The Company's products are
approved for marketing in Canada. AESOP is approved in Australia, Japan, Korea
and Singapore.

PATENTS, LICENSES AND PROPRIETARY RIGHTS

        Protection of the Company's intellectual property is important to the
Company's business. The Company maintains a policy of seeking device and method
patents on its inventions, obtaining copyrights on copyrightable materials and
entering into proprietary information agreements with its employees and
consultants with respect to technology which it considers important to its
business. The Company also files for trademark registration and service mark
registration on those marks which may be used in marketing efforts with respect
to the products developed, sold and distributed by the Company. The Company also
relies upon trade secrets, unpatented know-how and continuing technological
innovation to develop and maintain its competitive position.

        The Company currently holds 23 issued United States patents, two foreign
patents and has 47 domestic and foreign patent applications pending disclosing
concepts related to medical devices and methods, medical robotics and speech
recognition applications. The Company has filed corresponding international
patent applications on certain of its key United States patents.


                                       6
<PAGE>   7

        There can be no assurance that patents will issue from any of the
pending applications, or that issued patents will be of sufficient scope to
provide meaningful protection of the Company's technology. In addition, there
can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.
Notwithstanding the scope of the patent protection available to the Company, a
competitor could develop other devices or methods for enabling minimally
invasive surgical procedures that do not require the use of robotics or speech
recognition aspects of which are patented or pending patents.

        Additionally, there has been substantial litigation regarding patents
and other intellectual property rights in the medical device industry.
Litigation, which could ultimately result in substantial cost to and diversion
of effort by the Company, has been necessary and may continue to be necessary to
enforce patents issued or licensed to the Company, to protect trade secrets or
know-how owned by the Company, or to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. Adverse determinations in such litigation
could subject the Company to significant liabilities to third parties, could
require the Company to seek licenses from third parties and could prevent the
Company from manufacturing, selling or using some or all of its products, any of
which could have a material adverse affect on the Company's business, financial
condition or results of operations.

        The Company believes that it has been vigilant in reviewing the patents
of others with regard to the Company's products. However, from time to time, the
Company has been and may continue to be subject to claims of, and legal actions
alleging, infringement by the Company of the patent rights of others. For
further discussion of our current or threatened litigation see the "Litigation"
section below in this Part I, Item 1.

PRODUCTS LIABILITY AND INSURANCE

        The medical device industry has historically been subject to products
liability claims. Such claims could be asserted against the Company in the
future for events not known to management at this time. Management has adopted
risk management practices, including procurement of products liability insurance
coverage, which management believes are prudent.

EMPLOYEES

        As of December 31, 2000, the Company had 184 full-time employees
including 50 employees in sales and marketing, 76 employees in research and
development, 30 employees in production and 28 employees in administration. It
has never experienced a work stoppage as a result of labor disputes and none of
its employees are represented by a labor organization.

INDUSTRY SEGMENT AND INTERNATIONAL OPERATIONS

        The medical device industry is the single industry segment in which the
Company operates. The Company's export revenues were $9,290,000 (43% of
revenue), $6,980,000 (39% of revenue), and $1,290,000 (12% of revenue) in 2000,
1999 and 1998 respectively.

        As the Company's foreign business expands, it will be subject to such
special risks as exchange controls, currency devaluation, dividend restrictions,
the imposition or increase of import or export duties and surtaxes, and
international credit or financial problems. Since its international operations
will require the Company to hold assets in foreign countries denominated in
local currencies, some assets will be dependent for their U.S. dollar valuation
on the values of several foreign currencies in relation to the U.S. dollar.

OTHER

        The Company has not been materially impacted by the effects of inflation
or deflation during 2000.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

        Computer Motion operates in a rapidly changing environment that involves
a number of risks, some of which are beyond its control. A number of these risks
are highlighted below. These risks could affect its actual future results and
could cause them to differ materially from any forward-looking statements the
Company has made.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE SO WE MAY
NEVER ACHIEVE PROFITABILITY.


                                       7
<PAGE>   8

        From our formation, we have incurred significant losses. For the three
years ended December 31, 2000, the Company has incurred net losses of
$16,349,000, $13,375,000 and $11,545,000, respectively. In addition, the Company
has incurred net losses from operations since inception and has an accumulated
deficit of $64,284,000 as of December 31, 2000. We expect to incur additional
losses as we continue spending for research and development efforts, clinical
trials, manufacturing capacity and sales force improvement. As a result, we will
need to generate significant revenues to achieve and maintain profitability. We
cannot assure you that we will ever achieve significant commercial revenues,
particularly from sales of our ZEUS product line, which is still under
development and awaiting FDA clearance, or that we will become profitable. In
April of 2001, we initiated a number of cost reductions including layoffs,
changes in our salary structure, and reductions in travel, which we believe will
eliminate approximately $4,000,000 in expenses in 2001. These initiatives have
allowed the Company to flatten expenses through the quarter ended June 30, 2001
despite increased costs associated with the clinical trials towards the FDA
approval of ZEUS and ongoing litigation expenses. If we are able to increase our
revenues in the fourth quarter of 2001 over the same quarter in 2000 at a
similar or lower rate than in the previous years, the Company should be able to
be profitable in that quarter. It is possible that we may encounter substantial
delays or incur unexpected expenses related to clinical trials, market
introduction and acceptance of the ZEUS platform, or any future products. If the
time required to generate significant revenues and achieve profitability is
longer than anticipated, we may not be able to continue our operations. We have
experienced significant fluctuations in sales, especially quarter to quarter,
and have found that revenues are often difficult to predict.

SINCE OUR OPERATING EXPENDITURES CURRENTLY EXCEED OUR REVENUES FAILURE TO RAISE
ADDITIONAL CAPITAL OR GENERATE REQUIRED WORKING CAPITAL COULD REDUCE OUR ABILITY
TO COMPETE AND PREVENT US FROM TAKING ADVANTAGE OF MARKET OPPORTUNITIES.

        Our operations to date have consumed substantial amounts of cash, and we
expect our capital and operating expenditures will exceed revenues for at least
the next year. We believe that our current cash and cash equivalent balances,
and our ability to sell shares of our Common Stock under the equity line of
credit obtained in April 2001, will allow us to fund our operations for at least
twelve months. However, we may require substantial working capital to fund our
business after December 31, 2001 and will need to raise additional capital. It
is anticipated that additional funding, as needed, to support operations through
and after December 31, 2001 will be obtained from the following sources: current
cash balances, the proceeds from the exercise of warrants, and the issuance of
additional debt or equity securities. We cannot assure you that additional
capital will be available on terms favorable to us, or at all. The various
elements of our business and growth strategies, including our introduction of
new products, the expansion of our marketing distribution activities and
obtaining regulatory approval or market acceptance will require additional
capital. If adequate funds are not available or are not available on acceptable
terms, our ability to fund those business activities essential to our ability to
operate profitably, including further research and development, clinical trials,
and sales and marketing activities, would be significantly limited.

IF OUR PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE, WE WILL NOT BE ABLE TO
GENERATE THE REVENUE NECESSARY TO SUPPORT OUR BUSINESS.

        We anticipate that ZEUS will comprise a substantial majority of our
sales in the future and our future success depends on the successful
development, commercialization and market acceptance of this product. Our
successful commercialization will depend upon our ability to demonstrate the
clinical safety and effectiveness, ease-of-use, reliability and
cost-effectiveness of these products in a clinical setting. We cannot assure you
that the FDA will allow us to conduct further clinical trials or that ZEUS will
prove to be safe and effective in clinical trials under United States or
international regulatory requirements. It is also possible that we may encounter
problems in clinical testing that cause a delay in or prohibit commercialization
of ZEUS. Moreover, the clinical trials may identify significant technical or
other obstacles to overcome prior to the commercial deployment of ZEUS,
resulting in significant additional product development expense and delays. Even
if the safety and effectiveness of procedures using ZEUS is established,
surgeons may elect not to recommend the use of these products for any number of
reasons. Broad use of our products will require significant surgeon training and
practice, and the time and expense required to complete such training and
practice could adversely affect market acceptance. Successful commercialization
of our products will also require that we satisfactorily address the needs of
various decision makers in the hospitals that constitute the target market for
our products and to address potential resistance to change in existing surgical
methods. If we are unable to gain market acceptance of our products, we will not
be able to sell enough of our products to be profitable, and we may be required
to obtain additional funding to develop and bring to market alternative
products.

IF WE DO NOT OBTAIN AND MAINTAIN NECESSARY DOMESTIC REGULATORY APPROVALS, WE
WILL NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS IN THE UNITED STATES.


                                       8
<PAGE>   9

        Our products in the United States are regulated as medical devices by
the FDA. The FDA strictly prohibits the marketing of FDA-cleared or approved
medical devices for unapproved uses. Failure to receive or delays in receipt of
FDA clearances or approvals, including any resulting need for additional
clinical trials or data as a prerequisite to approval or clearance, or any FDA
conditions that limit our ability to market our products for particular uses or
indications, could impair our ability to effectively develop a market for our
products and impair our ability to operate profitably in the future.

        Our operations are subject to the FDA's Quality System Regulation (a
federal regulation governing medical devices) and ISO-9001 (a global standard
for quality systems) and similar regulations in other countries, including
EN-46001 Standards (the European standard for quality systems), regarding the
design, manufacture, testing, labeling, record keeping and storage of devices.
Ongoing compliance with FDA's Quality System Regulation requirements and other
applicable regulatory requirements will be monitored through periodic inspection
by federal and state agencies, including the FDA, and comparable agencies in
other countries. Our manufacturing processes are subject to stringent federal,
state and local regulations governing the use, generation, manufacture, storage,
handling and disposal of certain materials and wastes. Failure to comply with
applicable regulatory requirements can result in, among other things,
suspensions or withdrawals of approvals, product seizures, injunctions, recalls
of products, operating restrictions, and civil fines and criminal prosecution.
Delays or failure to receive approvals or clearances for our current
submissions, or loss of previously received approvals or clearances, would
materially adversely affect the marketing and sales of our products and impair
our ability to operate profitably in the future.

OUR PRODUCTS ARE SUBJECT TO VARIOUS INTERNATIONAL REGULATORY PROCESSES AND
APPROVAL REQUIREMENTS. IF WE DO NOT MAINTAIN THE NECESSARY INTERNATIONAL
REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS IN
FOREIGN COUNTRIES.

        To be able to market and sell our products in other countries, we must
obtain regulatory approvals and comply with the regulations of those countries.
For instance, the European Union requires that manufacturers of medical products
obtain the right to affix the CE mark to their products before selling them in
member countries of the European Union. The CE mark is an international symbol
of adherence to quality assurance standards and compliance with applicable
European medical device directives. In order to obtain the right to affix the CE
mark to products, a manufacturer must obtain certification that its processes
meet certain European quality standards. We have obtained the CE mark for all of
our products, which means that these products may currently be sold in all of
the member countries of the European Union.

        If we modify existing products or develop new products in the future,
including new instruments, we will need to apply for permission to affix the CE
mark to such products. In addition, we will be subject to annual regulatory
audits in order to maintain the CE mark permissions we have already obtained.
If we are unable to maintain permission to affix the CE mark to our products, we
will no longer be able to sell our products in member countries of the European
Union.

INTERNATIONAL SALES OF OUR PRODUCTS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR
REVENUES AND OUR GROWTH MAY BE LIMITED IF WE ARE UNABLE TO SUCCESSFULLY MANAGE
THESE INTERNATIONAL ACTIVITIES.

        Our business currently depends in large part on our activities in Europe
and Asia, and we intend to expand our presence into additional foreign markets.
Sales to markets outside of the United States accounted for approximately 42%
of our sales for the year ended December 31, 2000. We are subject to a number of
challenges that relate to our international business activities. These
challenges include:

        o       the risks associated with foreign currency exchange rate
                fluctuation;

        o       failure of local laws to provide the same degree of protection
                against infringement of our intellectual property;

        o       certain laws and business practices that could favor local
                competitors, which could slow our growth in international
                markets;

        o       building an organization capable of supporting geographically
                dispersed operations; and

        o       the expense of establishing facilities and operations in new
                foreign markets.

         Currently, the majority/all of our international sales are denominated
in U.S. dollars. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products less competitive in
international markets. If we are unable to meet and overcome these challenges,
our international operations may not be successful, which would limit the growth
of our business.

WE MAY NEVER SELL ENOUGH OF OUR PRODUCTS TO BE PROFITABLE BECAUSE OUR MARKETS
ARE HIGHLY COMPETITIVE, CUSTOMERS MAY CHOOSE TO PURCHASE OUR COMPETITORS'
PRODUCTS OR MAY NOT ACCEPT OUR PRODUCTS.

        The minimally invasive surgery market has been, and will likely continue
to be, highly competitive. Many competitors in this market have significantly
greater financial resources and experience than us. In addition, some of these
companies may be able to market their products sooner than us if they are able
to achieve regulatory approval before us. Many medical conditions that can be
treated using our products can also be treated by pharmaceuticals or other
medical devices and procedures. Many of these alternative treatments are widely
accepted in the medical community and have a long history of use. In addition,
technological advances with other procedures could make such therapies more
effective or less expensive than using our products and could render our
products obsolete or unmarketable. As a result, we cannot be certain that
physicians will use our products to replace or supplement established treatments
or that our products will be competitive with current or future technologies.

IF SURGEONS OR INSTITUTIONS ARE UNABLE TO OBTAIN REIMBURSEMENT FROM THIRD-PARTY
PAYORS FOR PROCEDURES USING OUR PRODUCTS, OR IF REIMBURSEMENT IS INSUFFICIENT TO
COVER THE COSTS OF PURCHASING OUR PRODUCTS, WE MAY BE UNABLE TO GENERATE
SUFFICIENT SALES TO SUPPORT OUR BUSINESS.


                                       9
<PAGE>   10

        In the United States, our products are primarily acquired by medical
institutions which then bill various third-party payors, such as Medicare,
Medicaid and other government programs and private insurance plans for the
healthcare services they provide their patients. Third-party payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement. Market acceptance of our products may depend on the availability
and level of reimbursement in international markets we target.

        There can be no assurance that third-party reimbursement and coverage
for our products will be available or adequate, that current reimbursement
amounts will not be decreased in the future, or that future legislation,
regulation or reimbursement policies of third-party payors will not otherwise
affect the demand for our products or our ability to sell our products on a
profitable basis, particularly if our products are more expensive than competing
surgical or other procedures. If third-party payor coverage or reimbursement is
unavailable or inadequate those who purchase our products would lose their
ability to pay for our products, and our ability to make future sales and
collect on outstanding accounts would be significantly impaired, which would
limit our ability to operate profitably.

IF WE ARE UNABLE TO PROTECT THE INTELLECTUAL PROPERTY CONTAINED IN OUR PRODUCTS
FROM USE BY THIRD PARTIES, OUR ABILITY TO COMPETE IN THE MARKET WILL BE HARMED.

        Our success depends, in part, on our ability to obtain and maintain
patent protection for our products by filing United States and foreign patent
applications related to our technology, inventions and improvements. However,
there can be no assurance that third parties will not seek to assert that our
devices and systems infringe their patents or seek to expand their patent claims
to cover aspects of our technology. As a result, there can be no assurance that
we will not become subject to future patent infringement claims or litigation in
a court of law, interference proceedings, or opposition to a patent grants in a
foreign jurisdiction. The defense and prosecution of such intellectual property
claims are costly, time-consuming, divert the attention of management and
technical personnel and could result in substantial uncertainty regarding our
future viability. Future litigation or regulatory proceedings, which could
result in substantial cost and uncertainty, may also be necessary to enforce our
patent or other intellectual property rights or to determine the scope and
validity of other parties' proprietary rights. Any public announcements related
to such litigation or administrative proceedings initiated by us, or initiated
or threatened against us by our competitors, could adversely affect the price of
our stock.

        We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position, and
typically require our employees, consultants and advisors to execute
confidentiality and assignment of inventions agreements in connection with their
employment, consulting or advisory relationships. There can be no assurance,
however, that these agreements will not be breached or that we will have
adequate remedies for any breach. Failure to protect our intellectual property
would limit our ability to produce and/or market our products in the future
which would adversely affect our revenues generated by the sale of such
products.

WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WITH INTUITIVE SURGICAL AND
BROOKHILL-WILK THAT MAY HURT OUR COMPETITIVE POSITION, MAY BE COSTLY TO US AND
MAY PREVENT US FROM SELLING OUR PRODUCTS.


                                       10
<PAGE>   11

        On May 10, 2000, we filed a lawsuit in United States District Court
alleging that Intuitive Surgical's da Vinci surgical robot system infringes on
our United States Patent Nos. 5,524,180, 5,878,193, 5,762,458, 6,001,108,
5,815,640, 5,907,664, 5,855,583 and 6,063,095. These patents concern methods and
devices for conducting various aspects of robotic surgery. On June 30, 2000,
Intuitive served its Answer and Counterclaim alleging non-infringement of each
patent-in-suit, patent invalidity and unenforceability. On or about December 7
and 8, 2000, the USPTO granted three of Intuitive's petitions for a declaration
of an interference relating to our 5,878,193, 5,907,664 and 5,855,583 patents.
An interference is a proceeding within the USPTO to resolve questions regarding
who was the first to invent the subject matter of a patent and/or a patent
application. On February 13, 2001, the United States District Court issued an
order staying the infringement action for up to one year pending decision on
preliminary motions the parties have filed in the interference proceedings. On
February 21, 2001, Brookhill-Wilk filed suit against us alleging that our
products infringe upon Brookhill-Wilk's United States Patent Nos. 5,217,005 and
5,368,015. Brookhill-Wilk's complaint seeks damages, attorneys' fees and
increased damages alleging willful patent infringement. We do not believe that
our products currently infringe either patent and if any claim of either patent
is interpreted to cover any of our current products, the claim would be invalid.
On March 21, 2001, we served our Answer and Counterclaim alleging
non-infringement of each patent-in-suit, patent invalidity and unenforceability.
On March 30, 2001, Intuitive and IBM Corporation filed suit alleging that our
AESOP, ZEUS and HERMES products infringe United States Patent No. 6,201,984
which was recently issued on March 13, 2001. The complaint seeks damages, a
preliminary injunction, a permanent injunction, and costs and attorneys fees. A
preliminary review of the claims of this patent reveals that each claim is
limited to a surgical system employing voice recognition for control of a
surgical instrument. As this patent was only recently issued and as we have not
had prior notice of the patent or the claims of this patent, we are currently
evaluating the allegations of patent infringement and the validity of the
patent.

        If we lose the counterclaim on the patent suit brought by Intuitive or
the patent infringement claims by Brookhill-Wilk or Intuitive and IBM, we may be
prevented from selling our products as currently configured without first
obtaining a license to the disputed technology from the successful party or
modifying the product. This license could be expensive, or could require that we
license to the other party some of our own proprietary technology, each of which
result could seriously harm our business. We believe that all of our major
product lines could be affected by this litigation. The patents subject to this
litigation are an integral part of the technology incorporated in our AESOP,
ZEUS and HERMES product lines which together accounted for approximately 85% of
our revenues in 2000. If any of these adverse parties are successful in their
claims or counterclaims, as the case may be, against us and are unwilling to
grant us a license, we will be required to stop selling our products that are
found to infringe the successful party's patents unless we can redesign them so
they do not infringe these patents, which we may be unable to do. Whether or not
we are successful in these lawsuits, the litigation could consume substantial
amounts of our financial and managerial resources. Further, because of the
substantial amount of discovery often involved in connection with this type of
litigation, there is a risk that some of our confidential information could be
compromised by disclosure.

BECAUSE OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT
DEVELOPMENT, OUR FUTURE SUCCESS WILL DEPEND UPON OUR ABILITY TO EXPAND THE
APPLICATIONS OF OUR PRODUCTS.

        Our success will depend to a significant extent upon our ability to
enhance and expand the utility of our products so that they gain market
acceptance. Failure to develop or introduce new products or product enhancements
on a timely basis that achieve market acceptance could have a material adverse
effect on our business, financial condition and results of operations. In the
past, some of our competitors have been able to develop desirable product
features (such as articulation and visualization of their products) earlier than
we have. Our inability to rapidly develop these features may have led to lower
sales of some of our products. In addition, technological advances with other
therapies could make such therapies less expensive or more effective than using
our products and could render our technology obsolete or unmarketable. There can
be no assurance that physicians will use our products to replace or supplement
established treatments or that our products will be competitive with current or
future technologies.

WE MAY NOT BE ABLE TO EXPAND OUR MARKETING DISTRIBUTION ACTIVITIES IN ORDER TO
MARKET OUR PRODUCTS COMPETITIVELY.

        We anticipate significantly increasing the number of sales personnel to
more fully cover our target markets, particularly as we expand our product
offerings. It is possible we will be unable to compete effectively in
attracting, motivating and retaining qualified sales personnel. We currently
intend to market and sell our products outside the United States and Europe
principally through distributors. In order to accomplish this, we will be
required to expand our distributor network. We may not be able to identify
suitable distributors or negotiate acceptable distribution agreements. Any such
distribution agreements may not result in significant sales. If we are unable to
identify suitable distributors or negotiate acceptable distribution agreements,
we may not be successful in expanding the market for our products outside of the
United States and Europe.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

        Our present directors and executive officers beneficially own
approximately 33% of our outstanding common stock. These stockholders, acting
together, have the ability to significantly influence the election of our
directors and other stockholder actions and, as a result, direct the operation
of our business, including delaying or preventing a proposed acquisition of
Computer Motion.

                                       11
<PAGE>   12

IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR ABILITY TO COMPETE WILL BE HARMED.

        Our future business and operating results depend in significant part on
our key management, scientific, technical and sales personnel, many of whom
would be difficult to replace, and future success will depend partially upon our
ability to retain these persons and recruit additional qualified management,
technical, marketing, sales, regulatory, clinical and manufacturing personnel.
Competition for such personnel is intense, and we may have difficulty in
attracting or retaining such personnel. In addition, we do not have employment
agreements with any of our key personnel and also do not provide life insurance
to any of our employees which may make it more difficult to retain our key
personnel.

OUR FUTURE OPERATING RESULTS MAY BE BELOW SECURITIES ANALYSTS' OR INVESTORS'
EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE AND DIMINISH THE
VALUE OF YOUR INVESTMENT.

        Our results of operations may vary significantly from quarter to quarter
depending upon numerous factors, including the following: (i) delays associated
with the FDA and other regulatory clearance and approval processes; (ii)
healthcare reimbursement policies; (iii) timing and results of clinical trials;
(iv) demand for our products; (v) changes in pricing policies by us or our
competitors; (vi) the number, timing and significance of our competitors'
product enhancements and new products; (vii) product quality issues; and
(viii)component availability and supplier delivery performance. Our operating
results in any particular period may not be a reliable indication of our future
performance. It is likely that in some future quarters, our operating results
will be below the expectations of securities analysts or investors. If this
occurs, the price of our common stock, and the value of your investment, will
likely decline.

WE MAY INCUR SUBSTANTIAL COSTS DEFENDING SECURITIES CLASS ACTION LITIGATION DUE
TO OUR STOCK PRICE VOLATILITY.

        The market price of our common stock is likely to be volatile and may be
affected by: (i) actual or anticipated decisions by the FDA with respect to
approvals or clearances of our or our competitors' products; (ii) actual or
anticipated fluctuations in our operating results; (iii) announcements of
technological innovations; (iv) new commercial products announced or introduced
by us or our competitors; (v) changes in third party reimbursement policies;
(vi) developments concerning our or our competitors' proprietary rights; (vii)
conditions and trends in the medical device industry; (viii) governmental
regulation; (ix) changes in financial estimates by securities analysts; and (x)
general stock market conditions.

        Securities class action litigation has often been brought against
companies when the market price of their securities declines. We could be
especially prone to such risk because technology companies have experienced
greater than average stock price volatility in recent years. If we are subject
to securities litigation, we would incur substantial costs and divert
management's attention defending any such claims.

OUR RELIANCE ON SOLE OR SINGLE SOURCE SUPPLIERS COULD HARM OUR ABILITY TO MEET
DEMAND FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN OUR PROJECTED BUDGET.

        We rely on independent contract manufacturers, some of which are single
source suppliers, for the manufacture of the principal components of our
products. In some instances, we rely on companies that are sole suppliers of key
components of our products. If one of these suppliers goes out of business, we
could face significant production delays until an alternate supplier is found,
or until the product could be redesigned and revalidated to accommodate a new
supplier's replacement component. In addition, we generally submit purchase
orders based upon our suppliers' current price lists. Since we generally do not
have written contracts for future purchase orders with our suppliers, these
suppliers may increase the cost of the parts we purchase in the future.

        Our manufacturing experience to date has been focused primarily on
assembling components produced by third party manufacturers. In scaling up
manufacturing of new products, we may encounter difficulties involving quality
control and assurance, component availability, adequacy of control policies and
procedures, lack of qualified personnel and compliance with the FDA's Quality
System Regulations requirements. We may elect to internally manufacture
components currently provided by third parties or to implement new production
processes. We cannot assure you that manufacturing yields or costs will not be
adversely affected by a transition to in-house production or to new production
processes if such efforts are undertaken. If necessary, this expansion will
require the commitment of capital resources for facilities, tooling and
equipment and for leasehold improvements. Further, our delay or inability to
expand our manufacturing capacity or in obtaining the commitment of such
resources could result in our inability to meet demand for our products, which
could harm our ability to generate revenues, lead to customer dissatisfaction
and damage our reputation.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

         California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. Our corporate headquarters
and our manufacturing facilities are located in California. Since we currently
do not have backup generators or alternate sources of power in the event of a
blackout, we would be temporarily unable to continue operations at our
California facilities if blackouts interrupt our power supply. Any such
interruption in our ability to continue operations at our facilities could
damage our reputation, harm our ability to retain existing customers and to
obtain new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations.


                                       12
<PAGE>   13

        Furthermore, the deregulation of the energy industry instituted in 1996
by the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. If wholesale prices continue to increase, the operating expenses
associated with our facilities located in California will likely increase which
would harm our results of operations.

THE USE OF OUR PRODUCTS COULD RESULT IN PRODUCT LIABILITY CLAIMS THAT COULD BE
EXPENSIVE AND HARM OUR BUSINESS.

        We face an inherent business risk of financial exposure to product
liability claims in the event that the use of our products results in personal
injury or death. We also face the possibility that defects in the design or
manufacture of our products might necessitate a product recall. It is possible
that we will experience losses due to product liability claims or recalls in the
future. We currently maintain product liability insurance with coverage limits
of $5,000,000, but future claims may exceed these coverage limits. We may also
require increased product liability coverage as additional potential products
are successfully commercialized. Such insurance is expensive, difficult to
obtain and may not be available in the future on acceptable terms, or at all.
While we have had no material product liability claims to date, our defense of
any future product liability claim, regardless of its merit or eventual outcome,
would divert the management's attention and result in significant legal costs.
In addition, a product liability claim or any product recalls could also harm
our reputation or result in a decline in revenues.

OUR CONTINUED GROWTH WILL SIGNIFICANTLY STRAIN OUR RESOURCES AND, IF WE FAIL TO
MANAGE THIS GROWTH, OUR ABILITY TO MARKET, SELL AND DEVELOP OUR PRODUCTS MAY BE
HARMED.

        Our growth will continue to place significant demands on our management
and resources. In order to compete effectively against current and future
competitors, prepare products for clinical trials and develop future products,
we believe we must continue to expand our operations, particularly in the areas
of research and development and sales and marketing. It is likely that we will
be required to implement additional operating and financial controls, hire and
train additional personnel, install additional reporting and management
information systems and expand our physical operations. Our future success will
depend, in part, on our ability to manage future growth and we cannot assure you
that we will be successful.

FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS THE MARKET PRICE OF OUR COMMON
STOCK.

         Future sales of our Common Stock could depress the market price of our
Common Stock. We recently filed a registration statement on form S-2
(Registration No. 333-65952) and a registration statement on From S-3
(Registration No. 333-58962) covering up to an aggregate of 9,772,529 shares of
our Common Stock. We may also issue options, warrants or other derivative
securities that are convertible into our Common Stock. The public sale of our
Common Stock by the selling stockholders, other selling stockholders that
control large blocks of our Common Stock, and the conversion of our derivative
securities and public sale of the Common Stock underlying these derivative
securities could dilute our Common Stock and depress the market value of our
Common Stock.

         The equity line financing agreement gives us the right to require that
Societe Generale to purchase shares of our Common Stock, subject to certain
conditions. The initial purchase price will be equal to 91% of the daily volume
weighted average of the price of our Common Stock for each day during the
specified purchase period. If we were to draw down the entire $12 million equity
line at the minimum purchase price of $2.72, we would be required to issue
4,411,765 shares of our Common Stock to Societe Generale. The future issuance of
these additional shares below the then current market value of our Common Stock
will result in dilution to our stockholders and may depress our stock price.

HOLDERS OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND THE PARTY TO OUR EQUITY
LINE FINANCING AGREEMENT COULD ENGAGE IN SHORT SELLING TO INCREASE THE NUMBER OF
SHARES OF OUR SECURITIES ISSUABLE UPON CONVERSION OF THEIR SHARES OF SERIES B
CONVERTIBLE PREFERRED STOCK OR ISSUABLE PURSUANT TO THE TERMS OF THE EQUITY LINE
FINANCING AGREEMENT.

        The holders of our Series B Convertible Preferred Stock can convert
their shares into shares of our Common Stock at any time. The Series B
Convertible Preferred Stock is initially convertible into that number of Common
Shares determined by dividing the aggregate purchase price of the Preferred
Stock by $5.77 (which is 110% of the five day average of the closing price for
the Company's Common Stock as quoted on the NASDAQ National Market immediately
prior to the closing date of the private placement of the Series B Convertible
Preferred Stock). However, this initial conversion price was subject to
adjustment on August 16, 2001 to $3.863 per share representing the average of
the 10 lowest closing prices for the Company's Common Stock as quoted on the
NASDAQ National Market during the 20 consecutive dates immediately prior to
August 16, 2001. This conversion price shall be reset again on November 16, 2001
based upon the average of the 10 lowest closing prices for the Company's Common
Stock as quoted on the NASDAQ National Market during the 20 consecutive dates
immediately prior to November 16, 2001; provided, however, that the conversion
price may not be reset to a purchase price higher than $5.77 or lower than
$2.72. Since the number of shares of our Common Stock issuable upon conversion
of the Series B Convertible Preferred Stock will vary with the market price of
our stock, a greater number of shares of our Common Stock are issuable the lower
the market price of our Common Stock. Increased sales volume of our Common Stock
could put downward pressure on the market price of these shares. This fact could
encourage holders of the Series B Convertible Preferred Stock to sell short our
Common Stock prior to the reset dates, thereby potentially causing the
conversion price to be resent lower resulting in a greater number of shares to
be issued upon conversion. The holders of the Series B Convertible Preferred
Stock could then use their converted shares to cover their short positions. The
holder of the Series B Convertible Preferred Stock could thereby profit by the
decline in the market price of the Common Stock cause by their short selling.


                                       13
<PAGE>   14

         Similarly, the shares of our Common Stock issuable under the Equity
Line Financing Agreement that we entered into with Societe Generale on March 30,
2001 are issuable based upon a formula that takes into account the market price
of our Common Stock. Thus, a greater number of shares of our Common Stock would
be issuable the lower the market price of our Common Stock during the specified
purchase period. This fact could give Societe Generale the incentive to sell
short our Common Stock after receipt of a notice by us to sell the shares, and
thereby potentially causing the market price to decline.

        Additionally, it is important to note that a significant amount of our
Series B Convertible Preferred Stock and the warrants issued in connection with
the private placement of the Series B Convertible Preferred Stock are held by
just a few investors. This fact gives these investors greater influence over the
market price of our stock.

CONVERSION OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND EXERCISE OF CERTAIN
WARRANTS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND DILUTE
EXISTING STOCKHOLDERS.

         The issuance of our Common Stock upon conversion of our Series B
Convertible Preferred Stock, upon exercise of certain warrants or as payment of
dividends on our Series B Convertible Preferred Stock, could adversely affect
the market price of our Common Stock. Shares of our Series B Convertible
Preferred Stock are initially convertible into that number of shares of our
Common Stock determined by dividing the aggregate purchase price of the Series B
Convertible Preferred Stock by $5.77. This conversion price shall be reset again
on November 16, 2001 based upon the average of the 10 lowest closing prices for
the Company's Common Stock as quoted on the NASDAQ National Market during the 20
consecutive dates immediately prior to November 16, 2001; provided, however,
that the conversion price may not be reset to a purchase price higher than $5.77
or lower than $2.72. Since the number of shares of our Common Stock issuable
upon conversion of the Series B Convertible Preferred Stock will vary with the
market price of our stock, a greater number of shares of our Common Stock are
issuable the lower the market price of our Common Stock; provided, however, that
the conversion price shall not be reset below $2.72. If all of the shares of
Series B Convertible Preferred stock were converted based upon the price floor
of $2.72, we would be obligated to issue 3,685,294 shares of our Common Stock
representing approximately 26% of our current total outstanding securities.
Stockholders could experience substantial dilution upon conversion of our Series
B Convertible Preferred Stock and exercise of related warrants, as a result of
either a decline in the market price of our Common Stock prior to conversion as
a consequence of the reset component of the conversion price associated with our
Series B Convertible Preferred Stock, or an event triggering the antidilution
rights of any outstanding shares of our Series B Convertible Preferred Stock
which would require an adjustment to the conversion price, thereby increasing
the number of shares of our Common Stock issuable upon conversion of our Series
B Convertible Preferred Stock.

OUR ABILITY TO SUCCESSFULLY CONDUCT BUSINESS OPERATIONS AND OPERATE PROFITABLY
COULD BE LIMITED IF WE ARE OBLIGATED TO REDEEM A SUBSTANTIAL PORTION OF OUR
SERIES B CONVERTIBLE PREFERRED STOCK.

        The potential volatility of our Common Stock, among other things,
creates a risk that we may have to redeem a substantial portion of our Series B
Convertible Preferred Stock in certain circumstances. The holders of our Series
B Convertible Preferred Stock are entitled to require that we redeem all
outstanding shares of our Series B Convertible Preferred Stock upon the
occurrence of the following:

        o       the shares of Series B Convertible Preferred Stock have not been
                converted prior to February 16, 2004;

        o       we default or fail to convert any shares of Series B Convertible
                Preferred Stock and default or failure was not due to some legal
                inability or restriction on the Series B Convertible Preferred
                Stock;

        o       we fail to pay any dividend payable on the Series B Convertible
                Preferred Stock when due;

        o       our Common Stock ceases to be listed on the Nasdaq National
                Market; or

        o       we repurchase or redeem share of Common Stock or any share of
                preferred stock with rights and preferences junior to or the
                same as the Series B Convertible Preferred Stock.

                                       14

<PAGE>   15
        If we are forced to redeem the shares of Series B Convertible Preferred
Stock upon the occurrence of any of the above events, we may issue shares of our
Common Stock or make a cash payment to the investors in an amount equal to the
face value of the Series B Convertible Preferred Stock then held by the
investors, which was $10,024,000 on the date of grant, plus any accrued
dividends.

        An obligation to redeem any of our Series B Convertible Preferred Stock
may require a large expenditure of capital and, as a result, may limit our
ability to meet various other commitments of capital or successfully conduct
research, development, clinical trials, marketing and sales activities, and
other business activities that are essential to our ability to operate
profitably.

FAILURE TO SATISFY NASDAQ NATIONAL MARKET LISTING REQUIREMENTS MAY RESULT IN OUR
STOCK BEING DELISTED FROM THE NASDAQ NATIONAL MARKET AND BEING SUBJECT TO
RESTRICTIONS ON "PENNY STOCK".

         Our Common Stock is currently listed on the Nasdaq National Market
under the symbol "RBOT." For continued inclusion on the Nasdaq National Market,
we must maintain among other requirements net tangible assets of at least $4.0
million, a minimum bid price of $1.00 per share, and a market value of our
public float of at least $5.0 million. By letter dated August 23, 2001, Nasdaq
informed us that, as a matter of policy, Nasdaq excludes redeemable securities
from its calculation of net tangible assets and that Nasdaq has taken the
position that the value of our Series B Convertible Preferred Stock should be
excluded from the calculation of our net tangible assets. While this
interpretation would result in our net tangible assets falling below the $4.0
million net tangible assets requirement, we are currently responding to this
Nasdaq letter and requesting that Nasdaq revise its calculation, because we do
not believe that our Series B Convertible Preferred Stock contains the type of
"redemption" features which are the subject of the Nasdaq policy decision. In
addition, Nasdaq recently announced a pilot program that proposes to change the
current $4.0 million net tangible assets requirement a threshold of $10.0
million in stockholders' equity. We do not believe that we currently satisfy the
proposed requirement of $10.0 million in stockholders' equity, but, according to
a recent Nasdaq bulletin, we have until November 2, 2002 to achieve compliance
with the new minimum equity standard. In the event that we fail to satisfy
listing standards on a continuous basis, our common stock may be removed from
listing on the Nasdaq National Market. If our common stock is delisted from the
Nasdaq National Market, and we are not able to list the shares on the Nasdaq
Small Cap Market or another exchange, trading of our common stock, if any, would
be conducted in the over-the-counter market in the so-called "pink sheets" or,
if available, the NASD's "Electronic Bulletin Board." As a result, stockholders
could find it more difficult to dispose of, or to obtain accurate quotations as
to the value of, our Common Stock, and the trading price per share could be
reduced.

         In addition, our Common Stock must be listed on the Nasdaq National
Market, the American Stock Exchange or the New York Stock Exchange in order to
sell any shares under our Equity Line Financing Agreement. As a result, if our
shares are delisted from the Nasdaq National Market, we may not be able to draw
down funds under the equity line and our ability to fund those business
activities essential to our ability to operate profitably, including further
research and development, clinical trials, and sales and marketing activities,
would be significantly limited.

         If our shares are not listed on any exchange or on the Nasdaq National
Market, they are also subject to the regulations regarding trading in "penny
stocks," which are those securities trading for less than $5.00 per share. The
following is a list of the restrictions on the sale of penny stocks:

         o  Prior to the sale of penny stock by a broker-dealer to a new
            purchaser, the broker-dealer must determine whether the purchaser is
            suitable to invest in penny stocks. To make that determination, a
            broker-dealer must obtain, from a prospective investor, information
            regarding the purchaser's financial condition and investment
            experience and objectives. Subsequently, the broker-dealer must
            deliver to the purchaser a written statement setting forth the basis
            of the suitability finding. . A broker-dealer must obtain from the
            purchaser a written agreement to purchase the securities. This
            agreement must be obtained for every purchase until the purchaser
            becomes an "established customer."

         o  The Exchange Act requires that prior to effecting any transaction in
            any penny stock, a broker-dealer must provide the purchaser with a
            "risk disclosure document" that contains, among other things, a
            description of the penny stock market and how it functions and the
            risks associated with such investment. These disclosure rules are
            applicable to both purchases and sales by investors.

         o  A dealer that sells penny stock must send to the purchaser, within
            ten days after the end of each calendar month, a written account
            statement including prescribed information relating to the security.

         As a result of a failure to maintain the trading of our stock on the
Nasdaq National Market and the rules regarding penny stock transactions, your
ability to sell to a third party may be limited. We make no guarantee that our
current market-makers will continue to make a market in our securities, or that
any market for our securities will continue.

ITEM 3. LEGAL PROCEEDINGS

        On May 10, 2000, the Company filed suit against Intuitive Surgical Inc.
alleging that the Intuitive Surgical da Vinci surgical robot system infringes on
the Company's United States Patent Nos. 5,878,193; 5,524,180; 5,762,458;
6,001,108; 5,815,640; 5,907,664; 5,855,583. On June 1, 2000, the Company filed
an amended complaint alleging that Intuitive Surgical has also infringed the
Company's recently issued United States Patent No. 6,063,095. On November 1,
2000, the Company filed another amended complaint further alleging that
Intuitive Surgical is infringing on the Company's recently issued United States
Patent No. 6,102,850. The Company's complaint seeks damages for lost profits,
injunctive relief enjoining any future infringement of its patent rights, treble
damages and attorneys fees.

        On June 30, 2000, Intuitive Surgical served its Answer and Counterclaim
alleging non-infringement of each patent-in-suit, patent invalidity and
unenforceability. Other than a request for attorney's fees, Intuitive Surgical
has not requested any damages.

                                       15
<PAGE>   16

On February 13, 2001, the District Court issued an order staying the
infringement action for up to one year pending a decision on preliminary motions
the parties have filed with the United States Patent Office regarding the
interference proceedings discussed below.

        On or about December 7 and 8, 2000, the United States Patent Office
granted three of Intuitive Surgical's petitions for a declaration of an
Interference relating to the Company's 5,878,193, 5,907,664 and 5,855,583
patents.

        On February 21, 2001, Brookhill-Wilk filed suit against the Company
alleging that the Company's ZEUS Platform infringes upon Brookhill-Wilks United
States Patent Nos. 5,217,005 and 5,368,015. Brookhill-Wilk's complaint seeks
damages, attorneys fees and increased damages alleging willful patent
infringement. The Company does not believe that its ZEUS Platform currently
infringes either patent. On March 21, 2001, the Company served its Answer and
Counterclaim alleging non-infringement of each patent-in-suit, patent invalidity
and unenforceability.

        On March 30, 2001, Intuitive Surgical Inc. and IBM Corporation filed
suit alleging that the Company's AESOP, ZEUS and HERMES products infringe United
States Patent No. 6,201,984 which was recently issued on March 13, 2001. The
complaint seeks damages, a preliminary injunction, a permanent injunction, and
costs and attorneys fees. A preliminary review of the claims of this patent
reveals that each claim is limited to a surgical system employing voice
recognition for control of a surgical instrument. As this patent was only
recently issued and as the Company has not had prior notice of this patent or
the claims of this patent, the Company is currently evaluating the allegations
of patent infringement and the validity of the patent.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is quoted on the NASDAQ National Market
under the symbol "RBOT." The high and low sale prices for the Company's common
stock during 2000 and 1999 are set forth below.

                                                          HIGH        LOW
                                                          ----        ---
      Year Ended December 31, 2000
      ----------------------------
      Fourth Quarter................................    $  9.94     $ 3.00
      Third Quarter.................................    $ 13.00     $ 6.25
      Second Quarter................................    $  9.63     $ 5.88
      First Quarter.................................    $ 11.31     $ 9.00

                                                          HIGH        LOW
                                                          ----        ---
      Year Ended December 31, 1999
      ----------------------------
      Fourth Quarter................................    $ 14.38     $ 9.50
      Third Quarter.................................    $ 14.75     $ 9.38
      Second Quarter................................    $ 11.25     $ 8.63
      First Quarter.................................    $ 14.13     $ 8.38

         The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. Like the stock prices of other medical device companies,
the market price of the Company's common stock has been and will be, subject to
significant volatility. Factors such as reports on the clinical efficacy and
safety of the Company's products, government approval status, fluctuations in
the Company's operating results, announcements of technological innovations or
new products by the Company or its competitors, changes in estimates of the
Company's performance by securities analysts, failure to meet securities
analysts' expectations and developments with respect to patents or proprietary
rights, may have a significant effect on the market price of the common stock.
In addition, the price of the Company's common stock could be affected by stock
price volatility in the medical device industry or the capital markets in
general without regard to the Company's operating performance.

         The Company currently intends to retain future earnings to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends within the foreseeable future. Any future payment of
dividends will be determined by the Company's Board of Directors and will depend
on the Company's financial condition, results of operations and other factors
deemed relevant by its Board of Directors at the time. As of March 31, 2001,
there were approximately 3,200 shareholders of record.

         The Company's Registration Statement on Form S-1 filed with the
Securities Exchange Commission (Registration No. 333-29505) for 2,875,000 shares
of its common stock was declared effective on August 11, 1997. Proceeds from the
offering, net of underwriting discounts and commissions and direct offering
expenses, were $36,740,000. During 1999, the Company used $1,280,000 of these
proceeds. The proceeds were principally used to support the cash loss from
operations, increase working capital and purchase property and equipment. The
primary source of funding for operations in 2000 was from the proceeds of common
stock issued, warrants exercised and note payable to shareholder.

         On August 31, 2000, the Company offered current warrant holders an
incentive to exercise their warrants. On all warrants exercised prior to
September 22, 2000 an additional 5 year warrant would be issued covering 55% of
the total warrants exercised. Warrants totaling 657,332 shares were exercised
and new 5 year warrants totaling 361,530 shares were issued at an exercise price
of $9.178 per warrant, which was 110% of the average closing price per share as
reported on the NASDAQ National Market for the ten trading days prior to August
31, 2000. The Company relied on the exemption provided by Section 4(2) of the
Securities Act of 1933 in connection with the issuance of the new 5-year
warrants. No underwriters were engaged in connection with this offering. Proceed
from the conversion of the original warrants, and proceeds to be paid to the
Company upon the exercise of the replacement warrants, have been used and shall
continue to be used for working capital and other general corporate purposes.


                                       16
<PAGE>   17

ITEM 6. SELECTED FINANCIAL DATA

        The following table summarizes certain selected financial data and is
qualified by reference to, and should be read in conjunction with, the Company's
consolidated financial statements and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Company's 2000
Annual Report to Shareholders. The selected financial data is derived from
consolidated financial statements that have been audited by Arthur Andersen LLP,
independent public accountants.

<TABLE>
<CAPTION>
                                                  YEARS ENDING DECEMBER 31,
                                             (IN THOUSANDS EXCEPT PER SHARE DATA)
                             -------------------------------------------------------------------
                               2000           1999           1998          1997           1996
                             --------       --------       --------      --------       --------
<S>                          <C>            <C>            <C>           <C>            <C>
Revenue                      $ 21,732       $ 18,058       $ 10,586      $  6,611       $  4,057

Net loss                     $(16,349)      $(13,375)      $(11,545      $ (9,219)      $ (4,559)

Net loss per share           $  (1.90)      $  (1.57)      $  (1.45      $  (2.12)      $  (2.86)

Weighted average common
shares outstanding              9,309          8,503          7,959         4,343          1,701

Total assets                 $ 23,089       $ 23,361       $ 30,444      $ 37,313       $  3,114

Long-term liabilities        $  1,475       $  1,073       $    131      $     --       $  2,943
</TABLE>

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

        The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 2000
Annual Report to Shareholders is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The following Consolidated Financial Statements of the Company and
Report of Independent Public Accountants set forth in the Company's 2000 Annual
Report to Shareholders are incorporated herein by reference:

        Report of Independent Public Accountants

        Consolidated Statements of Operations - Years ended December 31, 2000,
1999 and 1998

        Consolidated Balance Sheets - December 31, 2000 and 1999

        Consolidated Statements of Shareholders' Equity (Deficit) - Years ended
December 31, 2000, 1999 and 1998

        Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998

        Notes to Consolidated Financial Statements


                                       17
<PAGE>   18

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

        (1) FINANCIAL STATEMENTS

See Index to Financial Statements and Schedule on page F-1.

        (2) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS -- SCHEDULE II -- VALUATION
            AND QUALIFYING ACCOUNTS

        (3) FINANCIAL STATEMENT SCHEDULE

See Index to Financial Statements and Schedule on page F-1.

        (4) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
  NO.                              DESCRIPTION
-------                            -----------
<S>          <C>
  3.1        Second Amended and Restated Certificate of Incorporation.*

  3.2        Bylaws of the Company.*

 10.1        Computer Motion, Inc. Tandem Stock Option Plan.*

 10.2        Development and Supply Agreement between the Stryker Endoscopy
             Division of Stryker Corporation and the Company dated August 21,
             1996.*(1)

 10.3        Registration Agreement between the Company and certain
             shareholders.*

 10.4        Sales Agreement between the Company and Medtronic, Inc. dated May
             28, 1997.*(1)

 10.5        Form of Warrant to Purchase Common Stock issued in connection with
             Bridge Financing Agreements.*

 10.6        Purchaser Representation and Subscription Agreement relating to the
             Company's Series E Preferred Stock and Warrant to Purchase Common
             Stock.*

 10.7        Form of Redeemable Warrant to Purchase Common Stock of the Company
             issued in conjunction with the Company's Series E Preferred Stock.*

 10.8        Business Agreement between the Company and Bulova Technologies,
             L.L.C. dated February 18, 1997.*(1)

 10.9        Lease between the Company and University Business Center Associates
             dated March 1, 1994 and amendment
</TABLE>

                                       18
<PAGE>   19

<TABLE>
<S>          <C>
             thereto dated October 19, 1996.*

 10.10       Form of Indemnification Agreement for Officers and Directors of the
             Company.*

 10.12       Computer Motion, Inc. Employee Stock Purchase Plan, as amended
             through September 30, 1997.**

 10.13       Leases between the Company and University Business Center
             Associates dated September 19, 1997.**

 10.14       Computer Motion, Inc. 1997 Stock Incentive Plan*

 10.15       Stock Purchase Agreement between the Company and the Investors
             listed on Schedule A thereto, dated June 29, 2000.***

 10.16       Promissory Note between the Company and Robert W. Duggan, dated
             July 25, 2000.***

 10.17       Form of Redeemable Warrant to Purchase common stock of Computer
             Motion, Inc.***

 10.18       Promissory Note between the Company and Robert W. Duggan, dated
             December 12, 2000.****

 13.1        Management's Discussion and Analysis of Financial Condition and
             Results of Operations and Consolidated Financial Statements from
             the 2000 Annual Report to Shareholders.

 21.1        Subsidiaries of the Company.

 23.1        Consent of Arthur Andersen LLP.
</TABLE>

------------

*    Incorporated by reference to the Company's Form S-1 Registration Statement
     No. 333-29505 declared effective August 11, 1997.

**   Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.

***  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended March 31, 2001.

**** Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.

(1) Registrant has sought confidential treatment pursuant to Rule 406 for a
    portion of the referenced exhibit and has separately filed such exhibit with
    the Commission.

(b) REPORTS ON FORM 8-K

        None.

(c) EXHIBITS

        See Item 14(a)(3) of this Report.


                                       19
<PAGE>   20

                                   SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                            COMPUTER MOTION, INC.


August 30, 2001                             /s/     Robert W. Duggan
---------------                             ------------------------------------
Date                                        Robert W. Duggan
                                            Chairman and Chief Executive Officer
                                            (Principal Executive Officer)


August 30, 2001                             /s/     Gordon L. Rogers
---------------                             ------------------------------------
Date                                        Gordon L. Rogers
                                            Executive Vice President, Chief
                                            Financial Officer and Secretary
                                            (Principal Financial and Accounting
                                            Officer)

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


<TABLE>
<S>                                     <C>               <C>
/s/   Daniel R. Doiron                  Director          August 30, 2001
-----------------------------------
      Daniel R. Doiron


/s/   Robert W. Duggan                  Director          August 30, 2001
-----------------------------------
      Robert W. Duggan


/s/   M. Jacqueline Eastwood            Director          August 30, 2001
-----------------------------------
      M. Jacqueline Eastwood


/s/   Jeffery O. Henley                 Director          August 30, 2001
-----------------------------------
      Jeffrey O. Henley


/s/   Yulun Wang                        Director          August 30, 2001
-----------------------------------
      Yulun Wang
</TABLE>


                                       20
<PAGE>   21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors
  of Computer Motion, Inc.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II- Valuation and
Qualifying Accounts is presented for purposes of additional analysis and is not
a required part of the basic consolidated financial statements. This
information has been subjected to the auditing procedures applied in our audit
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.


/s/ ARTHUR ANDERSEN
-----------------------
    Arthur Andersen LLP


Los Angeles, California
April 10, 2001


                                       21

<PAGE>   22

                              COMPUTER MOTION, INC.

                          YEAR ENDED DECEMBER 31, 2000

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                            BALANCE AT
                                             BEGINNING                                            BALANCE AT
             DESCRIPTION                     OF PERIOD        ADDITIONS       DEDUCTIONS         END OF PERIOD
-----------------------------------     -----------------  --------------  ----------------  -----------------
<S>                                     <C>                <C>             <C>               <C>
Year ended December 31, 2000
  Allowance for doubtful accounts           $1,203,000       $  931,000        $760,000          $1,374,000

Year ended December 31, 1999
  Allowance for doubtful accounts              254,000        1,068,000         119,000           1,203,000

Year ended December 31, 1998
  Allowance for doubtful accounts               62,000          298,000         106,000             254,000
</TABLE>




                                       22
<PAGE>   23

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.                              DESCRIPTION
-------                            -----------
<S>          <C>
  3.1        Second Amended and Restated Certificate of Incorporation.*

  3.2        Bylaws of the Company.*

 10.1        Computer Motion, Inc. Tandem Stock Option Plan.*

 10.2        Development and Supply Agreement between the Stryker Endoscopy
             Division of Stryker Corporation and the Company dated August 21,
             1996.*(1)

 10.3        Registration Agreement between the Company and certain
             shareholders.*

 10.4        Sales Agreement between the Company and Medtronic, Inc. dated May
             28, 1997.*(1)

 10.5        Form of Warrant to Purchase Common Stock issued in connection with
             Bridge Financing Agreements.*

 10.6        Purchaser Representation and Subscription Agreement relating to the
             Company's Series E Preferred Stock and Warrant to Purchase Common
             Stock.*

 10.7        Form of Redeemable Warrant to Purchase Common Stock of the Company
             issued in conjunction with the Company's Series E Preferred Stock.*

 10.8        Business Agreement between the Company and Bulova Technologies,
             L.L.C. dated February 18, 1997.*(1)

 10.9        Lease between the Company and University Business Center Associates
             dated March 1, 1994 and amendment thereto dated October 19, 1996.*

 10.10       Form of Indemnification Agreement for Officers and Directors of the
             Company.*

 10.12       Computer Motion, Inc. Employee Stock Purchase Plan, as amended
             through September 30, 1997.**

 10.13       Leases between the Company and University Business Center
             Associates dated September 19, 1997.**

 10.14       Computer Motion, Inc. 1997 Stock Incentive Plan*

 10.15       Stock Purchase Agreement between the Company and the Investors
             listed on Schedule A thereto, dated June 29, 2000.***

 10.16       Promissory Note between the Company and Robert W. Duggan, dated
             July 25, 2000.***

 10.17       Form of Redeemable Warrant to Purchase common stock of Computer
             Motion, Inc.***

 10.18       Promissory Note between the Company and Robert W. Duggan, dated
             December 12, 2000.****

 13.1        Management's Discussion and Analysis of Financial Condition and
             Results of Operations and Consolidated Financial Statements from
             the 2000 Annual Report to Shareholders.

 21.1        Subsidiaries of the Company.

 23.1        Consent of Arthur Andersen LLP.
</TABLE>

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*    Incorporated by reference to the Company's Form S-1 Registration Statement
     No. 333-29505 declared effective August 11, 1997.

**   Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.

***  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended March 31, 2001.

**** Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.

(1) Registrant has sought confidential treatment pursuant to Rule 406 for a
    portion of the referenced exhibit and has separately filed such exhibit with
    the Commission.