##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year Ended December 31, 2004,                                                
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the Transition period
    from           to          .                                  

Commission File Number: 0-18053


Laserscope


(Exact name of Registrant as Specified in its Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|California                                                         |  | 77-0049527                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

3070 Orchard Drive San Jose, California 95134-2011


(Address of Principal Executive Offices)


(408) 943-0636


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, no par value


Common Share Purchase Rights


(Title of Class)


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE




INTRODUCTORY STATEMENT AND REFERENCES












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TABLE OF CONTENTS



|                                                                                |                                                                                                                              |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|REFERENCES                                                                     
|PART I                                                                         
|                                                                                | Item 1. Business.                                                                                                           
|                                                                                | Item 2. Properties.                                                                                                         
|                                                                                | Item 3. Legal Proceedings.                                                                                                  
|                                                                                | Item 4. Submission of Matters to a Vote of Security Holders.                                                                
|PART II                                                                        
|                                                                                | Item 5. Market for the Registrants Common Stock and Related Shareholder Matters and Issuers Purchases of Equity Securities.
|                                                                                | Item 6. Selected Financial Data.                                                                                            
|                                                                                | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.                              
|RISK FACTORS                                                                   
|                                                                                | Item 7A. Quantitative and Qualitative Disclosures About Market Risk.                                                        
|                                                                                | Item 8. Consolidated Financial Statements and Supplementary Data.                                                           
|                                                                                | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.                               
|                                                                                | Item 9A. Controls and Procedures.                                                                                           
|PART III                                                                       
|                                                                                | Item 10. Directors and Executive Officers of the Registrant.                                                                
|                                                                                | Item 11. Executive Compensation.                                                                                            
|                                                                                | Item 12. Security Ownership of Certain Beneficial Owners and Management.                                                    
|                                                                                | Item 13. Certain Relationships and Related Transactions.                                                                    
|                                                                                | Item 14. Principal Accountant Fees and Services                                                                             
|Part IV                                                                        
|                                                                                | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                                                  
|SIGNATURES                                                                     
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
|CONSOLIDATED BALANCE SHEETS                                                    
|CONSOLIDATED STATEMENTS OF OPERATIONS                                          
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                          
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY                                
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                     
|SCHEDULE II LASERSCOPE VALUATION AND QUALIFYING ACCOUNTS                       
|EXHIBIT INDEX                                                                  
|EXHIBIT 23.1                                                                   
|EXHIBIT 31.1                                                                   
|EXHIBIT 31.2                                                                   
|EXHIBIT 32.1                                                                   
|EXHIBIT 32.2                                                                   



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REFERENCES








| |               
| | --------------
| | Laserscope;   
| | Dermastat;    
| | Opthostat; and
| | MicroBeam.    



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The following are common law trademarks and service marks of
    Laserscope, which also may be mentioned in this report:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|AccuStat;           |  | Lyra XP;                                 
|ADD;                |  | MicronSpot;                              
|ADDStat,            |  | Microstat;                               
|Aura;               |  | Model 630 PDT Dye Module;                
|Aura i;           |  | Model 630XP PDT Dye Module;              
|Aura SL;            |  | Orion;                                   
|Aura XP;            |  | SmartScan.                               
|Coolspot;           |  | SmartConnector;                          
|Dermastat;          |  | Solis                                    
|Endostat;           |  | StarPulse;                               
|Gemini;             |  | StoneLight;                              
|GreenLight;         |  | Venus i;                               
|GreenLight PVP;     |  | Venus i;                               
|GreenLight PV;      |  | VersaStat;                               
|Lyra;               |  | VersaStat i;                           
|Lyra i;Venus; and |  | 800 Series KTP/YAG Surgical Laser System.

1



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PART I







|        |          
|------- | ---------
|Item 1. | Business.

General Overview of Business








| |        
| | -------
| | Mission





| |                            
| | ---------------------------
| | Basic Corporate Information





| |             
| | ------------
| | Market Focus



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| |         
| | --------
| | Products



| |                 
| | ----------------
| | Laser Platforms:

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tm




| |                                            
| | -------------------------------------------
| | Laser Devices, Instruments and Disposables:



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| |                    
| | -------------------
| | Sales and Marketing







| |             
| | ------------
| | Distribution







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| |                       
| | ----------------------
| | International Business







| |                         
| | ------------------------
| | Installed Base of Lasers





| |                    
| | -------------------
| | Service and Support





| |                         
| | ------------------------
| | Research and Development







| |              
| | -------------
| | Manufacturing



5



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| |          
| | ---------
| | Employees





| |            
| | -----------
| | Competition





| |   |                                                           
| | - | ----------------------------------------------------------
| |  | market acceptance of our products;                        
|
| |  | product performance;                                      
|
| |  | price;                                                    
|
| |  | customer support and technical service;                   
|
| |  | the success and timing of new product development; and    
|
| |  | continued development of successful distribution channels.





6



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Proprietary and Intellectual
Property
















| |                      
| | ---------------------
| | Government Regulation







7



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| |                         
| | ------------------------
| | Environmental Regulation







| |                                                                    
| | -------------------------------------------------------------------
| | Dependence on Single-Source Suppliers and Certain Third
    Parties



8



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| |            
| | -----------
| | Seasonality





| |        
| | -------
| | Backlog



Executive Officers of the Company




|                          |  |     |    |  |          |                                                                 
|------------------------- |  | --- | -- |  | -------- | ----------------------------------------------------------------
|Name                      |  | Age |    |  | Position
|                          |  |     |    |  |         
|Robert J. Pressley, Ph.D. |  |     | 72 |  |          | Chairman of the Board of Directors                              
|Eric M. Reuter            |  |     | 43 |  |          | President, Chief Executive Officer and Director                 
|Robert Mann               |  |     | 47 |  |          | Group Vice President, Global Sales and Marketing                
|Robert L. Mathews         |  |     | 59 |  |          | Group Vice President, Operations and Product Development        
|Ken Arnold                |  |     | 35 |  |          | Vice President, Research and Development                        
|Van Frazier               |  |     | 52 |  |          | Vice President, Quality and Regulatory Affairs                  
|Peter Hadrovic            |  |     | 38 |  |          | Vice President, Legal Affairs and General Counsel               
|Dennis LaLumandiere       |  |     | 51 |  |          | Vice President, Finance, Chief Financial Officer and Secretary  
|Kester Nahen, Ph.D.       |  |     | 34 |  |          | Vice President, Professional Education and Clinical Applications

Robert J. Pressley, Ph.D.


Eric M. Reuter


Robert Mann


9



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Robert L. Mathews


Ken Arnold


Van Frazier


Peter Hadrovic


Dennis LaLumandiere


Kester Nahen


Available Information




10



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|        |            
|------- | -----------
|Item 2. | Properties.








|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.








|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.






PART II







|        |                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Stock and Related
    Shareholder Matters and Issuers Purchases of Equity
    Securities.





|               |  |          |       |  |         |   |       | 
|-------------- |  | -------- | ----- |  | ------- | - | ----- | 
|               |  | 2004     |      
|               |  |          |      
|               |  | High Bid |       |  | Low Bid |  
|               |  |          |       |  |         |  
|First Quarter  |  | $        | 27.85 |  |         | $ | 14.91 | 
|Second Quarter |  | $        | 34.18 |  |         | $ | 22.54 | 
|Third Quarter  |  | $        | 27.94 |  |         | $ | 15.27 | 
|Fourth Quarter |  | $        | 36.68 |  |         | $ | 18.83 | 

|               |  |          |       |  |         |   |       | 
|-------------- |  | -------- | ----- |  | ------- | - | ----- | 
|               |  | 2003     |      
|               |  |          |      
|               |  | High Bid |       |  | Low Bid |  
|               |  |          |       |  |         |  
|First Quarter  |  | $        | 5.30  |  |         | $ | 3.76  | 
|Second Quarter |  | $        | 8.20  |  |         | $ | 3.90  | 
|Third Quarter  |  | $        | 12.99 |  |         | $ | 7.50  | 
|Fourth Quarter |  | $        | 18.15 |  |         | $ | 10.64 | 





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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.

|                                           |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|------------------------------------------ |  | ------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ | - |  | - | ------ | 
|                                           |  | Year Ended December 31                |       
|                                           |  |                                       |       
|                                           |  | 2004                                  |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                           |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                           |  | (Thousands, except per share amounts) |       
|Consolidated Statement of Operations Data: |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Net revenues                               |  | $                                     | 93,770 |  |      | $ | 57,427 |      |  | $ | 43,088 |  |  | $    | 35,087 |   |  | $ | 35,399 | 
|Net income (loss)                          |  |                                       | 14,739 |  |      |   | 2,517  |      |  |   | 323    |  |  |      | (829   | ) |  |   | 186    | 
|Basic net income (loss) per share          |  |                                       | 0.70   |  |      |   | 0.13   |      |  |   | 0.02   |  |  |      | (0.05  | ) |  |   | 0.01   | 
|Diluted net income (loss) per share        |  |                                       | 0.65   |  |      |   | 0.13   |      |  |   | 0.02   |  |  |      | (0.05  | ) |  |   | 0.01   | 

|                                                    |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|--------------------------------------------------- |  | ------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                    |  | Year Ended December 31                |       
|                                                    |  |                                       |       
|                                                    |  | 2004                                  |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                                    |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                    |  | (Thousands, except per share amounts) |       
|Consolidated Balance Sheet Data (at end of period): |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        | 
|Cash & cash equivalents                             |  | $                                     | 15,954 |  |      | $ | 7,158  |      |  | $ | 4,661  |  |  | $    | 3,408  |  |  | $ | 2,698  | 
|Working capital                                     |  |                                       | 38,566 |  |      |   | 20,722 |      |  |   | 15,652 |  |  |      | 13,336 |  |  |   | 14,793 | 
|Total assets                                        |  |                                       | 61,589 |  |      |   | 37,028 |      |  |   | 29,163 |  |  |      | 25,482 |  |  |   | 24,087 | 
|Capital leases (excluding current portion)          |  |                                       | 31     |  |      |   |       |      |  |   | 60     |  |  |      | 60     |  |  |   | 277    | 
|Other long term debt                                |  |                                       |       |  |      |   |       |      |  |   | 2,853  |  |  |      | 3,000  |  |  |   | 3,000  | 
|Shareholders equity                                |  |                                       | 42,911 |  |      |   | 23,198 |      |  |   | 15,482 |  |  |      | 13,412 |  |  |   | 14,114 | 






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.



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Overview




















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Critical Accounting Policies






| |   |                                                            
| | - | -----------------------------------------------------------
| |  | revenue recognition;                                       
|
| |  | allowance for doubtful accounts;                           
|
| |  | allowance for laser returns;                               
|
| |  | warranty obligation;                                       
|
| |  | excess and obsolete inventory;                             
|
| |  | valuation of long-lived and intangible assets and goodwill;
|
| |  | litigation costs;                                          
|
| |  | functional currency; and                                   
|
| |  | income tax                                                 



| |                    
| | -------------------
| | Revenue Recognition



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Allowance for Doubtful Accounts.


Allowance for Laser Returns.


Warranty Obligation.


Excess and Obsolete Inventory.


Valuation of Long-Lived and Intangible Assets and
Goodwill.




15



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Litigation.


Functional Currency.


Income Tax.




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Financial Review  Results of Operations




|                                         |                                     |      |       |      |      |  |       |      |  |  |       |      | 
|---------------------------------------- | ----------------------------------- | ---- | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                         |                                     | 2004 |       |      | 2003 |  |       | 2002 | 
|                                         |                                     |      |       |      |      |  |       |      | 
|Net revenues                             |                                     |      | 100.0 | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of products and services            |                                     |      | 41.7  |      |      |  | 47.6  |      |  |  | 47.7  |     
|                                         |                                     |      |       |      |      |  |       |      | 
|Gross margin                             |                                     |      | 58.3  |      |      |  | 52.4  |      |  |  | 52.3  |     
|Operating expenses:                      |                                     |      |       |      |      |  |       |      |  |  |       |     
|                                         | Research and development            |      |       | 5.6  |      |  |       | 7.7  |  |  |       | 8.9  | 
|                                         | Selling, general and administrative |      |       | 36.3 |      |  |       | 39.9 |  |  |       | 41.5 | 
|                                         |                                     |      |       |      |      |  |       |      | 
|                                         |                                     |      | 41.9  |      |      |  | 47.6  |      |  |  | 50.4  |     
|Operating income                         |                                     |      | 16.4  |      |      |  | 4.7   |      |  |  | 1.8   |     
|Interest income (expense) and other, net |                                     |      | 0.3   |      |      |  | 0.0   |      |  |  | (0.9  | )   
|                                         |                                     |      |       |      |      |  |       |      | 
|Income before income taxes               |                                     |      | 16.7  |      |      |  | 4.7   |      |  |  | 0.9   |     
|Provision for income taxes               |                                     |      | 1.0   |      |      |  | 0.3   |      |  |  | 0.2   |     
|                                         |                                     |      |       |      |      |  |       |      | 
|Net income                               |                                     |      | 15.7  | %    |      |  | 4.4   | %    |  |  | 0.7   | %   
|                                         |                                     |      |       |      |      |  |       |      | 











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|                         |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |    |   |  |     |     |    |  |     |    |   
|------------------------ | ------------------------ | ------------------- | ------ | ------ | ------------- |  | --- | ------------- | - | - | -------- | ------ |  | ------ | --- | -- | ---- | - | ------ | ----------- |  |  | ----------- | -- | - |  | --- | --- | -- |  | --- | -- | --
|                         |                          | Twelve Months Ended |        |        |               |  |    
|                         |                          |                     |        |        |               |  |    
|                         |                          | Dec. 31, 2004       |        |        | Dec. 31, 2003 |  |     | Dec. 31, 2002 |   |   | % Change |       
|                         |                          |                     |        |        |               |  |     |               |   |   |          |       
|                         |                          | Amount              |        |        | %(a)          |  |     | Amount        |   |   | %(a)     |        |  | Amount |     |    | %(a) |   |        | 2004  2003 |  |  | 2003  2002 |   
|                         |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |   
|Revenues from sales of:  |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |    |   |  |     |     |    |  |     |   
|                         | Lasers & Instrumentation |                     | $      | 56,958 |               |  |     | 61            | % |   | $        | 37,568 |  |        |     | 65 | %    |   | $      | 29,842      |  |  |             | 69 | % |  |     | 52  | %  |  |     | 26 | % 
|                         | Disposable supplies      |                     |        | 29,383 |               |  |     | 31            | % |   |          | 13,536 |  |        |     | 24 | %    |   |        | 7,420       |  |  |             | 17 | % |  |     | 117 | %  |  |     | 82 | % 
|                         | Service                  |                     |        | 7,429  |               |  |     | 8             | % |   |          | 6,323  |  |        |     | 11 | %    |   |        | 5,826       |  |  |             | 14 | % |  |     | 17  | %  |  |     | 9  | % 
|                         |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |   
|Total net revenues       |                          | $                   | 93,770 |        |               |  | 100 | %             |   | $ | 57,427   |        |  |        | 100 | %  |      | $ | 43,088 |             |  |  | 100         | %  |   |  | 63  | %   |    |  | 33  | % 
|Gross margin:            |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |    |   |  |     |     |    |  |     |   
|                         | Product                  |                     | $      | 53,043 |               |  |     | 61            | % |   | $        | 28,162 |  |        |     | 55 | %    |   | $      | 20,430      |  |  |             | 55 | % |  |     | 88  | %  |  |     | 38 | % 
|                         | Service                  |                     |        | 1,612  |               |  |     | 22            | % |   |          | 1,924  |  |        |     | 30 | %    |   |        | 2,090       |  |  |             | 36 | % |  |     | (16 | )% |  |     | (8 | )%
|                         |                          |                     |        |        |               |  |     |               |   |   |          |        |  |        |     |    |      |   |        |             |  |  |             |   
|Total gross margin       |                          | $                   | 54,655 |        |               |  | 58  | %             |   | $ | 30,086   |        |  |        | 52  | %  |      | $ | 22,520 |             |  |  | 52          | %  |   |  | 82  | %   |    |  | 34  | % 
|Research & development   |                          | $                   | 5,217  |        |               |  | 6   | %             |   | $ | 4,443    |        |  |        | 8   | %  |      | $ | 3,837  |             |  |  | 9           | %  |   |  | 17  | %   |    |  | 16  | % 
|Selling, general & admin |                          | $                   | 34,023 |        |               |  | 36  | %             |   | $ | 22,936   |        |  |        | 40  | %  |      | $ | 17,892 |             |  |  | 42          | %  |   |  | 48  | %   |    |  | 28  | % 
|Net income               |                          | $                   | 14,739 |        |               |  | 16  | %             |   | $ | 2,517    |        |  |        | 4   | %  |      | $ | 323    |             |  |  | 1           | %  |   |  | 486 | %   |    |  | 679 | % 






|    |                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | expressed as a percentage of total net revenues except for gross
    margins which are expressed as a percentage of either product or
    service revenues as designated.

2004 results compared to 2003














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2003 results compared to 2002




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Financial Review  Liquidity and Capital
Resources




|                          |  |              |        |  |              |   |        | 
|------------------------- |  | ------------ | ------ |  | ------------ | - | ------ | 
|                          |  | December 31, |        |  | December 31, |  
|                          |  | 2004         |        |  | 2003         |  
|                          |  |              |        |  |              |  
|Cash and cash equivalents |  | $            | 15,954 |  |              | $ | 7,158  | 
|Working capital           |  | $            | 38,566 |  |              | $ | 20,722 | 
|Total assets              |  | $            | 61,589 |  |              | $ | 37,028 | 













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| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | Our ability to effectively manage non-cash assets such as
    inventory and accounts receivable;                              
|
| |  | Our ability to anticipate and adapt to the changes in our
    industry such as new and alternative medical procedures;        
|
| |  | Our ability to scale efficiently the companys
    infrastructure to accommodate the current rapid growth in our
    business;
|
| |  | Our level of profitability; and                                                                                               
|
| |  | Our determination to acquire or invest in products and
    businesses complementary to ours.                                  





Contractual Obligations




|                        |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |       |  |  |   |       | 
|----------------------- |  | ---------------------- | ----- | --------- | ------ | - | ----- | --------- | --------- | - | --------- |  |  | ------- | ----- |  |  | - | ----- | 
|                        |  | Payments Due by Period |      
|                        |  |                        |      
|                        |  |                        |       | Less Than |        |   |       |           | More Than |  
|Contractual Obligations |  | Total                  |       |           | 1 Year |   |       | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years |      
|                        |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |      
|Operating Leases        |  | $                      | 6,673 |           |        | $ | 992   |           |           | $ | 1,842     |  |  | $       | 1,599 |  |  | $ | 2,241 | 
|Capital Leases          |  | $                      | 52    |           |        | $ | 21    |           |           | $ | 31        |  |  |         |      |  |  |   |      | 
|                        |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |      
|Total                   |  | $                      | 6,725 |           |        | $ | 1,013 |           |           | $ | 1,873     |  |  | $       | 1,599 |  |  | $ | 2,241 | 

Off-Balance Sheet Arrangements




Recent Accounting Pronouncements




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RISK FACTORS






| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Demand for our products in the United States and
    internationally is highly dependent on satisfactory
    reimbursement rates from private and governmental third-party
    payers for procedures using our products. If we are unable to
    obtain and maintain satisfactory reimbursement rates, demand for
    our products would decline and our business, financial results
    and cash flows would suffer.







| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | The current Facility Fee reimbursement for PVP in the United
    States could be reduced, eliminated or utilized by a
    competitor.



23



---



##### Table of Contents







| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Physician Fee Schedule reimbursement for PVP in the United
    States remains uncertain.





| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | PVP physician reimbursement is typically lower, on a
    per-procedure basis, compared to other BPH therapies.





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are not able to protect our intellectual property
    adequately, we will lose a critical competitive advantage, which
    will reduce our revenues, profits and cash flows.





24



---



##### Table of Contents











| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect the integrity, safety and proper
    use of our ADDStat disposable fiber optic delivery device with
    the GreenLight laser system, it could result in negative patient
    outcomes and reduce our disposable fiber recurring revenue
    stream.





| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We participate in competitive markets with companies that
    have significantly greater technical, research and development,
    manufacturing and marketing resources and/or who produce
    standard, entrenched medical technologies.



25



---



##### Table of Contents







| |   |                                                           
| | - | ----------------------------------------------------------
| |  | market acceptance of our products;                        
|
| |  | product performance;                                      
|
| |  | price;                                                    
|
| |  | customer support;                                         
|
| |  | the success and timing of new product development; and    
|
| |  | continued development of successful distribution channels.







| |                                                                                   
| | ----------------------------------------------------------------------------------
| | If we are unable to effectively manage our growth, our
    business may be harmed.







| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Our dependence on certain single-source suppliers and certain
    other third parties, could adversely impact our ability to
    manufacture lasers.





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Problems associated with international business operations
    could affect our ability to sell our products.



26



---



##### Table of Contents







| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | changes in regulatory requirements;                                                      
|
| |  | delays resulting from difficulty in obtaining export licenses
    for certain technology;
|
| |  | customs, tariffs and other barriers and restrictions; and                                
|
| |  | the burdens of complying with a variety of foreign laws.                                 





| |   |                                                       
| | - | ------------------------------------------------------
| |  | differing economic conditions;                        
|
| |  | changes in political climate;                         
|
| |  | differing tax structures; and                         
|
| |  | changes in diplomatic and trade relationships and war.









| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business has significant risks of product liability
    claims, which could drain our resources and exceed our insurance
    coverage which is limited.







| |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products are subject to government regulation, and so we
    cannot assure that all necessary regulatory approvals, including
    approvals for new products or product improvements, will be
    granted on a timely basis, if at all, and that we wont be
    subject to product recalls or warnings and other regulatory
    actions and penalties that could materially affect our operating
    results.





27



---



##### Table of Contents























| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As we have limited working capital, we may need additional
    capital that may not be available to us and, if raised, may
    dilute our stockholders ownership interest in us.



28



---



##### Table of Contents

















| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Our ability to manage effectively non-cash assets such as
    inventory and accounts receivable;                      
|
| |  | Our ability to anticipate and adapt to the changes in our
    industry such as new and alternative medical procedures;
|
| |  | Our level of profitability; and                                                                                       
|
| |  | Our determination to acquire or invest in products and
    businesses complementary to ours.                          







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We may have difficulty sustaining profitability and may
    experience additional losses in the future.



29



---



##### Table of Contents





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | We may be unable to respond to the rapid technological
    changes that often affect the markets in which we compete.











| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may become a party to a patent infringement and other
    intellectual property related actions or disputes, which could
    result in significant royalty or other payments or in
    injunctions that can prevent the sale of our products.







30



---



##### Table of Contents





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Any acquisitions we make may not provide us the expected
    benefits and could disrupt our business and harm our financial
    condition.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We may be unable to attract and retain key personnel who are
    critical to the success of our business







| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results may fluctuate significantly
    and any failure to meet financial expectations for any fiscal
    quarter may cause our stock price to decline.



31



---



##### Table of Contents







| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | If we are unable to continue our relationship with McKesson
    on favorable contractual terms, our business may be harmed.





| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products contain defects that harm our customers
    patients, it would damage our reputation, subject us to
    potential legal liability and cause us to lose customers and
    revenue.







| |   |                                                               
| | - | --------------------------------------------------------------
| |  | loss of customers;                                            
|
| |  | increased costs of product, returns and warranty expenses;    
|
| |  | damage to our brand reputation;                               
|
| |  | failure to attract new customers or achieve market acceptance;
|
| |  | diversion of development and engineering resources; and       
|
| |  | legal actions by our customers.                               





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Our financial results and stock price are affected by a
    number of factors which are beyond our control.





| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | product mix;                                                                           
|
| |  | competitive pricing pressures;                                                         
|
| |  | material costs;                                                                        
|
| |  | revenue and expenses related to new products and enhancements to
    existing products;

32



---



##### Table of Contents





| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | delays in customer purchases in anticipation of new products or
    product enhancements by Laserscope or its competitors; and                                                      
|
| |  | the risk of loss or interruption to our operations or increased
    costs due to earthquakes, the availability of power and energy
    supplies and other events beyond our control.





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | quarterly fluctuations in our financial results;                           
|
| |  | changes in analysts estimates of future results;                          
|
| |  | changes in investors perceptions of our products;                         
|
| |  | announcement of new or enhanced products by us or our
    competitors;     
|
| |  | announcements relating to acquisitions and strategic
    transactions by us
|
| |  | or our competitors;                                                        
|
| |  | general conditions in the medical equipment industry; and                  
|
| |  | general conditions in the financial markets.                               







| |                                                                                    
| | -----------------------------------------------------------------------------------
| | We are a party to legal proceedings arising in the ordinary
    course of business.





| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We typically assume warranty obligations in connection with
    the sales of our products, which could cause a significant drain
    on our resources if our products perform poorly.





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Natural catastrophic events, such as earthquakes, or
    terrorist attacks may reduce our revenues and harm our
    business.



33



---



##### Table of Contents







No Dividends.






| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The exercise of outstanding options and warrants granted
    under Laserscopes stock option plans and other options and
    warrants may result in dilution of our shareholders equity
    interests.



Other Risks.









|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.



Interest Rate Risk






34



---



##### Table of Contents





Foreign Currency Risk






| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | changes in regulatory requirements;                                                      
|
| |  | delays resulting from difficulty in obtaining export licenses
    for certain technology;
|
| |  | customs, tariffs and other barriers and restrictions; and                                
|
| |  | the burdens of complying with a variety of foreign laws.                                 





| |   |                                                       
| | - | ------------------------------------------------------
| |  | differing economic conditions;                        
|
| |  | changes in political climate;                         
|
| |  | differing tax structures; and                         
|
| |  | changes in diplomatic and trade relationships and war.












|        |                                                              
|------- | -------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data.








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.




35



---



##### Table of Contents





Status of Managements Report on Internal Control Over
Financial Reporting. Internal
Control  Integrated Framework


Internal Control  Integrated Framework.




Changes in Internal Control Over Financial Reporting.


Limitations on the Effectiveness of Controls.




36



---



##### Table of Contents






PART III









|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.



Code of Ethics









|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.








|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management.








|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



37



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##### Table of Contents






Part IV







|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K.

Consolidated Financial Statements:


|                                                                                                   |  |      |                  | 
|-------------------------------------------------------------------------------------------------- |  | ---- | ---------------- | 
|                                                                                                   |  | Page |                 
|                                                                                                   |  |      |                 
|Report of Independent Registered Public Accounting Firm on
    Financial Statements                |  |      | F-1              | 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                          |  |      | F-2              | 
|Consolidated Statements of Operations  Years ended
    December 31, 2004, 2003 and 2002           |  |      | F-3              | 
|Consolidated Statements of Cash Flows  Years ended
    December 31, 2004, 2003 and 2002           |  |      | F-4              | 
|Consolidated Statements of Shareholders Equity 
    Years ended December 31, 2004, 2003 and 2002 |  |      | F-5              | 
|Notes to Consolidated Financial Statements                                                         |  |      | F-6 through F-24 | 



|                                                |  |      |     | 
|----------------------------------------------- |  | ---- | --- | 
|                                                |  | Page |    
|                                                |  |      |    
|Schedule II  Valuation and Qualifying Accounts |  |      | S-1 | 





|        |    |             |  |                                                                                                                                   
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .3          |  | Eighth Amended and Restated Articles of Incorporation of
    Registrant.(12)                                                      
|       
|        | 3  | .4          |  | By-laws of Registrant, as amended.(2)                                                                                             
|       
|        | 10 | .1A         |  | 1984 Stock Option Plan, as amended, and forms of Incentive Stock
    Option Agreement and Non-statutory Stock Option Agreement.(2)
|       
|        | 10 | .1B         |  | 1994 Stock Option Plan and forms of Incentive Stock Option
    Agreement and Non-statutory Stock Option Agreement.(3)             
|       
|        | 10 | .2          |  | 1984 Stock Purchase Plan and form of Common Stock Purchase
    Agreement.(1)                                                      
|       
|        | 10 | .3          |  | 1989 Employee Stock Purchase Plan and form of Subscription
    Agreement.(2)                                                      
|       
|        | 10 | .3A         |  | 1999 Employee Stock Purchase Plan and form of Subscription
    Agreement.(5)                                                      
|       
|        | 10 | .4          |  | 401(k) Plan.(1)                                                                                                                   
|       
|        | 10 | .6          |  | Net Lease Agreement between the Registrant and Realtec
    Properties dated June 20, 2000.(8)                                     
|       
|        | 10 | .6A         |  | Net Lease Agreement between the Registrant and Realtec
    Properties dated October 18, 2000.(8)                                  
|       
|        | 10 | .10         |  | Form of indemnification agreement.(1)                                                                                             
|       
|        | 10 | .11G        |  | Loan and Security Agreement between the Registrant and Silicon
    Valley Bank dated October 1, 1999.(5)                          
|       
|        | 10 | .11H        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 25, 2000.(7)          
|       
|        | 10 | .11I        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 26, 2001.(9)          
|       
|        | 10 | .11J        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 26, 2002.(11)         
|       
|        | 10 | .11K        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 25, 2003.(13)         

38



---



##### Table of Contents



|        |    |      |             |                                                                                                                          
|------- | -- | ---- | ----------- | -------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|       
|        | 10 | .11L |             | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 24, 2004.(15)
|       
|        | 10 | .13  |             | 1990 Directors Stock Option Plan and form of Option
    Agreement.(2)                                                   
|       
|        | 10 | .14  |             | Form of Laserscope Management Continuity Agreement, as
    amended.(6)                                                   
|       
|        | 10 | .14A |             | Form of Laserscope Management Continuity Agreement, as
    amended.(10)                                                  
|       
|        | 10 | .14B |             | Form of Laserscope Management Continuity Agreement, as
    amended.(14)                                                  
|       
|        | 10 | .18  |             | 1995 Directors Stock Option Plan and form of Option
    agreement.(4)                                                   
|       
|        | 10 | .18A |             | 1999 Directors Stock Option Plan.(5)                                                                                    
|       
|        | 10 | .19  |             | Common Stock Placement Agreement.(5)                                                                                     
|       
|        | 10 | .19A |             | Form of Common Stock Purchase Agreement.(5)                                                                              
|       
|        | 10 | .20  |             | Convertible Loan Agreement.(5)                                                                                           
|       
|        | 10 | .20A |             | Amendment to Convertible Loan Agreement.(12)                                                                             
|       
|        | 10 | .20B |             | Amendment to Convertible Loan Agreement.(13)                                                                             
|       
|        | 22 | .1   |             | Subsidiaries of Registrant, as amended.(8)                                                                               
|       
|        | 23 | .1   |             | Consent of Independent Registered Public Accounting Firm.(16)                                                            
|       
|        | 25 | .1   |             | Power of Attorney (See page 41).(16)                                                                                     
|       
|        | 31 | .1   |             | Certification of Principal Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(16)          
|       
|        | 31 | .2   |             | Certification of Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(16)          
|       
|        | 32 | .1   |             | Certification of Principal Executive Officer pursuant to
    18 U.S.C. section 1350.(16)                                 
|       
|        | 32 | .2   |             | Certification of Principal Financial Officer pursuant to
    18 U.S.C. section 1350.(16)                                 






| |     |                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 16(a), Exhibits, of the
    Registrants Registration Statement on Form S-1 and
    Amendment No. 1 and Amendment No. 2 thereto (File
    No. 33-31689), which became effective on November 29,
    1989.
|
| | (2) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1991.                                                                                         
|
| | (3) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1994.                                                                                         
|
| | (4) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K/ A for the
    year ended December 31, 1995.                                                                                      
|
| | (5) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1999.                                                                                         
|
| | (6) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2000.                                                                                 
|
| | (7) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2000.                                                                             
|
| | (8) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000.                                                                                         
|
| | (9) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001.                                                                             



|     |                                                                                                                                                                                                                    
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2002.

39



---



##### Table of Contents





|     |                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2002.
|    
|(12) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2002.            
|    
|(13) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2003.
|    
|(14) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2004.    
|    
|(15) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2004.
|    
|(16) | Filed herewith.                                                                                                                                                                                                        

40



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##### Table of Contents






SIGNATURES






| |           
| | ----------
| | Laserscope



| |     |                   
| | --- | ------------------
| | By: | /s/ Eric M. Reuter

| |                                      
| | -------------------------------------
| |                                      
| | Eric M. Reuter                       
| | President and Chief Executive Officer



POWER OF ATTORNEY






|                                                      |  |                                                                                                                         |  |                |  | 
|----------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                             |  | Title                                                                                                                   |  | Date          
|                                                      |  |                                                                                                                         |  |               
|                                                     
|/s/ Robert J. Pressley(Robert
    J. Pressley, Ph.D.) |  | Chairman of the Board of Directors                                                                                      |  | March 31, 2005
|                                                     
|/s/ Eric M. Reuter(Eric
    M. Reuter)                |  | President, Chief Executive Officer
    and Director
    (Principal Executive Officer)                                   |  | March 31, 2005
|                                                     
|/s/ Dennis LaLumandiere(Dennis
    LaLumandiere)      |  | Vice President, Finance, Chief
    Financial Officer and Secretary
    (Principal Financial and
    Accounting Officer) |  | March 31, 2005
|                                                     
|/s/ James Baumgardt(James
    Baumgardt)              |  | Director                                                                                                                |  | March 31, 2005
|                                                     
|/s/ Robert C. Pearson(Robert
    C. Pearson)          |  | Director                                                                                                                |  | March 31, 2005
|                                                     
|/s/ Rodney Perkins(Rodney
    Perkins, M.D.)          |  | Director                                                                                                                |  | March 31, 2005

41



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENTS










| |                               
| | ------------------------------
| | /s/ PricewaterhouseCoopers LLP





F-1



---



##### Table of Contents



LASERSCOPE







CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                           |                   |        |         |      |   |        |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------- | ----------------- | ------ | ------- | ---- | - | ------ | ------- | -
|                                           |                                                                                                           | December 31,      |       
|                                           |                                                                                                           |                   |       
|                                           |                                                                                                           | 2004              |        |         | 2003 |  
|                                           |                                                                                                           |                   |        |         |      |  
|                                           |                                                                                                           | (Thousands except |       
|                                           |                                                                                                           | share amounts)    |       
|ASSETS                                    
|Current assets:                            |                                                                                                           |                   |        |         |      |   |        |        
|                                           | Cash and cash equivalents                                                                                 |                   | $      | 15,954  |      |   | $      | 7,158   |  
|                                           | Accounts receivable, net                                                                                  |                   |        | 20,342  |      |   |        | 12,711  |  
|                                           | Inventories, net                                                                                          |                   |        | 19,446  |      |   |        | 13,368  |  
|                                           | Other current assets                                                                                      |                   |        | 1,471   |      |   |        | 1,315   |  
|                                           |                                                                                                           |                   |        |         |      |  
|                                           | Total current assets                                                                                      |                   |        | 57,213  |      |   |        | 34,552  |  
|Property and equipment, net                |                                                                                                           |                   | 3,457  |         |      |   | 1,645  |        
|Goodwill                                   |                                                                                                           |                   | 655    |         |      |   | 655    |        
|Other assets                               |                                                                                                           |                   | 264    |         |      |   | 176    |        
|                                           |                                                                                                           |                   |        |         |      |  
|Total assets                               |                                                                                                           | $                 | 61,589 |         |      | $ | 37,028 |        
|                                           |                                                                                                           |                   |        |         |      |  
|                                          
|LIABILITIES AND SHAREHOLDERS EQUITY      
|Current liabilities:                       |                                                                                                           |                   |        |         |      |   |        |        
|                                           | Accounts payable                                                                                          |                   | $      | 2,389   |      |   | $      | 4,094   |  
|                                           | Accrued compensation                                                                                      |                   |        | 4,365   |      |   |        | 2,360   |  
|                                           | Warranty                                                                                                  |                   |        | 2,536   |      |   |        | 1,947   |  
|                                           | Other accrued liabilities                                                                                 |                   |        | 5,761   |      |   |        | 3,347   |  
|                                           | Deferred revenue                                                                                          |                   |        | 3,575   |      |   |        | 2,022   |  
|                                           | Current obligations under capital leases                                                                  |                   |        | 21      |      |   |        | 60      |  
|                                           |                                                                                                           |                   |        |         |      |  
|                                           | Total current liabilities                                                                                 |                   |        | 18,647  |      |   |        | 13,830  |  
|                                           |                                                                                                           |                   |        |         |      |  
|Long-term liabilities:                     |                                                                                                           |                   |        |         |      |   |        |        
|                                           | Obligations under capital leases                                                                          |                   |        | 31      |      |   |        |        |  
|                                           |                                                                                                           |                   |        |         |      |  
|                                           | Total long-term liabilities                                                                               |                   |        | 31      |      |   |        |        |  
|                                           |                                                                                                           |                   |        |         |      |  
|Commitments and contingencies (Note 9)     |                                                                                                           |                   |        |         |      |   |        |        
|Shareholders equity:                      |                                                                                                           |                   |        |         |      |   |        |        
|                                           | Common stock, no par value:                                                                               |                   |        |         |      |   |        |         |  
|                                           | Authorized shares  30,000,000 at December 31,
    2004 and 2003.                                         |                   |        |         |      |   |        |         |  
|                                           | Issued and outstanding shares  21,966,117 and
    20,131,781 at December 31, 2004 and 2003, respectively |                   |        | 65,009  |      |   |        | 60,427  |  
|                                           | Accumulated deficit                                                                                       |                   |        | (22,263 | )    |   |        | (37,002 | )
|                                           | Accumulated other comprehensive income/(loss)                                                             |                   |        | 165     |      |   |        | (227    | )
|                                           |                                                                                                           |                   |        |         |      |  
|                                           | Total shareholders equity                                                                                |                   |        | 42,911  |      |   |        | 23,198  |  
|                                           |                                                                                                           |                   |        |         |      |  
|Total liabilities and shareholders equity |                                                                                                           | $                 | 61,589 |         |      | $ | 37,028 |        
|                                           |                                                                                                           |                   |        |         |      |  



F-2



---



##### Table of Contents



LASERSCOPE







CONSOLIDATED STATEMENTS OF OPERATIONS


|                                              |                                     |                                       |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                              |                                     | Years Ended December 31,              |       
|                                              |                                     |                                       |       
|                                              |                                     | 2004                                  |        |        | 2003 |   |        | 2002   | 
|                                              |                                     |                                       |        |        |      |   |        |        | 
|                                              |                                     | (Thousands, except per share amounts) |       
|Net revenues:                                 |                                     |                                       |        |        |      |   |        |        |  |   |        |       
|                                              | Products                            |                                       | $      | 86,341 |      |   | $      | 51,104 |  |   | $      | 37,262 | 
|                                              | Services                            |                                       |        | 7,429  |      |   |        | 6,323  |  |   |        | 5,826  | 
|                                              |                                     |                                       |        |        |      |   |        |        | 
|                                              |                                     |                                       | 93,770 |        |      |   | 57,427 |        |  |   | 43,088 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Cost of products and services:                |                                     |                                       |        |        |      |   |        |        |  |   |        |       
|                                              | Products                            |                                       |        | 33,298 |      |   |        | 22,942 |  |   |        | 16,832 | 
|                                              | Services                            |                                       |        | 5,817  |      |   |        | 4,399  |  |   |        | 3,736  | 
|                                              |                                     |                                       |        |        |      |   |        |        | 
|                                              |                                     |                                       | 39,115 |        |      |   | 27,341 |        |  |   | 20,568 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Gross margin                                  |                                     |                                       | 54,655 |        |      |   | 30,086 |        |  |   | 22,520 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Operating expenses:                           |                                     |                                       |        |        |      |   |        |        |  |   |        |       
|                                              | Research and development            |                                       |        | 5,217  |      |   |        | 4,443  |  |   |        | 3,837  | 
|                                              | Selling, general and administrative |                                       |        | 34,023 |      |   |        | 22,936 |  |   |        | 17,892 | 
|                                              |                                     |                                       |        |        |      |   |        |        | 
|                                              |                                     |                                       | 39,240 |        |      |   | 27,379 |        |  |   | 21,729 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Operating income                              |                                     |                                       | 15,415 |        |      |   | 2,707  |        |  |   | 791    |       
|Interest income                               |                                     |                                       | 39     |        |      |   | 52     |        |  |   | 10     |       
|Interest expense and other income, net        |                                     |                                       | 225    |        |      |   | (40    | )      |  |   | (392   | )     
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Income before income taxes                    |                                     |                                       | 15,679 |        |      |   | 2,719  |        |  |   | 409    |       
|Provision for income taxes                    |                                     |                                       | 940    |        |      |   | 202    |        |  |   | 86     |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Net income                                    |                                     | $                                     | 14,739 |        |      | $ | 2,517  |        |  | $ | 323    |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Basic net income per share                    |                                     | $                                     | 0.70   |        |      | $ | 0.13   |        |  | $ | 0.02   |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Diluted net income per share                  |                                     | $                                     | 0.65   |        |      | $ | 0.13   |        |  | $ | 0.02   |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Shares used in basic per share calculations   |                                     |                                       | 21,075 |        |      |   | 17,452 |        |  |   | 16,441 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 
|Shares used in diluted per share calculations |                                     |                                       | 22,808 |        |      |   | 21,838 |        |  |   | 18,569 |       
|                                              |                                     |                                       |        |        |      |   |        |        | 



F-3



---



##### Table of Contents



LASERSCOPE







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                      |                                                                                   |                                       |       |        |        |   |       |        |        |   |       |        |        |  
|------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | ----- | ------ | ------ | - | ----- | ------ | ------ | - | ----- | ------ | ------ | -
|                                      |                                                                                   | Years Ended December 31,              |      
|                                      |                                                                                   |                                       |      
|                                      |                                                                                   | 2004                                  |       |        | 2003   |   |       | 2002   |       
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|                                      |                                                                                   | (In thousands)                        |      
|Cash flows from operating activities: |                                                                                   |                                       |       |        |        |   |       |        |        |   |       |       
|                                      | Net income                                                                        |                                       | $     | 14,739 |        |   | $     | 2,517  |        |   | $     | 323    |       
|                                      | Adjustments to reconcile net income to cash provided by
    operating activities: |                                       |       |        |        |   |       |        |        |   |       |        |       
|                                      |                                                                                   | Depreciation and amortization         |       |        | 1,055  |   |       |        | 1,222  |   |       |        | 1,051  |  
|                                      |                                                                                   | Tax benefit of stock option exercises |       |        | 383    |   |       |        |       |   |       |        |       |  
|                                      |                                                                                   | Amortization of debt issuance costs   |       |        |       |   |       |        | 135    |   |       |        | 134    |  
|                                      |                                                                                   | Provision for doubtful accounts       |       |        | (165   | ) |       |        | 93     |   |       |        | 115    |  
|                                      |                                                                                   | Provision for inventory               |       |        | (73    | ) |       |        | 346    |   |       |        | 134    |  
|                                      | Changes in assets and liabilities:                                                |                                       |       |        |        |   |       |        |        |   |       |        |       
|                                      |                                                                                   | Accounts receivable                   |       |        | (7,233 | ) |       |        | (2,204 | ) |       |        | (1,750 | )
|                                      |                                                                                   | Inventories                           |       |        | (5,867 | ) |       |        | (3,025 | ) |       |        | (1,149 | )
|                                      |                                                                                   | Prepayments and other current assets  |       |        | (68    | ) |       |        | (326   | ) |       |        | 305    |  
|                                      |                                                                                   | Accounts payable                      |       |        | (1,271 | ) |       |        | 829    |   |       |        | 1,092  |  
|                                      |                                                                                   | Accrued compensation                  |       |        | 1,998  |   |       |        | 327    |   |       |        | 445    |  
|                                      |                                                                                   | Warranty                              |       |        | 589    |   |       |        | 820    |   |       |        | 379    |  
|                                      |                                                                                   | Deferred revenue                      |       |        | 1,539  |   |       |        | 614    |   |       |        | 377    |  
|                                      |                                                                                   | Other accrued liabilities             |       |        | 1,361  |   |       |        | 235    |   |       |        | 366    |  
|                                      |                                                                                   | Tax payable                           |       |        | 397    |   |       |        | 136    |   |       |        |       |  
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|Cash provided by operating activities |                                                                                   |                                       | 7,384 |        |        |   | 1,719 |        |        |   | 1,822 |       
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|Cash flows from investing activities: |                                                                                   |                                       |       |        |        |   |       |        |        |   |       |       
|                                      | Capital expenditures                                                              |                                       |       | (2,812 | )      |   |       | (873   | )      |   |       | (776   | )     
|                                      | Acquisition of licenses or other intangibles                                      |                                       |       | (127   | )      |   |       | (200   | )      |   |       |       |       
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|                                      | Cash used in investing activities                                                 |                                       |       | (2,939 | )      |   |       | (1,073 | )      |   |       | (776   | )     
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|Cash flows from financing activities: |                                                                                   |                                       |       |        |        |   |       |        |        |   |       |       
|                                      | Payment on obligations under capital leases                                       |                                       |       | (10    | )      |   |       | (117   | )      |   |       | (101   | )     
|                                      | Proceeds from the sale of common stock under stock plans                          |                                       |       | 3,691  |        |   |       | 1,565  |        |   |       | 1,197  |       
|                                      | Proceeds from the exercise of warrants                                            |                                       |       | 508    |        |   |       | 97     |        |   |       | 6      |       
|                                      | Repayment of shareholder notes                                                    |                                       |       |       |        |   |       | 125    |        |   |       |       |       
|                                      | Proceeds from line of credit                                                      |                                       |       |       |        |   |       | 200    |        |   |       | 7,020  |       
|                                      | Repayment of line of credit                                                       |                                       |       |       |        |   |       | (200   | )      |   |       | (8,155 | )     
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|                                      | Cash provided by (used in) financing activities                                   |                                       |       | 4,189  |        |   |       | 1,670  |        |   |       | (33    | )     
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|                                      | Effect of exchange rate changes on cash                                           |                                       |       | 162    |        |   |       | 181    |        |   |       | 240    |       
|                                      | Increase in cash and cash equivalents                                             |                                       |       | 8,796  |        |   |       | 2,497  |        |   |       | 1,253  |       
|                                      | Cash and cash equivalents, beginning of year                                      |                                       |       | 7,158  |        |   |       | 4,661  |        |   |       | 3,408  |       
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|                                      | Cash and cash equivalents, end of year                                            |                                       | $     | 15,954 |        |   | $     | 7,158  |        |   | $     | 4,661  |       
|                                      |                                                                                   |                                       |       |        |        |   |       |        |       
|Supplemental cash flow information:   |                                                                                   |                                       |       |        |        |   |       |        |        |   |       |       
|                                      | Cash paid for income taxes, net of refunds                                        |                                       | $     | 224    |        |   | $     | 67     |        |   | $     | 79     |       
|                                      | Cash paid for interest                                                            |                                       | $     | 37     |        |   | $     | 234    |        |   | $     | 303    |       
|                                      | Non-cash financing, equipment lease                                               |                                       | $     | 81     |        |   | $     |       |        |   | $     | 60     |       
|                                      | Debenture conversion                                                              |                                       | $     |       |        |   | $     | 2,850  |        |   | $     |       |       



F-4



---



##### Table of Contents



LASERSCOPE







CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |        |        | 
|--------------------------------------------------------------------------------- | ----------------------- | -------------------------- | ------ | ----------------------------------- | ------- | ----------- | ------------- | ------------- | ----- | --------------- | ------------ | ----- | ------------- | ------ | ---- | - |  | - | ------ | ------ | ------ | 
|                                                                                  |                         |                            |        |                                     |         | Accumulated |               |               |       |                 |             
|                                                                                  |                         |                            |        |                                     |         | Other       |               |               | Notes |                 |              | Total |              
|                                                                                  |                         |                            |        | Accumulated                         |         |             | Comprehensive |               |       | Receivable from |              |       | Shareholders |       
|                                                                                  |                         | Common Stock               |        |                                     | Deficit |             |               | Income/(Loss) |       |                 | Shareholders |       |               | Equity |     
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|                                                                                  |                         |                            |        | (In thousands except share amounts) |         |             |              
|Balance at December 31, 2001                                                      |                         | $                          | 54,712 |                                     |         | $           | (39,842       | )             |       | $               | (1,332       | )     |               | $      | (125 | ) |  | $ | 13,413 |       
|Components of comprehensive income:                                               |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |       
|                                                                                  | Net income              |                            |        |                                     |         |             |               | 323           |       |                 |              |       |               |        |      |   |  |   |        | 323    |       
|                                                                                  | Translation adjustments |                            |        |                                     |         |             |               |               |       |                 |              | 543   |               |        |      |   |  |   |        | 543    |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|                                                                                  |                         | Total comprehensive income |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |        | 866    | 
|Issuance of 737,526 shares plans                                                  |                         |                            | 1,197  |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 1,197  |       
|Issuance of 5,000 shares upon warrant exercises                                   |                         |                            | 6      |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 6      |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|Balance at December 31, 2002                                                      |                         |                            | 55,915 |                                     |         |             | (39,519       | )             |       |                 | (789         | )     |               |        | (125 | ) |  |   | 15,482 |       
|Components of comprehensive income:                                               |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |       
|                                                                                  | Net income              |                            |        |                                     |         |             |               | 2,517         |       |                 |              |       |               |        |      |   |  |   |        | 2,517  |       
|                                                                                  | Translation adjustments |                            |        |                                     |         |             |               |               |       |                 |              | 562   |               |        |      |   |  |   |        | 562    |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|                                                                                  |                         | Total comprehensive income |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |        | 3,079  | 
|Issuance of 827,794 shares under stock plans                                      |                         |                            | 1,565  |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 1,565  |       
|Issuance of 75,663 shares upon warrant exercises                                  |                         |                            | 97     |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 97     |       
|Debenture conversion into 2,400,000 shares, net of
    unamortized issuance costs |                         |                            | 2,850  |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 2,850  |       
|Repayment of shareholder notes                                                    |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        | 125  |   |  |   | 125    |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|Balance at December 31, 2003                                                      |                         |                            | 60,427 |                                     |         |             | (37,002       | )             |       |                 | (227         | )     |               |        |     |   |  |   | 23,198 |       
|Components of comprehensive income:                                               |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |       
|                                                                                  | Net income              |                            |        |                                     |         |             |               | 14,739        |       |                 |              |       |               |        |      |   |  |   |        | 14,739 |       
|                                                                                  | Translation adjustments |                            |        |                                     |         |             |               |               |       |                 |              | 392   |               |        |      |   |  |   |        | 392    |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|                                                                                  |                         | Total comprehensive income |        |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   |        |        | 15,131 | 
|Issuance of 1,471,124 shares under stock plans                                    |                         |                            | 3,691  |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 3,691  |       
|Issuance of 363,212 shares upon warrant exercises                                 |                         |                            | 508    |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 508    |       
|Tax benefit of stock option exercise                                              |                         |                            | 383    |                                     |         |             |               |               |       |                 |              |       |               |        |      |   |  |   | 383    |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     
|Balance at December 31, 2004                                                      |                         | $                          | 65,009 |                                     |         | $           | (22,263       | )             |       | $               | 165          |       |               | $      |     |   |  | $ | 42,911 |       
|                                                                                  |                         |                            |        |                                     |         |             |               |               |       |                 |              |       |               |        |     



F-5



---



##### Table of Contents



LASERSCOPE







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |         
| | --------
| | Business





| |                      
| | ---------------------
| | Basis of presentation





| |                 
| | ----------------
| | Use of estimates





| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                          
| | -------------------------
| | Cash and cash equivalents





| |                                                            
| | -----------------------------------------------------------
| | Accounts Receivable and Allowance for Doubtful
    Accounts





| |                                         
| | ----------------------------------------
| | Revenue recognition and product warranty



F-6



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















F-7



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                      
| | -------------------------------------
| | Research and development expenditures





| |                       
| | ----------------------
| | Property and equipment





| |            
| | -----------
| | Inventories





| |                     
| | --------------------
| | Net income per share



F-8



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ---------------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                           |                                                                                             | 2004                               |        |        | 2003 |   |        | 2002   |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|                                                                                           |                                                                                             | (Thousands, except per share data) |       
|Basic earnings per share                                                                   |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|Numerator:                                                                                 |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|                                                                                           | Net income used in computing basic and diluted net income per
    share                     |                                    | $      | 14,739 |      |   | $      | 2,517  |   |   | $      | 323    |  
|                                                                                           | Amount allocated to holders of convertible debentures                                       |                                    |        |       |      |   |        | (267   | ) |   |        | (41    | )
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|                                                                                           | Income available to common stockholders-basic                                               |                                    | $      | 14,739 |      |   | $      | 2,250  |   |   | $      | 282    |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Denominator:                                                                               |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|                                                                                           | Weighted average common shares outstanding used in computing
    basic net income per share |                                    |        | 21,075 |      |   |        | 17,452 |   |   |        | 16,441 |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Basic earnings per share                                                                   |                                                                                             | $                                  | 0.70   |        |      | $ | 0.13   |        |   | $ | 0.02   |       
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Diluted earnings per share                                                                 |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|Numerator:                                                                                 |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|                                                                                           | Net income used in computing basic and diluted net income per
    share                     |                                    | $      | 14,739 |      |   | $      | 2,517  |   |   | $      | 323    |  
|                                                                                           | Amount allocated to holders of convertible debentures                                       |                                    |        |       |      |   |        |       |   |   |        | (41    | )
|                                                                                           | Addback interest on debentures                                                              |                                    |        |       |      |   |        | 219    |   |   |        |       |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|                                                                                           | Income available to common stockholders-diluted                                             |                                    | $      | 14,739 |      |   | $      | 2,736  |   |   | $      | 282    |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Denominator:                                                                               |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|                                                                                           | Weighted average common shares outstanding used in computing
    basic net income per share |                                    |        | 21,075 |      |   |        | 17,452 |   |   |        | 16,441 |  
|Add dilutive potential shares used in computing dilutive net
    income per share:         |                                                                                             |                                    |        |        |      |   |        |        |   |   |        |       
|                                                                                           | Assumed exercise of stock options                                                           |                                    |        | 1,463  |      |   |        | 1,881  |   |   |        | 1,676  |  
|                                                                                           | Assumed exercise of warrants                                                                |                                    |        | 270    |      |   |        | 437    |   |   |        | 452    |  
|                                                                                           | Assumed conversion of debentures                                                            |                                    |        |       |      |   |        | 2,068  |   |   |        |       |  
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Total weighted average number of shares used in computing
    diluted net income per share |                                                                                             |                                    | 22,808 |        |      |   | 21,838 |        |   |   | 18,569 |       
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  
|Diluted earnings per share                                                                 |                                                                                             | $                                  | 0.65   |        |      | $ | 0.13   |        |   | $ | 0.02   |       
|                                                                                           |                                                                                             |                                    |        |        |      |   |        |        |  

Earnings
Per Share


F-9



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |  |              |    |  |      |  |     |      |  |  |       | 
|-------------------------------------- |  | ------------ | -- |  | ---- |  | --- | ---- |  |  | ----- | 
|                                       |  | Years Ended  |   
|                                       |  | December 31, |   
|                                       |  |              |   
|                                       |  | 2004         |    |  | 2003 |  |     | 2002 | 
|                                       |  |              |    |  |      |  |     |      | 
|                                       |  | (Thousands)  |   
|Options to purchase common stock       |  |              | 88 |  |      |  | 305 |      |  |  | 279   | 
|Debentures convertible to common stock |  |              |   |  |      |  |    |      |  |  | 2,400 | 
|                                       |  |              |    |  |      |  |     |      | 
|                                       |  |              | 88 |  |      |  | 305 |      |  |  | 2,679 | 
|                                       |  |              |    |  |      |  |     |      | 



| |                             
| | ----------------------------
| | Foreign currency translation





| |             
| | ------------
| | Income taxes





| |                  
| | -----------------
| | Long-lived assets





| |                                                           
| | ----------------------------------------------------------
| | Goodwill and intangible assets related to
    acquisitions



F-10



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |         
| | --------
| | Licenses





| |                    
| | -------------------
| | Advertising expense





| |                         
| | ------------------------
| | Stock-based compensation



F-11



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |                                                                                                                                            |                     |        |        |      |   |       |        |      |   |     |      |       |  
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------- | ------ | ------ | ---- | - | ----- | ------ | ---- | - | --- | ---- | ----- | -
|                             |                                                                                                                                            | 2004                |        |        | 2003 |   |       | 2002   |     
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|Net income as reported       |                                                                                                                                            |                     | 14,739 |        |      | $ | 2,517 |        |      | $ | 323 |     
|                             | Deduct: Total stock-based compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                     |        | (2,244 | )    |   |       | (1,352 | )    |   |     | (956 | )    
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             | Pro forma net income (loss)                                                                                                                |                     | $      | 12,495 |      |   | $     | 1,165  |      |   | $   | (633 | )    
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             | Amount allocated to holders of convertible debentures                                                                                      |                     |        |       |      |   |       | (267   | )    |   |     | (41  | )    
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             | Pro forma net income available to common stockholders-basic                                                                                |                     | $      | 12,495 |      |   | $     | 898    |      |   | $   | (674 | )    
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|Net income (loss) per share: |                                                                                                                                            |                     |        |        |      |   |       |        |      |   |     |     
|                             |                                                                                                                                            | Basic-as reported   |        | $      | 0.70 |   |       | $      | 0.13 |   |     | $    | 0.02  |  
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             |                                                                                                                                            | Basic-pro forma     |        | $      | 0.59 |   |       | $      | 0.05 |   |     | $    | (0.04 | )
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             |                                                                                                                                            | Diluted-as reported |        | $      | 0.65 |   |       | $      | 0.13 |   |     | $    | 0.02  |  
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     
|                             |                                                                                                                                            | Diluted-pro forma   |        | $      | 0.55 |   |       | $      | 0.05 |   |     | $    | (0.04 | )
|                             |                                                                                                                                            |                     |        |        |      |   |       |        |     






|                         |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------ |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                         |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                         |  |      |      |   |      |  |      |      | 
|Risk free interest rate  |  |      | 3.26 | % |      |  | 2.60 | %    |  |  | 3.20 | %
|Dividend yield           |  |      |     |   |      |  |     |      |  |  |     |  
|Volatility               |  |      | 0.84 |   |      |  | 0.85 |      |  |  | 1.16 |  
|Expected life (in years) |  |      | 4.45 |   |      |  | 4.13 |      |  |  | 3.50 |  





|                         |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------ |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                         |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                         |  |      |      |   |      |  |      |      | 
|Risk free interest rate  |  |      | 1.15 | % |      |  | 1.12 | %    |  |  | 1.78 | %
|Dividend yield           |  |      |     |   |      |  |     |      |  |  |     |  
|Volatility               |  |      | 0.66 |   |      |  | 0.63 |      |  |  | 0.87 |  
|Expected life (in years) |  |      | 0.50 |   |      |  | 0.50 |      |  |  | 0.50 |  



F-12



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                     
| | --------------------
| | Comprehensive income





| |                  
| | -----------------
| | Reclassifications





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements







|   |                    
|-- | -------------------
|2. | Segment information



F-13



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |       |                |        |        |      |   |        |        |  |   |        |        | 
|-------------------------------- | ----- | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                 |       | 2004           |        |        | 2003 |   |        | 2002   | 
|                                 |       |                |        |        |      |   |        |        | 
|                                 |       | (In thousands) |       
|By similar products and services |       |                |        |        |      |   |        |        |  |   |        |       
|Lasers & instrumentation         |       | $              | 56,958 |        |      | $ | 37,568 |        |  | $ | 29,842 |       
|Disposables                      |       |                | 29,383 |        |      |   | 13,536 |        |  |   | 7,420  |       
|Service                          |       |                | 7,429  |        |      |   | 6,323  |        |  |   | 5,826  |       
|                                 |       |                |        |        |      |   |        |        | 
|                                 | Total |                | $      | 93,770 |      |   | $      | 57,427 |  |   | $      | 43,088 | 
|                                 |       |                |        |        |      |   |        |        | 
|By major geographic area(1)      |       |                |        |        |      |   |        |        |  |   |        |       
|United States                    |       | $              | 68,390 |        |      | $ | 42,398 |        |  | $ | 31,714 |       
|Europe(2)                        |       |                | 19,893 |        |      |   | 11,221 |        |  |   | 8,584  |       
|Asia Pacific(2)                  |       |                | 4,862  |        |      |   | 3,214  |        |  |   | 2,380  |       
|Rest of world(2)                 |       |                | 625    |        |      |   | 594    |        |  |   | 410    |       
|                                 |       |                |        |        |      |   |        |        | 
|Total                            |       | $              | 93,770 |        |      | $ | 57,427 |        |  | $ | 43,088 |       
|                                 |       |                |        |        |      |   |        |        | 






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | Based on the location of the external customer.                                                            
|   
|(2) | Individual countries within each of these geographic regions
    represent less than 10% of total revenues.



|               |  |                |       |  |      |   |       |      |  |   |       | 
|-------------- |  | -------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|               |  | 2004           |       |  | 2003 |   |       | 2002 | 
|               |  |                |       |  |      |   |       |      | 
|               |  | (In thousands) |      
|United States  |  | $              | 3,461 |  |      | $ | 1,553 |      |  | $ | 1,957 | 
|France         |  |                | 820   |  |      |   | 859   |      |  |   | 710   | 
|United Kingdom |  |                | 95    |  |      |   | 64    |      |  |   | 76    | 
|               |  |                |       |  |      |   |       |      | 
|               |  | $              | 4,376 |  |      | $ | 2,476 |      |  | $ | 2,743 | 
|               |  |                |       |  |      |   |       |      | 



|   |                                                
|-- | -----------------------------------------------
|3. | Receivables and Allowance for Doubtful Accounts



|                                      |  |                |        |   |      |   |        |  
|------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                      |  | 2004           |        |   | 2003 |  
|                                      |  |                |        |   |      |  
|                                      |  | (In thousands) |       
|Trade accounts receivable             |  | $              | 20,359 |   |      | $ | 12,967 |  
|Other                                 |  |                | 87     |   |      |   | 12     |  
|Less: allowance for doubtful accounts |  |                | (104   | ) |      |   | (268   | )
|                                      |  |                |        |   |      |  
|Total receivables                     |  | $              | 20,342 |   |      | $ | 12,711 |  
|                                      |  |                |        |   |      |  

F-14



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|4. | Inventories



|                |  |                |        |  |      |   |        | 
|--------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                |  | 2004           |        |  | 2003 |  
|                |  |                |        |  |      |  
|                |  | (In thousands) |       
|Raw materials   |  | $              | 9,120  |  |      | $ | 6,356  | 
|Work-in-process |  |                | 6,330  |  |      |   | 3,213  | 
|Finished goods  |  |                | 3,996  |  |      |   | 3,799  | 
|                |  |                |        |  |      |  
|                |  | $              | 19,446 |  |      | $ | 13,368 | 
|                |  |                |        |  |      |  



|   |                       
|-- | ----------------------
|5. | Property and Equipment



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | 2004           |         |   | 2003 |  
|                                               |  |                |         |   |      |  
|                                               |  | (In thousands) |        
|Machinery and equipment                        |  | $              | 5,436   |   |      | $ | 4,773   |  
|Office equipment and furniture                 |  |                | 9,189   |   |      |   | 7,950   |  
|Leasehold improvements                         |  |                | 1,273   |   |      |   | 1,258   |  
|Software                                       |  |                | 3,551   |   |      |   | 2,601   |  
|                                               |  |                |         |   |      |  
|                                               |  |                | 19,449  |   |      |   | 16,582  |  
|Less accumulated depreciation and amortization |  |                | (15,992 | ) |      |   | (14,937 | )
|                                               |  |                |         |   |      |  
|                                               |  | $              | 3,457   |   |      | $ | 1,645   |  
|                                               |  |                |         |   |      |  





|   |                               
|-- | ------------------------------
|6. | Warranty and Service Contracts



| |         
| | --------
| | Warranty



F-15



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |                                             |                |        |     | 
|------------------------------------------- | ------------------------------------------- | -------------- | ------ | --- | 
|                                            |                                             | (In thousands) |       
|Warranty Reserve                            |                                             |                |        |    
|Balance, December 31, 2002                  |                                             | $              | 1,127  |    
|Add: Accruals for warranties issued in 2003 |                                             |                | 2,659  |    
|                                            | Accruals related to pre-existing warranties |                |        | 100 | 
|Less: Settlements made during the period    |                                             |                | (1,939 | )  
|                                            |                                             |                |       
|Balance, December 31, 2003                  |                                             | $              | 1,947  |    
|Add: Accruals for warranties issued in 2004 |                                             |                | 3,275  |    
|                                            | Accruals related to pre-existing warranties |                |        |    | 
|Less: Settlements made during the period    |                                             |                | (2,686 | )  
|                                            |                                             |                |       
|Balance, December 31, 2004                  |                                             | $              | 2,536  |    
|                                            |                                             |                |       



| |                  
| | -----------------
| | Service Contracts



|                           |                                        |                |        |        |  
|-------------------------- | -------------------------------------- | -------------- | ------ | ------ | -
|                           |                                        | (In thousands) |       
|Deferred Contract Revenue  |                                        |                |        |       
|Balance, December 31, 2002 |                                        | $              | 1,391  |       
|Add: Payments received     |                                        |                | 4,117  |       
|                           | Costs incurred under service contracts |                |        | 2,527  |  
|Less: Revenue recognized   |                                        |                | (3,673 | )     
|                           | Settlements made during the period     |                |        | (2,527 | )
|                           |                                        |                |       
|Balance, December 31, 2003 |                                        | $              | 1,835  |       
|Add: Payments received     |                                        |                | 5,992  |       
|                           | Costs incurred under service contracts |                |        | 3,526  |  
|Less: Revenue recognized   |                                        |                | (4,891 | )     
|                           | Settlements made during the period     |                |        | (3,526 | )
|                           |                                        |                |       
|Balance, December 31, 2004 |                                        | $              | 2,936  |       
|                           |                                        |                |       



|   |               
|-- | --------------
|7. | Line of Credit



F-16



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies



| |                  
| | -----------------
| | Lease Obligations



|                                                           |  |                |        |   |      |   |        |  
|---------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                           |  | 2004           |        |   | 2003 |  
|                                                           |  |                |        |   |      |  
|                                                           |  | (In thousands) |       
|Leased equipment (Primarily office equipment and software) |  | $              | 1,738  |   |      | $ | 1,656  |  
|Accumulated amortization                                   |  |                | (1,601 | ) |      |   | (1,580 | )
|                                                           |  |                |        |   |      |  
|                                                           |  | $              | 137    |   |      | $ | 76     |  
|                                                           |  |                |        |   |      |  









|                |                                                |                |    |    |           |   |       |  | 
|--------------- | ---------------------------------------------- | -------------- | -- | -- | --------- | - | ----- |  | 
|                |                                                | Capital        |    |    | Operating |  
|                |                                                | Leases         |    |    | Leases    |  
|                |                                                |                |    |    |           |  
|                |                                                | (In thousands) |   
|2005            |                                                | $              | 21 |    |           | $ | 992   | 
|2006            |                                                |                | 31 |    |           |   | 960   | 
|2007            |                                                |                |   |    |           |   | 882   | 
|2008            |                                                |                |   |    |           |   | 838   | 
|2009 and beyond |                                                |                |   |    |           |   | 3,001 | 
|                |                                                |                |    |    |           |  
|                |                                                | $              | 52 |    |           | $ | 6,673 | 
|                |                                                |                |    |    |           |  
|                | Less amount representing interest              |                |    | (1 | )         |   |       |  | 
|                |                                                |                |    |    |           |  
|                | Present value of future minimum lease payments |                |    | 51 |           |   |       |  | 
|                |                                                |                |    |    |           |  
|                | Less current portion                           |                |    | 21 |           |   |       |  | 
|                |                                                |                |    |    |           |  
|                |                                                | $              | 30 |    |           |   |       | 
|                |                                                |                |    |    |           |  



| |                 
| | ----------------
| | Indemnifications





F-17



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |              
| | -------------
| | Contingencies





|   |                                    
|-- | -----------------------------------
|9. | Convertible Subordinated Debentures







|    |                     
|--- | --------------------
|10. | Shareholders Equity





| |         
| | --------
| | Warrants





| |                       
| | ----------------------
| | 1994 Stock Option Plan





F-18



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | 1999 Retention Stock Option Plan







| |                       
| | ----------------------
| | 2004 Stock Option Plan







| |                              
| | -----------------------------
| | Directors Stock Option Plans



F-19



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |  |             |            |   |                  |   |       | 
|-------------------------- |  | ----------- | ---------- | - | ---------------- | - | ----- | 
|                           |  | Options     |            |   | Weighted Average |  
|                           |  | Outstanding |            |   | Exercise Price   |  
|                           |  |             |            |   |                  |  
|Balance, January 1, 2002   |  |             | 3,188,405  |   |                  | $ | 1.73  | 
|Granted                    |  |             | 572,800    |   |                  | $ | 4.44  | 
|Exercised                  |  |             | (603,266   | ) |                  | $ | 1.42  | 
|Canceled                   |  |             | (302,623   | ) |                  | $ | 3.78  | 
|                           |  |             |            |   |                  |  
|Balance, December 31, 2002 |  |             | 2,855,316  |   |                  | $ | 2.12  | 
|Granted                    |  |             | 556,583    |   |                  | $ | 8.50  | 
|Exercised                  |  |             | (740,841   | ) |                  | $ | 1.49  | 
|Canceled                   |  |             | (77,701    | ) |                  | $ | 3.53  | 
|                           |  |             |            |   |                  |  
|Balance, December 31, 2003 |  |             | 2,593,357  |   |                  | $ | 3.63  | 
|Granted                    |  |             | 337,250    |   |                  | $ | 24.49 | 
|Exercised                  |  |             | (1,407,038 | ) |                  | $ | 2.09  | 
|Canceled                   |  |             | (66,076    | ) |                  | $ | 14.78 | 
|                           |  |             |            |   |                  |  
|Balance, December 31, 2004 |  |             | 1,457,493  |   |                  | $ | 9.44  | 
|                           |  |             |            |   |                  |  



|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |           |                    
|                         |  |                     |           |           | Options Exercisable | 
|                         |  |                     |           | Weighted  |                     |  |          |          |  |  
|                         |  |                     |           | Average   |                     |  | Weighted |          |  |   |             | Weighted | 
|                         |  |                     |           | Remaining |                     |  | Average  |          |  |   |             | Average  | 
|                         |  | Number              |           |           | Contractual         |  |          | Exercise |  |   | Number      |          |  | Exercise |        
|Range of Exercise Prices |  | Outstanding         |           |           | Life (Years)        |  |          | Price    |  |   | Exercisable |          |  | Price    |        
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |        
|$ 1.03-$ 1.50            |  |                     | 68,075    |           |                     |  | 4.05     |          |  | $ | 1.46        |          |  |          | 66,844  |  |  | $ | 1.46  | 
|$ 1.60-$ 1.60            |  |                     | 148,675   |           |                     |  | 1.55     |          |  | $ | 1.60        |          |  |          | 93,260  |  |  | $ | 1.60  | 
|$ 1.62-$ 3.50            |  |                     | 169,450   |           |                     |  | 2.87     |          |  | $ | 2.36        |          |  |          | 116,065 |  |  | $ | 2.10  | 
|$ 3.66-$ 4.52            |  |                     | 178,138   |           |                     |  | 4.29     |          |  | $ | 4.18        |          |  |          | 86,052  |  |  | $ | 4.16  | 
|$ 4.65-$ 5.05            |  |                     | 181,966   |           |                     |  | 3.18     |          |  | $ | 4.90        |          |  |          | 60,512  |  |  | $ | 4.90  | 
|$ 5.25-$ 7.53            |  |                     | 135,802   |           |                     |  | 2.47     |          |  | $ | 5.55        |          |  |          | 60,985  |  |  | $ | 5.50  | 
|$ 9.91-$ 9.91            |  |                     | 219,592   |           |                     |  | 3.64     |          |  | $ | 9.91        |          |  |          | 63,480  |  |  | $ | 9.91  | 
|$14.33-$16.42            |  |                     | 30,732    |           |                     |  | 3.87     |          |  | $ | 15.38       |          |  |          | 16,254  |  |  | $ | 16.03 | 
|$21.33-$24.42            |  |                     | 237,538   |           |                     |  | 8.34     |          |  | $ | 22.09       |          |  |          | 15,564  |  |  | $ | 23.44 | 
|$31.20-$31.25            |  |                     | 87,525    |           |                     |  | 9.78     |          |  | $ | 31.22       |          |  |          | 5,584   |  |  | $ | 31.25 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |        
|$ 1.03-$31.25            |  |                     | 1,457,493 |           |                     |  | 4.41     |          |  | $ | 9.44        |          |  |          | 584,600 |  |  | $ | 4.98  | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |        

1999 Employee Stock Purchase
Plan




F-20



---



##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                     
|--- | ------------------------------------
|11. | Employee Savings and Investment Plan





|    |             
|--- | ------------
|12. | Income Taxes



|                                                |  |      |        |  |      |   |       |      |  |   |     |  
|----------------------------------------------- |  | ---- | ------ |  | ---- | - | ----- | ---- |  | - | --- | -
|                                                |  | 2004 |        |  | 2003 |   |       | 2002 | 
|                                                |  |      |        |  |      |   |       |      | 
|United States income before provision for taxes |  | $    | 14,894 |  |      | $ | 3,077 |      |  | $ | 455 |  
|Foreign income before provision for taxes       |  |      | 785    |  |      |   | (358  | )    |  |   | (46 | )
|                                                |  |      |        |  |      |   |       |      | 
|Net income before provision for taxes           |  | $    | 15,679 |  |      | $ | 2,719 |      |  | $ | 409 |  
|                                                |  |      |        |  |      |   |       |      | 



|                                 |  |      |     |  |      |   |     |      |  |   |    | 
|-------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | -- | 
|                                 |  | 2004 |     |  | 2003 |   |     | 2002 | 
|                                 |  |      |     |  |      |   |     |      | 
|Current:                         |  |      |     |  |      |   |     |      |  |   |    | 
|Federal taxes                    |  | $    | 613 |  |      | $ | 91  |      |  | $ |   | 
|State taxes                      |  |      | 144 |  |      |   | 35  |      |  |   | 16 | 
|Foreign taxes                    |  |      | 183 |  |      |   | 76  |      |  |   | 70 | 
|                                 |  |      |     |  |      |   |     |      | 
|Total Provision for Income Taxes |  | $    | 940 |  |      | $ | 202 |      |  | $ | 86 | 
|                                 |  |      |     |  |      |   |     |      | 



|                                           |  |      |        |   |      |   |        |      |  |   |      |  
|------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ---- | -
|                                           |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                           |  |      |        |   |      |   |        |      | 
|Computed expected tax                      |  | $    | 5,488  |   |      | $ | 951    |      |  | $ | 143  |  
|Operating loss with no carryback benefit   |  |      |       |   |      |   | 252    |      |  |   | 95   |  
|Benefit of net operating loss carryforward |  |      | (5,098 | ) |      |   | (1,055 | )    |  |   | (213 | )
|State income tax                           |  |      | 94     |   |      |   | 35     |      |  |   | 16   |  
|Foreign taxes in excess of U.S. rate       |  |      | 177    |   |      |   | (53    | )    |  |   | (9   | )
|Other                                      |  |      | 279    |   |      |   | 72     |      |  |   | 54   |  
|                                           |  |      |        |   |      |   |        |      | 
|Provision for income taxes                 |  | $    | 940    |   |      | $ | 202    |      |  | $ | 86   |  
|                                           |  |      |        |   |      |   |        |      | 

F-21



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |                                                                           |      |         |        |      |   |         |       | 
|------------------------- | ------------------------------------------------------------------------- | ---- | ------- | ------ | ---- | - | ------- | ----- | 
|                          |                                                                           | 2004 |         |        | 2003 |  
|                          |                                                                           |      |         |        |      |  
|Deferred tax assets:      |                                                                           |      |         |        |      |   |         |      
|                          | Net operating loss carry forwards                                         |      | $       | 17,645 |      |   | $       | 8,505 | 
|                          | General business credit carry forwards                                    |      |         | 1,732  |      |   |         | 2,483 | 
|                          | Inventory reserves and adjustments                                        |      |         | 1,072  |      |   |         | 1,243 | 
|                          | Other accruals and reserves not currently deductible for tax
    purposes |      |         | 1,708  |      |   |         | 2,012 | 
|                          | Capitalized research and development                                      |      |         | 321    |      |   |         | 497   | 
|                          | Depreciation & amortization                                               |      |         | 386    |      |   |         | 969   | 
|                          |                                                                           |      |         |        |      |  
|Total deferred tax assets |                                                                           |      | 22,864  |        |      |   | 15,709  |      
|Less valuation allowance  |                                                                           |      | (22,864 | )      |      |   | (15,709 | )    
|                          |                                                                           |      |         |        |      |  
|Net deferred tax asset    |                                                                           | $    |        |        |      | $ |        |      
|                          |                                                                           |      |         |        |      |  













F-22



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|13. | Financial Instruments With Market Risk and Concentrations of
    Customer and Credit Risk











F-23



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                     
|--- | --------------------------------------------------------------------
|14. | Consolidated Quarterly Statement of Operations Data
    (Unaudited):

|                             |  |                                       |        |  |          |   |        |          |  |   |          |  |  |   |        | 
|---------------------------- |  | ------------------------------------- | ------ |  | -------- | - | ------ | -------- |  | - | -------- |  |  | - | ------ | 
|                             |  | Three Months Ended                    |       
|                             |  |                                       |       
|                             |  | Mar. 31,                              |        |  | Jun. 30, |   |        | Sep. 30, |  |   | Dec. 31, | 
|                             |  |                                       |        |  |          |   |        |          |  |   |          | 
|                             |  | (In thousands, except per share data) |       
|2004                         |  |                                       |        |  |          |   |        |          |  |   |          |  |  |   |        | 
|Net revenues                 |  | $                                     | 18,750 |  |          | $ | 21,434 |          |  | $ | 24,156   |  |  | $ | 29,430 | 
|Gross margin                 |  |                                       | 10,669 |  |          |   | 12,329 |          |  |   | 14,407   |  |  |   | 17,250 | 
|Net income                   |  |                                       | 2,214  |  |          |   | 2,988  |          |  |   | 4,353    |  |  |   | 5,184  | 
|Basic net income per share   |  |                                       | 0.11   |  |          |   | 0.14   |          |  |   | 0.20     |  |  |   | 0.24   | 
|Diluted net income per share |  |                                       | 0.10   |  |          |   | 0.13   |          |  |   | 0.19     |  |  |   | 0.23   | 
|2003                         |  |                                       |        |  |          |   |        |          |  |   |          |  |  |   |        | 
|Net revenues                 |  | $                                     | 12,456 |  |          | $ | 12,862 |          |  | $ | 14,293   |  |  | $ | 17,816 | 
|Gross margin                 |  |                                       | 6,335  |  |          |   | 6,522  |          |  |   | 7,577    |  |  |   | 9,652  | 
|Net income                   |  |                                       | 135    |  |          |   | 348    |          |  |   | 533      |  |  |   | 1,501  | 
|Basic net income per share   |  |                                       | 0.01   |  |          |   | 0.02   |          |  |   | 0.03     |  |  |   | 0.08   | 
|Diluted net income per share |  |                                       | 0.01   |  |          |   | 0.02   |          |  |   | 0.02     |  |  |   | 0.07   | 

Earnings
Per Share


F-24



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##### Table of Contents






SCHEDULE II


LASERSCOPE


VALUATION AND QUALIFYING ACCOUNTS


|                                             |                              |                |   |        |           |  |   |            |            |  |        |       |  |  |   |        | 
|-------------------------------------------- | ---------------------------- | -------------- | - | ------ | --------- |  | - | ---------- | ---------- |  | ------ | ----- |  |  | - | ------ | 
|                                             |                              | Balance at     |   |        |           |  |   |            | Balance at | 
|                                             |                              | Beginning      |   |        |           |  |   |            | End of     | 
|Descriptions                                 |                              | of Period      |   |        | Additions |  |   | Deductions |            |  | Period |      
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             |                              | (In thousands) |  
|Allowance for doubtful accounts receivable:  |                              |                |   |        |           |  |   |            |            |  |        |       |  |  |   |       
|                                             | Year ended December 31, 2002 |                | $ | 374    |           |  | $ | 115        |            |  | $      | 186   |  |  | $ | 303    | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2003 |                | $ | 303    |           |  | $ | 93         |            |  | $      | 127   |  |  | $ | 268    | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2004 |                | $ | 268    |           |  | $ | 229        |            |  | $      | 394   |  |  | $ | 104    | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|Reserve for excess and obsolete inventory:   |                              |                |   |        |           |  |   |            |            |  |        |       |  |  |   |       
|                                             | Year ended December 31, 2002 |                | $ | 2,514  |           |  | $ | 134        |            |  | $      | 357   |  |  | $ | 2,291  | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2003 |                | $ | 2,291  |           |  | $ | 288        |            |  | $      | 713   |  |  | $ | 1,866  | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2004 |                | $ | 1,866  |           |  | $ | 151        |            |  | $      | 224   |  |  | $ | 1,793  | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|Valuation allowance for deferred tax assets: |                              |                |   |        |           |  |   |            |            |  |        |       |  |  |   |       
|                                             | Year ended December 31, 2002 |                | $ | 17,070 |           |  | $ |           |            |  | $      | 1,300 |  |  | $ | 15,770 | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2003 |                | $ | 15,770 |           |  | $ |           |            |  | $      | 61    |  |  | $ | 15,709 | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      
|                                             | Year ended December 31, 2004 |                | $ | 15,709 |           |  | $ | 7,155      |            |  | $      |      |  |  | $ | 22,864 | 
|                                             |                              |                |   |        |           |  |   |            |            |  |        |      

S-1



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##### Table of Contents






EXHIBIT INDEX


|        |    |             |  |                                                                                                                                   
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .3          |  | Eighth Amended and Restated Articles of Incorporation of
    Registrant.(12)                                                      
|       
|        | 3  | .4          |  | By-laws of Registrant, as amended.(2)                                                                                             
|       
|        | 10 | .1A         |  | 1984 Stock Option Plan, as amended, and forms of Incentive Stock
    Option Agreement and Non-statutory Stock Option Agreement.(2)
|       
|        | 10 | .1B         |  | 1994 Stock Option Plan and forms of Incentive Stock Option
    Agreement and Non-statutory Stock Option Agreement.(3)             
|       
|        | 10 | .2          |  | 1984 Stock Purchase Plan and form of Common Stock Purchase
    Agreement.(1)                                                      
|       
|        | 10 | .3          |  | 1989 Employee Stock Purchase Plan and form of Subscription
    Agreement.(2)                                                      
|       
|        | 10 | .3A         |  | 1999 Employee Stock Purchase Plan and form of Subscription
    Agreement.(5)                                                      
|       
|        | 10 | .4          |  | 401(k) Plan.(1)                                                                                                                   
|       
|        | 10 | .6          |  | Net Lease Agreement between the Registrant and Realtec
    Properties dated June 20, 2000.(8)                                     
|       
|        | 10 | .6A         |  | Net Lease Agreement between the Registrant and Realtec
    Properties dated October 18, 2000.(8)                                  
|       
|        | 10 | .10         |  | Form of indemnification agreement.(1)                                                                                             
|       
|        | 10 | .11G        |  | Loan and Security Agreement between the Registrant and Silicon
    Valley Bank dated October 1, 1999.(5)                          
|       
|        | 10 | .11H        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 25, 2000.(7)          
|       
|        | 10 | .11I        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 26, 2001.(9)          
|       
|        | 10 | .11J        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 26, 2002.(11)         
|       
|        | 10 | .11K        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 25, 2003.(13)         
|       
|        | 10 | .11L        |  | Amendment to Loan and Security Agreement between the Registrant
    and Silicon Valley Bank dated September 24, 2004.(15)         
|       
|        | 10 | .13         |  | 1990 Directors Stock Option Plan and form of Option
    Agreement.(2)                                                            
|       
|        | 10 | .14         |  | Form of Laserscope Management Continuity Agreement, as
    amended.(6)                                                            
|       
|        | 10 | .14A        |  | Form of Laserscope Management Continuity Agreement, as
    amended.(10)                                                           
|       
|        | 10 | .14B        |  | Form of Laserscope Management Continuity Agreement, as
    amended.(14)                                                           
|       
|        | 10 | .18         |  | 1995 Directors Stock Option Plan and form of Option
    agreement.(4)                                                            
|       
|        | 10 | .18A        |  | 1999 Directors Stock Option Plan.(5)                                                                                             
|       
|        | 10 | .19         |  | Common Stock Placement Agreement.(5)                                                                                              
|       
|        | 10 | .19A        |  | Form of Common Stock Purchase Agreement.(5)                                                                                       
|       
|        | 10 | .20         |  | Convertible Loan Agreement.(5)                                                                                                    
|       
|        | 10 | .20A        |  | Amendment to Convertible Loan Agreement.(12)                                                                                      
|       
|        | 10 | .20B        |  | Amendment to Convertible Loan Agreement.(13)                                                                                      
|       
|        | 22 | .1          |  | Subsidiaries of Registrant, as amended.(8)                                                                                        
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.(16)                                                                     
|       
|        | 25 | .1          |  | Power of Attorney (See page 41).(16)                                                                                              
|       
|        | 31 | .1          |  | Certification of Principal Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(16)                   
|       
|        | 31 | .2          |  | Certification of Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(16)                   
|       
|        | 32 | .1          |  | Certification of Principal Executive Officer pursuant to
    18 U.S.C. section 1350.(16)                                          
|       
|        | 32 | .2          |  | Certification of Principal Financial Officer pursuant to
    18 U.S.C. section 1350.(16)                                          



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##### Table of Contents








| |     |                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 16(a), Exhibits, of the
    Registrants Registration Statement on Form S-1 and
    Amendment No. 1 and Amendment No. 2 thereto (File
    No. 33-31689), which became effective on November 29,
    1989.
|
| | (2) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1991.                                                                                         
|
| | (3) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1994.                                                                                         
|
| | (4) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K/ A for the
    year ended December 31, 1995.                                                                                      
|
| | (5) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1999.                                                                                         
|
| | (6) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2000.                                                                                 
|
| | (7) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2000.                                                                             
|
| | (8) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000.                                                                                         
|
| | (9) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001.                                                                             



|     |                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2002.    
|    
|(11) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2002.
|    
|(12) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 14(a)(3), Exhibits, of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2002.            
|    
|(13) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2003.
|    
|(14) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2004.    
|    
|(15) | Incorporated by reference to identically numbered exhibits filed
    in response to Item 6(a), Exhibits, of the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2004.
|    
|(16) | Filed herewith.