##### Table of Contents



________________________________________________________________________________


UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K






|  |                                                 
|- | ------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31,
2001

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)


Registrants telephone number, including
area code: (408) 943-0636



---

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)




---

Indicate
by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.     YES x     NO  o

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

The
aggregate market value of the Registrants voting and
non-voting common equity held by non-affiliates of the
Registrant was approximately $49,727,199 as of March 8,
2002, based upon the closing sale price on the NASDAQ National
Market System reported for such date. Shares of Common Stock
held by each officer and director and by each person who owns 5%
of more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.

There
were 16,214,813 shares of Registrants Common Stock issued
and outstanding as of March 8, 2002.









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TABLE OF CONTENTS



|             |                                                                                              |  |  |  |  |  |  | 
|------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|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 6.Selected Financial Data                                                              
|             | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | Item 8.Financial Statements and Supplementary Data                                          
|             | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|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                                      
|PART IV     
|             | Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EXHIBIT 23.1
|EXHIBIT 23.2



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DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K
incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Shareholders to be held on
June 21, 2002.

INTRODUCTORY STATEMENT, RISK FACTORS AND
REFERENCES

Some of the statements in this Annual Report on
Form 10-K (Form 10-K), including but not
limited to the Risk Factors, Managements
discussion and analysis of financial condition and results of
operations, Business and elsewhere in this
document are forward-looking statements within the meaning of
the Private Securities Litigation Act of 1995. These statements
relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements
to be materially different from those expressed or implied by
any forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
may, will, could,
would, should, expect,
plan, anticipate, intend,
believe, estimate, predict,
potential or continue or the negative of
these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ
materially. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those
statements. We are under no duty to update any of the
forward-looking statements after the date of this document to
reflect the occurrence of unanticipated events.

RISK FACTORS

Our business, financial condition and results of
operations have been, and in the future may be, affected by a
variety of factors, including those set forth below and
elsewhere in this report.

Limited Working Capital; Potential Need to
Raise Additional Capital.

As of December 31, 2001, our total assets
were $25.5 million and our total liabilities were
$12.1 million. As of the same date, our working capital was
$13.3 million and our cash and cash equivalents totaled
$3.4 million. Current and anticipated demand for our
products as well as procurement and production affect our need
for capital. Changes in these or other factors could have a
material impact on capital requirements and may require us to
raise additional capital.

For example, to address our capital needs, on
January 14, 2000 we completed a private placement of our
common stock providing net proceeds of approximately
$1.8 million to accredited investors. We issued
2.5 million shares of our no par value Common Stock at a
price of $0.80 per share. We also issued warrants to purchase
218,875 shares of our Common Stock.

Similarly, on February 11, 2000, we
completed a private placement of subordinate convertible
debentures to affiliates of Renaissance Capital Group, Inc.,
with net proceeds to us of approximately $2.9 million. The
debentures mature seven years from issuance and bear an interest
rate of 8.00%. The debentures are convertible into Laserscope
common stock at an initial conversion price of $1.25, which is
subject to adjustment. The private placement also included
warrants convertible into 240,000 shares of our common stock.

There are covenants associated with the
debentures for debt-to-equity ratio, current ratio, and interest
coverage. In the event that we are unable to satisfy any of
these covenants, then we would be in default and the lender
would have the right to exercise various remedies including
declaring due all outstanding principal and interest. The
interest coverage ratio requirement is 1.5 for the trailing
twelve months, and as of December 31, 2001 our interest
coverage was 1.7. Future ability to meet the interest coverage
requirement will depend primarily on our ability to generate
profits. The debt-to-equity requirement is a maximum of 1.5, and
the current ratio requirement is a minimum of 1.0. As of
December 31, 2001 we were in compliance with the provisions
of the covenants.

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In 2001, except for shares issued through the
Companys Employee Stock Purchase Plan and the Incentive
Stock Option Plans, no additional capital was raised through
issuance of either equity or debt instruments.

We anticipate that future changes in cash and
working capital will be dependent on a number of factors
including:



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | 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 have historically financed acquisitions using
our existing cash resources. While we believe our existing cash
resources, including our bank line of credit, will be sufficient
to fund our operating needs for the next twelve months,
additional financing will be required for our currently
envisioned long term needs.

There also can be no assurance that any
additional financing will be available on terms acceptable to
us, or at all. In addition, future equity financings could
result in dilution to our shareholders, and future debt
financings could result in certain financial and operational
restrictions.

History of Losses; Uncertainty of Future
Profitability.

At December 31, 2001, we had an accumulated
deficit of $39.8 million. We reported a net loss of
$0.8 million for the year ended December 31, 2001, net
income of $0.2 million for the year ended December 31,
2000, and a net loss of $7.6 million for the year ended
December 31, 1999. There can be no assurance that we can
achieve or maintain profitability on a quarterly basis or at all.

Government Regulation; Uncertainty of
Obtaining Regulatory Approval.

Government regulation in the United States and
other countries is a significant factor in the development,
manufacturing and marketing of many of our products.

Laserscope and its products are regulated in the
United States by the FDA under the Federal Food, Drug and
Cosmetic Act (the FDC Act) and the Radiation Control
for Health and Safety Act. The FDC Act provides two basic review
procedures for medical devices. Certain products qualify for a
Section 510(k) (510(k)) procedure under which
the manufacturer gives the FDA pre-market notification of the
manufacturers intention to commence marketing the product.
The manufacturer must, among other things, establish that the
product to be marketed is substantially equivalent
to a previously marketed product. In some cases, the
manufacturer may be required to include clinical data gathered
under an investigational device exemption (IDE)
granted by the FDA allowing human clinical studies.

There can be no assurance that the FDA will grant
marketing clearance for our future products on a timely basis,
or at all.

If the product does not qualify for the 510(k)
procedure, the manufacturer must file a pre-market approval
application (PMA) based on testing intended to
demonstrate that the product is both safe and effective. The PMA
requires more extensive clinical testing than the 510(k)
procedure and generally involves a significantly longer FDA
review process. Approval of a PMA allowing commercial sale of a
product requires pre-clinical laboratory and animal tests and
human clinical studies conducted under an IDE establishing
safety and effectiveness. Generally, because of the amount of
information required, the 510(k) procedure takes less time than
the PMA procedure.

To date, all of our products (except for the 600
Series Dye Module) have been marketed through the 510(k)
procedure. Future products, however, may require clearance
through the PMA procedure. There can be no assurance that such
marketing clearances can be obtained on a timely basis, or at
all. Delays in receiving

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such clearances could have a significant adverse
impact on our ability to compete in our industry. The FDA may
also require post-market testing and surveillance programs to
monitor certain products.


Certain other countries require medical device
manufacturers to obtain clearances for products prior to
marketing the products in those countries. The requirements vary
widely from country to country and are subject to change.

We are also required to register with the FDA and
state agencies, such as the Food and Drug Branch of the
California Department of Health Services (CDHS), as a medical
device manufacturer. We are inspected routinely by these
agencies to determine our compliance with the FDAs current
Good Manufacturing Practice regulations. Those
regulations impose certain procedural and documentation
requirements upon medical device manufacturers concerning
manufacturing, testing and quality control activities. If these
inspections determine violations of applicable regulations, the
continued marketing of any products manufactured by us may be
adversely affected.

In addition, our laser products are covered by a
performance standard for laser products set forth in FDA
regulations. The laser performance standard imposes certain
specific record-keeping, reporting, product testing, and product
labeling requirements on laser manufacturers. These requirements
also include affixing warning labels to laser systems, as well
as incorporating certain safety features in the design of laser
products.

Complying with applicable governmental
regulations and obtaining necessary clearances or approvals can
be time consuming and expensive. There can be no assurance that
regulatory review will not involve delays or other actions
adversely affecting the marketing and sale of our products. We
also cannot predict the extent or impact of future legislation
or regulations.

We are also subject to regulation under federal
and state laws regarding, among other things, occupational
safety, the use and handling of hazardous materials and
protection of the environment. We believe that we are in
material compliance with these requirements.

Insurance Reimbursement.

Demand for certain of our products depends on
government and private insurance reimbursement of hospitals and
physicians for health care costs, including, but not limited to,
reimbursement of capital equipment costs. Reductions or delays
in such insurance coverage or reimbursement may negatively
impact hospitals and physicians decision to purchase
our products, adversely affecting our future sales. A
substantial portion of our laser sales are for aesthetic
procedures that are generally not subject to reimbursement by
government or private health insurance. The general absence of
insurance coverage for these cosmetic procedures may restrict
the development of this market.

Uncertainty of Technological Change;
Uncertainty of New Product Development and Acceptance.

We operate in an industry that is subject to
rapid technological change. Our ability to remain competitive
and future operating results will depend upon, among other
things, our ability to anticipate and respond rapidly to such
change by developing, manufacturing and marketing
technologically innovative products in sufficient quantities at
acceptable costs to meet such demand. Without new products and
enhancements, our existing products will likely become
technologically obsolete, which could result in the write-off of
inventory as well as diminished revenues. Therefore, we intend
to continue to invest significant amounts in research and
development.

Our expenditures for research and development
were approximately $3.8 million, $3.3 million and
$4.5 million in 2001, 2000 and 1999, respectively. We
anticipate that our ability to compete will require significant
research and development expenditures with a continuing flow of
innovative, high-quality products. We cannot assure that we will
be successful in designing, manufacturing or selling enhanced or
new products in a timely manner. Nor can we assure that a
competitor could not introduce a new or enhanced product or
technology that could have an adverse effect on our competitive
position.

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Our current research and development programs are
directed toward the development of new laser systems and
delivery devices. For example, we are currently developing new
laser systems for the emerging aesthetic market and the urology
market. We cannot assure that these markets will develop as
anticipated or that our product development efforts will prove
successful. Nor can we assure that such new products, if
developed and introduced, will be accepted by the market.

Dependence on Single-Source Suppliers and
Certain Third Parties.

Certain of the components used in our laser
products, including certain optical components, are purchased
from single sources. While we believe that most of these
components are available from alternate sources, an interruption
of these or other supplies could adversely affect our ability to
manufacture lasers.

Competition.

We compete in the non-ophthalmic surgical segment
of the worldwide medical laser market. In this market, lasers
are used in hospital operating rooms, outpatient surgery centers
and individual physician offices for a wide variety of
procedures. This market is highly competitive. Our competitors
are numerous and include some of the worlds largest
organizations as well as smaller, highly-specialized firms. Our
ability to compete effectively depends on such factors as:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | 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.

Some of our current and prospective competitors
have or may have significantly greater financial, technical,
research and development, manufacturing and marketing resources
than we have. In 2001, two of our largest competitors, ESC
Medical Systems (ESC) and Coherent Medical,
completed a business combination. To compete effectively, we
will need to continue to expand our product offerings,
periodically enhance our existing products and continue to
enhance our distribution.

Certain surgical laser manufacturers have
targeted their efforts on narrow segments of the market, such as
angioplasty and lithotripsy. Their products may compete for the
same capital equipment funds as our products, and accordingly,
these manufacturers may be considered our competitors. More
generally, surgical laser manufacturers such as Laserscope
compete with standard surgical methods and other medical
technologies and treatment modalities. We cannot assure that we
can compete effectively against such competitors. In addition,
we cannot assure that these or other companies will not succeed
in developing technologies, products or treatments that are more
effective than ours or that would render our technology or
products obsolete or non-competitive.

Reliance on Patents and Licenses.

We hold several patents issued in the United
States, generally covering surgical laser systems, delivery
devices, calibration inserts, the laser resonator and the
connector used to attach disposable and reusable instrumentation
to our laser systems. We have also licensed certain technologies
from others.

We cannot assure that any patents or licenses
that we hold or that may be issued as a result of our patent
applications will provide any competitive advantages for our
products. Nor can we assure that any of the patents that we now
hold or may hold in the future will not be successfully
challenged, invalidated or circumvented in the future. In
addition, we cannot assure that competitors, many of which have
substantial resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with our ability
to make, issue, use and sell our products.

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Failure to Attract or Retain Key Personnel Can
Adversely Affect Results.

We depend upon the efforts and abilities of a
number of current key personnel. If we are unable to attract and
retain key employees it would have a material adverse effect on
our business, financial condition, results of operations, and
future cash flows.

Reliance on Key Customers

In December 2000, Laserscope and McKesson
Corporation (McKesson) entered into a five year
agreement whereby McKesson would obtain exclusive distribution
rights for the Companys aesthetic product lines to
doctors offices in the United States. During 2001,
aesthetic product sales in the United States accounted for
approximately 34% of our total revenues and at December 31,
2001, accounts receivable from McKesson accounted for
approximately 16% of our total accounts receivable. If we are
unable to maintain a favorable relationship with McKesson or if
McKesson encounters financial difficulties, it would have a
material adverse effect on our business, financial condition,
results of operations, and future cashflows.

Fluctuations in Quarterly Operating
Results.

A number of factors affect our quarterly
financial results including the timing of shipments and orders.
Our laser products are relatively expensive pieces of medical
capital equipment and the precise shipment date of specific
units can have a marked effect on our results of operations on a
quarterly basis. Any delay in product shipments near the end of
a quarter could cause our quarterly results to fall short of
anticipated levels. Furthermore, to the extent we receive orders
near the end of a quarter, we may not be able to fulfill the
order during the balance of that same quarter. Moreover, we
typically receive a disproportionate percentage of orders toward
the end of each quarter. From time to time, we may also request
that our distributors purchase additional product near the end
of a quarter. To the extent that we do not receive anticipated
orders or orders are delayed beyond the end of the applicable
quarter, our results may be adversely affected and may be
unpredictable from quarter to quarter. In addition, because a
significant portion of our revenues in each quarter result from
orders received in that quarter, we base our production,
inventory and operating expenditure levels on anticipated
revenue levels. Thus, if sales do not occur when expected,
expenditure levels could be disproportionately high and
operating results for that quarter and potentially future
quarters, would be adversely affected. We cannot assure that
Laserscope will accomplish revenue growth or profitability on a
quarterly or annual basis. Nor can we assure that revenue growth
or profitability will not fluctuate significantly from quarter
to quarter.

Product Liability Risk; Limited Insurance
Coverage.

Our business has significant risks of product
liability claims. We have experienced product liability claims
from time to time, which we believe are ordinary for our
business. While we cannot predict or determine the outcome of
the actions brought against us, we believe that these actions
will not ultimately have a material adverse impact on
Laserscopes financial position, results of operations, and
future cash flows.

At present, we maintain product liability
insurance on a claims made basis with coverage of
$10.0 million in the aggregate with a deductible of
$0.1 million per occurrence and an annual maximum aggregate
deductible of $0.5 million. We cannot assure that such
insurance coverage will be available to us in the future at a
reasonable cost, if at all. Nor can we assure that other claims
will not be brought against us in excess of our insurance
coverage.

Factors Affecting Financial Results and Stock
Price.

A number of factors affect our financial results
and stock price including, but not limited to:



| |   |                               
| | - | ------------------------------
| |  | product mix;                  
|
| |  | competitive pricing pressures;
|
| |  | material costs;               

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| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | revenue and expenses related to new products and
	enhancements to existing products;                                                                                           
|
| |  | 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.

The market price of our common stock may be
subject to significant fluctuations. These fluctuations may be
due to factors specific to Laserscope, such as:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | 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.                                                

The stock market has from time to time
experienced extreme price and volume fluctuations, particularly
among stocks of high technology companies, which, on occasion,
have been unrelated to the operating performance of particular
companies. Factors not directly related to Laserscopes
performance, such as negative industry reports or disappointing
earnings announcements by publicly traded competitors, may have
an adverse impact on the market price of our common stock.

As of March 8, 2002, we had 16,214,813
shares of outstanding common stock. The sale of a substantial
number of shares of common stock or the perception that such
sales could occur, could adversely affect prevailing market
prices for our common stock.

International Business.

Our international revenues were 35% of total
revenues in the year ended December 31, 2001, compared to
38% of total revenues during the comparable period in 2000. Our
international sales are made through international distributors
and wholly-owned subsidiaries with payments to us typically
denominated in the local currencies of the United Kingdom and
France, and in U.S. Dollars in the rest of the world. We
intend to continue our operations outside of the United States
and potentially to enter additional international markets, These
activities, require significant management attention and
financial resources and further subject us to the risks of
operating internationally. These risks include, but are not
limited to:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | 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.                             

We are also subject to general geopolitical risks
in connection with our international operations, such as:



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

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In addition, fluctuations in currency exchange
rates may negatively affect our ability to compete in terms of
price against products denominated in local currencies.

Accordingly, our future results could be
materially adversely affected by changes in these regulatory,
geopolitical and other factors.

We do not engage in hedging transactions for
speculative or trading purposes.

Legal Proceedings.

Laserscope is a party to a number of legal
proceedings arising in the ordinary course of business. While it
is not feasible to predict or determine the outcome of the
actions brought against us, we believe that the ultimate
resolution of these claims will not ultimately have a material
adverse effect on Laserscopes financial position or
results of operations.

Interest Rate Risk.

Laserscopes exposure to market rate risk
for changes in interest rates relates primarily to our
outstanding debt. In 2001, 2000, and 1999 we did not use
derivative financial instruments. We invest excess cash in money
market funds. Our debt financing consists of convertible
debentures and bank loans requiring either fixed or variable
rate interest payments. Investments in and borrowings under both
fixed-rate and floating-rate interest-earning instruments carry
a degree of interest rate risk. On the investment side,
fixed-rate securities may have their fair market value adversely
affected due to a rise in interest rates, while floating-rate
securities may produce less income than expected if interest
rates fall. In addition, our future investment income may fall
short of securities analyst expectations due to changes in
interest rates, or we may suffer losses in principal if forced
to sell securities which have declined in market value due to
changes in interest rates. On the debt side, borrowings that
require fixed-rate interest payments require greater than
current market rate interest payments if interest rates fall,
while floating rate borrowings may require greater interest
payments if interest rates rise. Additionally, our future
interest expense may be greater than expected due to changes in
interest rates.

Warranty Obligations.

We have a direct field service organization that
provides service for our products. We generally provide a twelve
month warranty on our laser systems. After the warranty period,
maintenance and support is provided on a variety of service
contract bases or on an individual call basis. We also have a
99.0% Uptime Guarantee on our laser systems.
Under provisions of this guarantee, we extend the term of the
related warranty or service contract if specified system uptime
levels are not maintained. Although most systems covered by this
guarantee have achieved a 99.0% uptime rate to date, we cannot
assure that we can maintain such uptime rates in the future.

No Dividends.

We have never paid cash dividends on our common
stock and do not anticipate paying cash dividends on the common
stock in the foreseeable future. The payment of dividends on the
common stock will depend on our earnings, financial condition
and other business and economic factors affecting us at such
time as the Board of Directors may consider relevant.

Penny Stock Rules.

Our common stock is traded on the National
Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System, which requires that
a company have a minimum bid price of $1.00 in order to qualify
for continued listing. Our low bid price in 2001 for each of the
quarters March 31, June 30, September 30 and
December 31 was $0.94, $0.90, $1.35 and $ 1.38,
respectively, and our last traded price on March 8, 2002
was $3.63. If we fail to maintain our listing for our common
stock on the NASDAQ National Market System, and no other
exclusion from the definition of penny stock under
the Exchange Act is available, any brokers engaging in
transactions in our securities would be required to provide
their customers

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with a risk disclosure document, the compensation
of the broker/dealer in the transaction and monthly account
statements showing the market values of our securities held in
the customers accounts. The bid and offer quotations and
compensation information must be provided prior to effecting the
transaction and must be contained on the customers
confirmation. If brokers become subject to the penny
stock rules when engaging in transactions in our
securities, they would become less willing to engage in such
transactions, thereby making it more difficult for shareholders
to dispose of their shares of Laserscope common stock.


Dilution.

Shareholders may experience dilution in the net
tangible book value of their investment upon the exercise of
outstanding options and warrants granted under Laserscopes
stock option plans and other options, warrants and outstanding
convertible securities.

Other.

Other risks are detailed from time to time in our
press releases and other public disclosure filings with the
U.S. Securities and Exchange Commission (SEC),
copies of which are available upon request from the Company.

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REFERENCES

References made in this Report to
Laserscope, the Company, the
Registrant, We, Us, or
Our refer to Laserscope and its subsidiaries.
References made in the Report to NWL refer to NWL
Laser-Technologie GmbH.

The following are registered trademarks of
Laserscope which may be mentioned in this report:



| |   |            
| | - | -----------
| |  | Laserscope;
|
| |  | Dermastat; 
|
| |  | KTP/532;   
|
| |  | KTP/ YAG;  
|
| |  | 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;      |  |  Niagara;       
| Aura SL;   |  |  Niagara PV;    
| Aura XP;   |  |  PVP;           
| Coolspot;  |  |  SmartConnector;
| Dermastat; |  |  StarPulse;     
| Endostat;  |  |  Venus;         
| Lyra.      |  |                  

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##### Table of Contents






PART I




Item 1. Business

General Overview of Business

Laserscope designs, manufactures, sells and
services, on a worldwide basis, an advanced line of medical
laser systems and related energy devices for the medical office,
outpatient surgical center and hospital markets. The Company is
a pioneer in the development and commercialization of lasers and
advanced fiber-optic devices for a wide variety of applications.
Our product portfolio consists of more than 350 products,
including KTP/532, CO2, Nd:YAG, Er:YAG, and Dye medical laser
systems and related energy delivery devices.

Our primary medical markets include dermatology,
aesthetic surgery and urology. Our secondary markets include
ear, nose and throat surgery, general surgery, gynecology,
photo-dynamic therapy and other surgical specialties.

Mission

Our corporate mission is to improve the quality
and cost effectiveness of health care by providing innovative
medical products and services.

History

Laserscope is a California corporation that was
founded in 1982 and shipped its first product in 1984. During
its initial years, the Company was funded by several venture
capital firms and by E.I. du Pont de Nemours &
Company. We received the first in a series of
U.S. regulatory clearances in 1987 and completed our
initial public offering in December 1989.

Market Focus

We entered the dermatology/aesthetic surgery
market in the mid 1990s with several, highly-versatile
laser systems. Our desktop-sized Aura Laser System is among the
industrys leading systems for the treatment of red leg and
facial veins. Our Aura SL is specifically designed for the
treatment of facial veins. Our Lyra and Lyra XP are
designed specifically for hair removal and for the treatment of
leg veins. Our Venus is engineered for skin resurfacing (wrinkle
removal) applications. As a percentage of total revenues in
2001, the dermatology/aesthetic surgery market accounted for
approximately 68% of revenues.

Our products are also used in several other
applications. Since the early 1990s, the ear, nose and
throat (ENT), gynecology (OB/GYN), general surgery and urology
specialties have continued to represent markets into which we
sell our broad range of laser systems and the majority of our
energy delivery devices and surgical instruments. As a
percentage of total revenues in 2001 these markets accounted for
approximately 32% of our total revenues.

Products

Laser
Platforms:

Our Niagara laser system is a KTP single
wavelength laser used for Photo Vaporization of the Prostate
(PVP), a procedure to treat benign prostatic
hyperplasia (BPH). BPH is a non-cancerous
enlargement of the prostate, the males walnut-size gland
located just below the bladder, which squeezes the urethra as it
grows and restricts the flow of urine. BPH is a condition which
increases in incidence as the male population ages, and it is
estimated that 30 million men worldwide have this condition.

Our Lyra and Lyra XP laser systems are compact
Nd:YAG, single wavelength lasers used primarily for hair removal
and leg vein treatments in doctors offices. These lasers
are approved by the FDA for hair removal on all skin color types
and were the first lasers approved by the FDA for treatment of
pseudo folliculitis barbae (PFB), commonly referred
to as shaving bumps, razor bumps or
ingrown hairs.

11



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##### Table of Contents



PFB is a condition that has an incidence
estimated from 20-60 percent in African American men and is
of particular concern in the military services.


Our Aura laser system is a compact, highly
portable, KTP/532 single wavelength laser designed for office
use. Its integrated StarPulse feature is designed for the
removal of benign vascular and pigmented surface lesions,
including leg and facial telangiectasia (spider-like veins). It
can also be used as a continuous wave laser for surgical
applications that include endoscopic blepharoplasty,
rhinoplasty, facelifts, tonsillectomy, wart removal and snoring
cessation.

Our Aura SL treats primarily facial spider veins,
including superficial pigmented lesions such as age spots. Its
special design provides greater patient comfort, quicker healing
and a lower price.

Our Orion Laser System is a mid-size, more
powerful system for outpatient surgical centers and hospitals.
It features dual KTP/532 and Nd:YAG wavelengths as well as
StarPulse. The range of applications includes ENT, OB/GYN,
urology, general surgery, neurosurgery, orthopedics, spine
surgery, aesthetic surgery and dermatology. Both the Aura and
Orion systems are available with SmartScan, a
microprocessor-controlled beam-scanning device.

Our Venus Erbium:YAG Laser System is among the
most compact and powerful, commercially available Erbium lasers
for skin resurfacing and other medical laser applications. Venus
is one-half the size and weight of most other Erbium systems on
the market.

Our 800 Series KTP/ YAG Surgical Laser
System is designed for use in hospitals. It is a high-power,
dual-wavelength system with applications in urology, general
surgery, and other surgical specialties. The KTP/532 beam
surgically cuts, vaporizes and coagulates tissue with minimal
disruption to adjacent areas. Cutting and vaporization are
achieved hemostatically, making the system effective for
endoscopic as well as open surgical procedures. Complementing
the KTP/532 beam is the Nd:YAG infrared beam which provides deep
coagulation and powerful ablative capabilities. The 800
Series System, which provides up to 40 watts of KTP/532
energy and 100 watts of Nd:YAG energy, can also serve as a base
laser system for Laserscopes PDT laser dye module,
enabling photo-dynamic therapy applications.

Laserscopes PDT systems include the Model
630 and 630XP PDT Dye Modules. The Model 630 Dye Module provides
3.2 watts of power while the Model 630 XP Dye Module provides
7.0 watts of power. Both systems operate at 630 nm for
photoactivation of Photofrin, a photo dynamic therapy drug, and
are portable and may be tunable to other wavelengths.

Laser
Devices, Instruments and Disposables:

We offer a broad line of surgical
instrumentation, disposables, kits and other accessories for use
with our surgical laser systems. These products include
disposable optical fibers, side-firing devices, individual
custom hand pieces for specific surgical applications, scanning
devices, micromanipulators for microscopic surgery and various
other devices, procedure-specific kits and accessories.

Our disposable optical fibers are available in
different lengths and diameters for different surgical
applications and preferences. The hand pieces, which are used to
hold and aim the optical fiber, give the doctor the feel of a
traditional surgical tool. When used in contact with body
tissue, they provide tactile feedback similar to conventional
surgery.

Sales and Marketing

We concentrate much of our marketing efforts for
our laser products on high volume surgical procedures such as
the treatment of BPH, facial vascular lesions, the treatment of
leg veins and hair removal. We believe that increased market
awareness of both the benefits of laser procedures and the
drawbacks of conventional procedures is one of the most
important factors in expanding the market for our laser and
laser-based products. As a result, we have designed our
marketing and sales strategy around a strong educational effort
to promote awareness of the versatility, safety, and
cost-effectiveness of our surgical laser systems.

12



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##### Table of Contents



We promote our products through trade shows and
exhibits covering most of the surgical specialties, physician
workshops and seminars, medical journal advertising and direct
mailings. We support and participate in a substantial number of
workshops and seminars. For laser products, the workshops
usually include a demonstration of our laser systems and provide
surgeons with hands-on experience using our products.

Distribution

In the United States, we distribute our products
to hospitals, outpatient surgical centers and physician offices
through our own direct sales force and through the McKesson
Corporation Medical Group, (McKesson). In December
2000, we signed a distribution agreement that grants to McKesson
the exclusive distribution rights for our core aesthetic laser
products in the United States. McKesson Medical Groups
Primary Care Division has a sales force of more than 500
representatives throughout the United States who are supported
by our own direct sales force.

In the United Kingdom and France, we distribute
our products to hospitals, outpatient surgical centers and
physician offices through our own direct sales force. Elsewhere,
we sell our products through regional distributor networks
throughout Europe, the Middle East, Latin America, Asia and the
Pacific Rim. Laserscope is both ISO 9001 and CE certified.

International Business

Revenues from Europe, Asia and the Pacific Rim
continue to account for a large percentage of total sales.
Approximately 35% of Laserscopes 2001 revenues were
derived from its international operations including export
sales, compared to 38% in 2000 and 45% in 1999. We expect that
international sales will continue to represent a significant
percentage of net revenue in 2002.

On February 18, 2000, Laserscope signed an
agreement with Wavelight Laser Technologie AG to sell its
interest in NWL. The sale had an effective date of
January 1, 2000. NWL continued to distribute our products
in Germany until January 2002 when their distribution agreement
was terminated.

Installed Base of Lasers

We have more than 6,000 laser systems installed
worldwide. The installed base provides a market for service as
well as the sale of devices, instruments and disposables.

Service and Support

We have a direct field service organization that
provides service for our products. We generally provide a
twelve-month warranty on our laser systems. After the warranty
period, maintenance and support is provided on a variety of
service contract bases or on an individual call basis. We also
have a 99.0% Uptime Guarantee on our laser systems.
Under provisions of this guarantee, we extend the term of the
related warranty or contract if specified system uptime levels
are not maintained.

Research and Development

We operate in an industry that is subject to
rapid technological changes. Our ability to remain competitive
in our industry depends on, among other things, our ability to
anticipate and react to such technological changes. Therefore,
we intend to continue to invest significant amounts in research
and development. We spent $3.8 million, $3.3 million,
and $4.5 million on company-sponsored research and
development in 2001, 2000, and 1999 respectively.

Our current research and development programs are
directed toward the development of new laser systems and
delivery devices. For example, we are currently developing new
laser systems for the emerging aesthetic market and the urology
market.

13



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##### Table of Contents



Manufacturing

We manufacture the laser resonators, system
chassis and certain accessories used in our laser systems in the
United States. Our laser manufacturing operations concentrate on
the assembly and test of components and subassemblies
manufactured to our designs and specifications by outside
vendors. We believe that we have sufficient manufacturing
capacity in our present facilities to support current operations
at least through the end of 2002.

In addition to our laser manufacturing
capability, we have a production facility in the United States
for certain of our disposable products and re-usable hand pieces.

Employees

At December 31, 2001, Laserscope had 167
employees. We believe that we maintain competitive compensation,
benefit, equity participation and work environment policies to
assist in attracting and retaining qualified personnel. We also
believe that the success of our business will depend, in part,
on our ability to attract and retain such personnel, who are in
great demand.

Competition

We compete in the non-ophthalmic surgical segment
of the worldwide medical laser market. In this market, lasers
are used in hospital operating rooms, outpatient surgery centers
and individual physician offices for a wide variety of
procedures. This market is highly competitive. Our competitors
are numerous and include some of the worlds largest
organizations as well as smaller, highly-specialized firms. Our
ability to compete effectively depends on such factors as:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | 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.

Some of our current and prospective competitors
have or may have significantly greater financial, technical,
research and development, manufacturing and marketing resources
than we have. In early 2001, two of our largest competitors, ESC
Medical Systems (ESC) and Coherent Medical,
completed a business combination. To compete effectively, we
will need to continue to expand our product offerings,
periodically enhance our existing products and continue to
enhance our distribution.

Patents and Licenses

While we believe the patents that we have and for
which we have applied are of value, other factors are of greater
competitive importance. We hold several patents issued in the
United States, generally covering surgical laser systems,
delivery devices, calibration inserts, the laser resonator and
the connector used to attach disposable and reusable
instrumentation to our laser systems. We have also licensed
certain technologies from others.

Dispositions

On February 18, 2000, the Company signed an
agreement with Wavelight Laser Technologie AG to sell its
interest in NWL. The sale had an effective date of
January 1, 2000. NWL continued to distribute
Laserscopes products until January of 2002 when their
distribution agreement was terminated.

14



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##### Table of Contents



Executive Officers of the Company

The following sets forth certain information with
respect to the executive officers of the Company, and their ages
as of December 31, 2001:

|                          |  |     |    |          |  |                                                                
|------------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------
|Name                      |  | Age |    | Position
|                          |  |     |    |         
|Robert J. Pressley, Ph.D. |  |     | 69 |          |  | Chairman of the Board of Directors                             
|Eric M. Reuter            |  |     | 40 |          |  | President, Chief Executive Officer and Director                
|Robert L. Mathews         |  |     | 56 |          |  | Executive Vice President                                       
|Ken Arnold                |  |     | 32 |          |  | Vice President, Research and Development                       
|Van Frazier               |  |     | 49 |          |  | Vice President, Quality and Regulatory Affairs                 
|Dennis LaLumandiere       |  |     | 48 |          |  | Vice President, Finance, Chief Financial Officer
	and Secretary
|Kerrick Securda           |  |     | 62 |          |  | Vice President, Marketing and Business Development             

Robert J.
Pressley,Ph.D. is a co-founder of the
Company and has been a director since its founding.
Dr. Pressley was appointed Chairman of the Board of
Directors in June 1998. Dr. Pressley co-founded Candescent
Technologies Corporation (formerly named Silicon Video
Corporation), a developer of electronic products, and served as
its President and Chief Executive Officer from January 1991 to
January 1994. Dr. Pressley also founded XMR, Inc., a
manufacturer of eximer lasers and laser systems, and served as
its Chief Executive Officer from March 1979 until March 1990.
Dr. Pressley has been a self-employed technology consultant
since January 1995.

Eric M. Reuterjoined Laserscope as Vice President, Research and Development in
September 1996 and was appointed President and Chief Executive
Officer of the Company in June 1999. Prior to joining
Laserscope, from February 1994 to August 1996, Mr. Reuter
was employed at the Stanford Linear Accelerator Center at
Stanford University (SLAC) as the Project Engineer for the
B-Factory High Energy Ring, an electron storage ring used for
high energy physics research. From February 1991 to January
1994, he served as a Senior Staff Engineer and Program Manager
in digital imaging at Siemens Medical Systems 
Oncology Care Systems, a medical device company.

Robert L.
Mathewsjoined Laserscope as Executive
Vice President in August 1999. Before joining Laserscope, from
December 1998 to August 1999, he was Executive Vice
President & General Manager of the MasterPlan Division
of COHR, Inc., a management consulting and independent service
organization. From April 1997 to December 1998, he was Vice
President and General Manager of Diasonics Vingmed Ultrasound,
Inc., a medical device manufacturer. From April 1996 to April
1997, he was Senior Director, Corporate Accounts at Spacelabs
Medical, Inc., a medical device manufacturer. From May 1995 to
April 1996 Mr. Mathews was a self employed business
consultant and from February 1994 to May 1995 he was President
and Chief Executive Officer of Resonex Holdings Ltd., a medical
device manufacturer.

Ken Arnoldjoined
Laserscope as a Manufacturing Engineer in March 1996. Mr. Arnold
then served as a Design Engineer from April 1997 to July 1999,
Director of Engineering and Technology from July 1999 to October
2001 and as Vice President of Research and Development since
October 2001. Prior to joining Laserscope, from 1993 to 1996, he
was a Program Manager and Design Engineer at United Defense LP,
a major defense contractor.

Van Frazierjoined
Laserscope as Director of Quality Assurance in January 1999 and
was appointed Vice President, Quality and Regulatory Affairs in
June 1999. Before joining Laserscope, from October 1997 to
January 1999, he was Director of Quality Assurance and
Regulatory Affairs of St. Jude Medical, a medical device
manufacturer. From January 1996 to October 1997,
Mr. Frazier held various regulatory management positions at
Telectronics Pacing Systems, a medical device manufacturer and
from November 1991 to January 1996, he was Regulatory Compliance
Manager for Physio-Control, a medical device manufacturer.

Dennis LaLumandierejoined Laserscope in September 1989 as Corporate Controller.
Mr. LaLumandiere has served as Vice President, Finance
since February 1995, Chief Financial Officer since February
1996, Assistant Secretary from November 1996 to October 2001 and
Secretary since October 2001. Prior to joining

15



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##### Table of Contents



Laserscope, from 1983 to 1989,
Mr. LaLumandiere held various financial and operations
management positions at Raychem Corporation, a multinational
materials science company.


Kerrick Securdajoined Laserscope in August 2001. Before joining Laserscope,
from February 1999 to August 2001, Mr. Securda was
Executive Director, Worldwide Marketing and Knowledge Management
of Sunrise Technologies International, Inc., a medical device
manufacturer. From October 1991 to February 1999,
Mr. Securda was President of KCS Enterprises, a consulting
company specializing in the medical device industry.




Item 2.Properties

Laserscope leases two buildings aggregating
approximately 35,000 square feet in San Jose, California under
leases expiring in September 2005. We have options to extend the
leases at the then-current market rates. These facilities house
our research and development and manufacturing operations as
well as our principal sales, marketing, service and
administrative offices. We believe that these facilities are
suitable for our current operations and are adequate to support
those operations through at least the end of 2002. We also lease
offices in the United Kingdom and France where our local sales
and marketing staffs are based.




Item 3.Legal
Proceedings

Not Applicable.




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

Not Applicable.

16



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##### Table of Contents






PART II



|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
	Stock and Related Shareholder Matters

Our common stock is traded on the Nasdaq National
Market under the symbol LSCP. As of March 8, 2002,
Laserscope had approximately 700 shareholders of record.

The following table shows Laserscopes high
and low selling prices for the years ended December 31,
2001 and December 31, 2000 as reported by the Nasdaq
National Market System:

|               |  |          |      |         |  |   |      | 
|-------------- |  | -------- | ---- | ------- |  | - | ---- | 
|               |  |         
|               |  | 2001    
|               |  |         
|               |  | High Bid |      | Low Bid
|               |  |          |      |        
|First Quarter  |  | $        | 1.81 |         |  | $ | 0.94 | 
|Second Quarter |  | $        | 2.50 |         |  | $ | 0.90 | 
|Third Quarter  |  | $        | 2.18 |         |  | $ | 1.35 | 
|Fourth Quarter |  | $        | 2.85 |         |  | $ | 1.38 | 

|               |  |          |      |         |  |   |      | 
|-------------- |  | -------- | ---- | ------- |  | - | ---- | 
|               |  |         
|               |  | 2000    
|               |  |         
|               |  | High Bid |      | Low Bid
|               |  |          |      |        
|First Quarter  |  | $        | 4.00 |         |  | $ | 0.81 | 
|Second Quarter |  | $        | 2.25 |         |  | $ | 1.03 | 
|Third Quarter  |  | $        | 2.75 |         |  | $ | 1.50 | 
|Fourth Quarter |  | $        | 2.09 |         |  | $ | 1.06 | 

We have not paid dividends on our common stock
and have no present plans to do so. Provisions of our bank line
of credit prohibit the payment of dividends without the
banks consent.

To address our capital needs in 2000, we
completed a private placement of our Common Stock pursuant to
Regulation D of the Securities Act of 1933 to accredited
investors providing gross proceeds of approximately
$1.9 million to Laserscope. The transaction consisted of
two closings. The first was approximately $1.1 million in
gross proceeds in exchange for 1,505,000 shares of Laserscope
common stock, which closed on December 30, 1999. The second
closing was for approximately $0.8 million in exchange for
995,000 shares of Laserscope common stock which closed on
January 14, 2000. The shares had no par value and were
issued at a price of $0.80 per share. We also issued warrants to
purchase 218,875 shares of common stock on the date of the
second closing. The warrants are convertible into shares of
Laserscopes common stock at $1.25 per share and expire in
2005.

On February 11, 2000, we completed a private
placement of subordinate convertible debentures pursuant to
Regulation D of the Securities Act of 1933 to affiliates of
Renaissance Capital Group, Inc. with gross proceeds to
Laserscope of $3.0 million. The debentures mature seven
years from issuance and bear an interest rate of 8.00%. The
debentures are convertible into Laserscope common stock with an
initial conversion price, which is subject to adjustment, of
$1.25. The private placement also included warrants convertible
into 240,000 shares of Laserscope common stock at $1.50 per
share and expire in 2005.

There are covenants associated with the
debentures for debt-to-equity ratio, current ratio, and interest
coverage. In the event that we are unable to satisfy any of
these covenants, then we would be in default, and the lender
would have the right to exercise various remedies including
declaring due all outstanding principal and interest. The
interest coverage ratio requirement is 1.5 for the trailing
twelve months, and as of December 31, 2001 our interest
coverage was 1.7. Future ability to meet the interest coverage
requirement will depend primarily on our ability to generate
profits. The debt-to-equity requirement is a maximum of 1.5, and
the current ratio requirement is a minimum of 1.0. As of
December 31, 2001 we were in compliance with the provisions
of the covenants.

The proceeds from both of these financings were
used for general corporate working capital.

17



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##### Table of Contents






Item 6. Selected Financial
Data

(thousands, except per share
amounts)


Consolidated Statement of Operations
Data:

|                                              |  |      |        |         |  |         |        |            |  |            |        |   |  |   |        |   |  |   |        |  
|--------------------------------------------- |  | ---- | ------ | ------- |  | ------- | ------ | ---------- |  | ---------- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                              |  | 2001 |        | 2000(1) |  | 1999(2) |        | 1998(3)(4) |  | 1997(5)(6)
|                                              |  |      |        |         |  |         |        |            |  |           
|Net revenues                                  |  | $    | 35,087 |         |  | $       | 35,399 |            |  | $          | 40,990 |   |  | $ | 52,728 |   |  | $ | 61,349 |  
|Net income (loss)                             |  |      | (829   | )       |  |         | 186    |            |  |            | (7,573 | ) |  |   | (9,796 | ) |  |   | (843   | )
|Basic and diluted net income (loss) per share |  |      | (0.05  | )       |  |         | 0.01   |            |  |            | (0.60  | ) |  |   | (0.79  | ) |  |   | (0.07  | )

Consolidated Balance Sheet Data (at end of
period):

|                                                 |  |      |        |         |  |         |        |            |  |            |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------ |  | ---- | ------ | ------- |  | ------- | ------ | ---------- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                 |  | 2001 |        | 2000(1) |  | 1999(2) |        | 1998(3)(4) |  | 1997(5)(6)
|                                                 |  |      |        |         |  |         |        |            |  |           
|Cash, cash equivalents & short-term
	investments |  | $    | 3,408  |         |  | $       | 2,698  |            |  | $          | 1,449  |  |  | $ | 1,456  |  |  | $ | 2,465  | 
|Working capital                                  |  |      | 13,336 |         |  |         | 14,793 |            |  |            | 6,806  |  |  |   | 13,722 |  |  |   | 20,313 | 
|Total assets                                     |  |      | 25,482 |         |  |         | 24,087 |            |  |            | 28,956 |  |  |   | 36,593 |  |  |   | 47,306 | 
|Capital leases (excluding current portion)       |  |      | 60     |         |  |         | 277    |            |  |            | 534    |  |  |   | 1,012  |  |  |   | 274    | 
|Other long term debt                             |  |      | 3,000  |         |  |         | 3,000  |            |  |            | 862    |  |  |   | 1,693  |  |  |   | 2,970  | 
|Shareholders equity                             |  |      | 13,412 |         |  |         | 14,114 |            |  |            | 12,047 |  |  |   | 18,671 |  |  |   | 28,117 | 

Consolidated Quarterly Statement of Operations
Data (Unaudited):

|                                              |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|--------------------------------------------- |  | ------------------ | ----- | -------- |  | ------------- | ----- | ------------ |  | - | ----- | - |  | - | ----- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 31,          |       | June 30, |  | September 30, |       | December 31,
|                                              |  |                    |       |          |  |               |       |             
|2001                                          |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|Net revenues                                  |  | $                  | 8,228 |          |  | $             | 9,302 |              |  | $ | 7,953 |   |  | $ | 9,604 |  
|Gross margin                                  |  |                    | 3,709 |          |  |               | 5,021 |              |  |   | 3,799 |   |  |   | 4,823 |  
|Net income (loss)                             |  |                    | (490  | )        |  |               | 182   |              |  |   | (641  | ) |  |   | 120   |  
|Basic & diluted net income (loss) per
	share  |  |                    | (0.03 | )        |  |               | 0.01  |              |  |   | (0.04 | ) |  |   | 0.01  |  
|2000                                          |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|Net revenues                                  |  | $                  | 8,628 |          |  | $             | 9,294 |              |  | $ | 9,254 |   |  | $ | 8,223 |  
|Gross margin                                  |  |                    | 3,869 |          |  |               | 4,392 |              |  |   | 4,640 |   |  |   | 3,924 |  
|Net income ( loss)                            |  |                    | (352  | )        |  |               | 303   |              |  |   | 505   |   |  |   | (270  | )
|Basic and diluted net income (loss) per share |  |                    | (0.02 | )        |  |               | 0.02  |              |  |   | 0.03  |   |  |   | (0.02 | )




|    |                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------
|(1) | The Company sold its ownership interest in NWL
	Laser-Technologie GmbH effective January 1, 2000.                     
|   
|(2) | The Company recorded a $750,000 obsolete
	inventory provision in the quarter ended June 30, 1999.                     
|   
|(3) | The Company sold assets & liabilities related
	to its AMS product line on November 9, 1998 at a loss of
	$1.1 million.
|   
|(4) | The Company recorded a $2.1 million obsolete
	inventory provision in the quarter ended December 31, 1998.             
|   
|(5) | The Company closed the acquisition of a 52%
	equity ownership of NWL Laser-Technologie GmbH on June 13,
	1997.        
|   
|(6) | The Company recorded a $3.0 million obsolete
	inventory provision in the quarter ended December 31, 1997.             

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

Our discussion and analysis of Laserscopes
financial condition, results of operations, and cash flows are
based upon Laserscopes consolidated financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States of America.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate these estimates, including those related to
bad debts, inventory valuation and obsolescence, intangible
assets, income taxes, warranty obligations, contingencies and
litigation. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.

Critical Accounting Policies

Our critical accounting policies are as follows:



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

Revenue Recognition.We derive our revenue from primarily
two sources (i) product revenue which includes lasers,
instrumentation, and disposables, and (ii) service revenue.
The Company recognizes revenue on products and services when the
persuasive evidence of an arrangement is in place, the price is
fixed or determinable, collectibility is reasonably assured, and
title and risk of ownership has been transferred. Transfer of
title and risk of ownership generally occurs when the product is
shipped to the customer or when the customer receives the
product, depending on the nature of the arrangement. The Company
currently provides for the estimated cost to repair or replace
products under warranty at the time of sale. Service revenue is
recognized as the services are provided and for service
contracts on a pro rata basis over the period of the applicable
service contract.

Allowance for Doubtful Accounts.We assess the credit worthiness of our
customers prior to making a sale in order to mitigate the risk
of loss from customers not paying us. However, to account for
the inevitability that a customer may not pay us, we maintain an
allowance for doubtful accounts. We estimate losses based on the
overall business climate, our accounts receivable aging profile,
and an analysis of the circumstances associated with specific
accounts which are past due. Despite the significant amount of
analysis used to compute the required allowance, if the
financial condition of Laserscopes customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

Warranty Obligation.We engage in extensive product quality
programs and processes, including actively monitoring and
evaluating the quality of our component suppliers. In addition
to these proactive measures, we also provide for the estimated
cost of product warranties at the time revenue is recognized. We
estimate the cost of our warranty obligation based on product
failure rates over the last twelve months and the actual
material usage and service delivery costs experienced in
correcting those failures. However, should actual product
failure rates, material usage or service delivery costs differ
from our estimates, revisions to the estimated warranty
liability would be required.

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Excess and Obsolete Inventory.We maintain reserves for our estimated
obsolete or unmarketable inventory. The reserves are equal to
the difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and
market conditions. If actual market conditions are less
favorable than those projected by management, additional
inventory reserves may be required.

Valuation of Long-Lived and Intangible Assets
and Goodwill.We assess the impairment
of identifiable intangibles, long-lived assets and goodwill on
an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. When we
determine that the carrying value of intangibles, long-lived
assets and goodwill may not be recoverable, we measure any
impairment based on a projected discounted cash flow method
using a discount rate determined by our management to be
commensurate with the risk inherent in our current business
model. If cash generated in the future by the acquired asset is
different from current estimates, or if the appropriate discount
rate were to change, then the net present value of the asset
would be impacted, and this could result in a charge to earnings.

Functional Currency.We have a foreign subsidiary in France
which sells to customers in France, and we also have a
subsidiary in the UK which sells to customers in all of Europe,
except France, as well as customers in Pacific Rim countries. In
preparing our consolidated financial statements, we are required
to translate the financial statements of the foreign
subsidiaries from the currency in which they keep their
accounting records into United States Dollars. Our two
subsidiaries maintain their accounting records in their
functional currencies which are also their respective local
currencies, the Euro and the British Pound Sterling. The
functional currency is determined based on management judgment
and involves consideration of all relevant economic facts and
circumstances affecting the subsidiary. Generally, the currency
in which the subsidiary transacts a majority of it transactions,
including billing, financing, payroll, and other expenditures
would be considered the functional currency but any dependency
upon the parent and the nature of the subsidiarys
operations must also be considered. Since our two
subsidiaries functional currencies are deemed to be the
local currencies, then any gain or loss associated with the
translation of those subsidiaries financial statements is
included in cumulative translation adjustments. If in the future
we determine that there has been a change in the functional
currency of a subsidiary from its local currency to the United
States Dollar, any translation gains or losses arising after the
date of change would be included within our statement of
operations.

Income Tax.In
preparing our consolidated financial statements we are required
to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our actual
current tax exposure together with assessing temporary
differences resulting from differing treatment of items such as
deferred revenue, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be
recovered from future taxable income and the extent we believe
that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or
increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations. Due to
a history of operating losses, management believes that there is
sufficient uncertainty regarding the realization of deferred tax
assets and a full valuation allowance is appropriate.

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##### Table of Contents



Financial Review  Results of
Operations

The following table sets forth certain data from
Laserscopes consolidated statements of operations,
expressed as a percentage of net revenues:

|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |      | 
|-------------------------------------------------------- | ----------------------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                                         |                                     | 2001 |       | 2000 |  | 1999
|                                                         |                                     |      |       |      |  |     
|Net revenues                                             |                                     |      | 100.0 | %    |  |      | 100.0 | %    |  |  | 100.0 | %   
|Cost of products and services                            |                                     |      | 50.5  |      |  |      | 52.5  |      |  |  | 57.7  |     
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     
|Gross margin                                             |                                     |      | 49.5  |      |  |      | 47.5  |      |  |  | 42.3  |     
|Operating expenses:                                      |                                     |      |       |      |  |      |       |      |  |  |       |     
|                                                         | Research and development            |      |       | 10.7 |  |      |       | 9.3  |  |  |       | 11.0 | 
|                                                         | Selling, general and administrative |      |       | 40.0 |  |      |       | 36.7 |  |  |       | 47.8 | 
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     
|                                                         |                                     |      | 50.7  |      |  |      | 46.0  |      |  |  | 58.8  |     
|Operating income (loss)                                  |                                     |      | (1.3  | )    |  |      | 1.5   |      |  |  | (16.5 | )   
|Interest income (expense) and other, net                 |                                     |      | (1.0  | )    |  |      | (1.0  | )    |  |  | (2.2  | )   
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     
|Income (loss) before income taxes and
	minority interest |                                     |      | (2.3  | )    |  |      | 0.5   |      |  |  | (18.7 | )   
|Provision for income taxes                               |                                     |      | 0.1   |      |  |      |      |      |  |  |      |     
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     
|Income (loss) before minority interest                   |                                     |      | (2.4  | )    |  |      | 0.5   |      |  |  | (18.7 | )   
|Minority interest                                        |                                     |      |      |      |  |      |      |      |  |  | (0.2  | )   
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     
|Net income (loss)                                        |                                     |      | (2.4  | )%   |  |      | 0.5   | %    |  |  | (18.5 | )%  
|                                                         |                                     |      |       |      |  |      |       |      |  |  |       |     

We sell our products to hospitals, outpatient
surgery centers, pay-per-use providers and individual physicians
in the United States, Europe, the Middle East, Latin America and
the Pacific Rim. In the United States we sell through our direct
sales force as well as through a distributor, McKesson
Corporation Medical Group. We also generate export sales through
our wholly and majority owned subsidiaries in the United Kingdom
and France and by independent distributors in the rest of the
world.

We operate in a technologically advanced, dynamic
and highly competitive environment. Our future operating results
are subject to quarterly variations based on a variety of
factors, many of which are beyond our control. While we attempt
to identify and respond to these conditions in a timely manner,
these conditions represent significant risks to our performance.

International sales accounted for 35%, 38% and
45% of our net revenues for 2001, 2000 and 1999, respectively.
We believe that international sales will continue to account for
a significant portion of our net revenues in the foreseeable
future. A large portion of our international sales occur through
our foreign subsidiaries and the remainder result from exports
to foreign distributors. Our international sales and operations
are subject to the risks of conducting business internationally.
These risks could harm our financial condition, results of
operations and future cash flows.

Through December 31, 2001, sales outside of
the United States have been denominated in the local currencies
of the United Kingdom and France and in U.S. Dollars for
the rest of the world. Prior to 2000, sales in Germany were
denominated in German Marks. However, we are exposed to foreign
currency risk in a number of areas. Although our revenues
denominated in U.S. Dollars represented over 86% of total
revenues in 2001, 85% in 2000 and 69% in 1999, market risk
exists in foreign countries where we sell in U.S. Dollars,
and where a major strengthening of the U.S. Dollar could
have a material negative impact on our business. In addition,
the introduction of the Euro as a currency in several European
countries may negatively affect our ability to sell our products
in exchange for U.S. Dollars in those countries. In January
1999, our subsidiary in France began to denominate its sales and
report its financial statements in the Euro. Through 2001, we
had not sustained any material adverse impact from the
introduction of the Euro. However, any major strengthening of
the U.S. Dollar against the Euro or the British Pound
Sterling could have a material adverse impact on our business.

Please refer to the Risk Factors
section of this Annual Report for further discussion on these
and other risks associated with our business.

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The following table contains selected income
statement information for Laserscope for the years ended
December 31 2001, 2000 and 1999:

|                          |                                       |                     |        |               |  |               |     |          |   |        |        |        |  |             |     |             |   |   |        |        |  |  |     |    |   |  |    |     |    |  |     |      |   
|------------------------- | ------------------------------------- | ------------------- | ------ | ------------- |  | ------------- | --- | -------- | - | ------ | ------ | ------ |  | ----------- | --- | ----------- | - | - | ------ | ------ |  |  | --- | -- | - |  | -- | --- | -- |  | --- | ---- | --
|                          |                                       |                     |        |               |  |              
|                          |                                       | Twelve Months Ended |        |               |  |              
|                          |                                       |                     |        |               |  |              
|                          |                                       |                     |        |               |  |               |     |          |   |       
|                          |                                       |                     |        | (b)           |  |               |     |          |   |       
|                          |                                       |                     |        |               |  |               |     |         
|                          |                                       | Dec. 31, 2001       |        | Dec. 31, 2000 |  | Dec. 31, 1999 |     | % Change
|                          |                                       |                     |        |               |  |               |     |         
|                          |                                       | Amount              |        | %(a)          |  | Amount        |     | %(a)     |   | Amount |        | %(a)   |  | 2001  2000 |     | 2000  1999
|                          |                                       |                     |        |               |  |               |     |          |   |        |        |        |  |             |     |            
|Revenues from sales of:   |                                       |                     |        |               |  |               |     |          |   |        |        |        |  |             |     |             |   |   |        |        |  |  |     |    |   |  |    |     |    |  |     |     
|                          | Lasers                                |                     | $      | 15,328        |  |               |     | 44       | % |        | $      | 18,472 |  |             |     | 52          | % |   | $      | 19,724 |  |  |     | 48 | % |  |    | (17 | )% |  |     | (6   | )%
|                          | Disposable supplies & instrumentation |                     |        | 13,936        |  |               |     | 40       | % |        |        | 11,222 |  |             |     | 32          | % |   |        | 11,020 |  |  |     | 27 | % |  |    | 24  | %  |  |     | 2    | % 
|                          | Service                               |                     |        | 5,823         |  |               |     | 16       | % |        |        | 5,705  |  |             |     | 16          | % |   |        | 5,244  |  |  |     | 13 | % |  |    | 2   | %  |  |     | 9    | % 
|                          | NWL lasers                            |                     |        |              |  |               |     |         | % |        |        |       |  |             |     |            | % |   |        | 3,539  |  |  |     | 9  | % |  |    |    | %  |  |     | (100 | )%
|                          | NWL instruments                       |                     |        |              |  |               |     |         | % |        |        |       |  |             |     |            | % |   |        | 563    |  |  |     | 1  | % |  |    |    | %  |  |     | (100 | )%
|                          | NWL service                           |                     |        |              |  |               |     |         | % |        |        |       |  |             |     |            | % |   |        | 900    |  |  |     | 2  | % |  |    |    | %  |  |     | (100 | )%
|                          |                                       |                     |        |               |  |               |     |          |   |        |        |        |  |             |     |             |   |   |        |        |  |  |     |    |   |  |    |     |    |  |     |     
|Total net revenues        |                                       | $                   | 35,087 |               |  |               | 100 | %        |   | $      | 35,399 |        |  |             | 100 | %           |   | $ | 40,990 |        |  |  | 100 | %  |   |  | (1 | )%  |    |  | (14 | )%  
|Gross margin:             |                                       |                     |        |               |  |               |     |          |   |        |        |        |  |             |     |             |   |   |        |        |  |  |     |    |   |  |    |     |    |  |     |     
|                          | Product                               |                     | $      | 15,603        |  |               |     | 53       | % |        | $      | 14,780 |  |             |     | 50          | % |   | $      | 15,758 |  |  |     | 45 | % |  |    | 6   | %  |  |     | (6   | )%
|                          | Service                               |                     |        | 1,749         |  |               |     | 30       | % |        |        | 2,045  |  |             |     | 36          | % |   |        | 1,586  |  |  |     | 26 | % |  |    | (14 | )% |  |     | 29   | % 
|Total gross margin        |                                       | $                   | 17,352 |               |  |               | 49  | %        |   | $      | 16,825 |        |  |             | 48  | %           |   | $ | 17,344 |        |  |  | 42  | %  |   |  | 3  | %   |    |  | (3  | )%  
|Research & development    |                                       | $                   | 3,756  |               |  |               | 11  | %        |   | $      | 3,284  |        |  |             | 9   | %           |   | $ | 4,504  |        |  |  | 11  | %  |   |  | 14 | %   |    |  | (27 | )%  
|Selling, general & admin. |                                       | $                   | 14,043 |               |  |               | 40  | %        |   | $      | 13,005 |        |  |             | 37  | %           |   | $ | 19,595 |        |  |  | 47  | %  |   |  | 8  | %   |    |  | (34 | )%  




|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(b) | we sold our NWL subsidiary effective
	January 1, 2000                                                                                                              

2001 results compared to 2000

During 2001, total revenues decreased
approximately $0.3 million, or 1%, from 2000.

During 2001, revenues from the sales of laser
equipment decreased 17% to $15.3 million, or 44% of total
net revenues, compared to $18.5 million, or 52%, of total
net revenues in 2000. Decreases in revenues from sales of laser
equipment resulted from higher unit shipments at lower average
selling prices due to higher aesthetic laser shipments and lower
non-aesthetic laser shipments in 2001 than in 2000. The U.S.
distributor relationship which we formed with McKesson
Corporation effective December 2000 contributed to the higher
aesthetic laser sales. We believe that we will continue to see
moderate increases in our sales of lower-priced office-based
aesthetic lasers in all geographic markets. In 2002, we believe
that overall laser sales will increase due to sales of our new
laser for treatment of benign prostatic hyperplasia, which we
began to ship for revenue in January 2002.

Net revenues from shipments of disposable
supplies and instrumentation were 24% higher in 2001 than 2000,
and were approximately $13.9 million, or 40%, of total
revenues in 2001, compared to approximately $11.2 million,
or 32% of total revenues in 2000. The increase is principally
due to higher sales of scanning equipment and hand pieces for
use with our aesthetic lasers due to a higher volume of
aesthetic lasers sold. This increase was offset partially by
reduced shipments of disposable fiber-optic devices for hospital
surgical procedures in the United States and the Pacific Rim.

During the past several years, our sales have
trended towards lower-priced office lasers for aesthetic
procedures and away from lasers used in hospitals for
non-aesthetic procedures. This has resulted in lower sales of
disposable supplies since office lasers used in aesthetic
procedures, although carrying one-time sales of instrumentation,
generally do not create a stream of sales of disposable
supplies. We believe that our future sales of instrumentation
and disposable supplies depend on our ability to increase our
installed base of systems and also to develop and promote
surgical procedures that use these products.

Service revenues during 2001 were 2% higher than
2000. These revenues were $5.8 million, or 16%, of total
net revenues in 2001, compared to $5.7 million, or 16%, of
total net revenues in 2000. The increase is primarily due to
higher service revenues at our foreign subsidiaries partly
offset by marginally lower service

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revenues in the U.S. We believe that future
revenues will depend on increases to the installed base of
lasers as well as the acceptance of service contracts by our
customers.


Product gross margin as a percentage of net
product revenues was 53% in 2001 compared to 50% in 2000. The
increase reflects a continued shift in sales mix toward higher
margin aesthetic laser product sales versus lower margin
surgical product sales. We expect that product gross margin, as
a percentage of net revenues in 2002, will be at levels similar
to 2001. However, we expect that these amounts may vary from
quarter to quarter during 2002 and will depend on product demand
and distribution mix.

Gross margin from service activities as a
percentage of net service revenues was 30% in 2001 compared to
36% in 2000. The decrease reflects an increase in overhead costs
for material and labor relative to revenue. We expect that gross
margin, as a percentage of net revenues from service activities
in 2002, will be similar to 2001 levels.

Research and development expenses result from
activities related to the development of new laser,
instrumentation and disposable products and the enhancement of
our existing products. In 2001, amounts spent on research and
development increased 14% from amounts spent in 2000. The
increase was due to final efforts necessary to bring the Niagara
laser to market. We expect that amounts spent in research and
development during 2002 will, as a percentage of net revenues,
be marginally lower than that which was spent in 2001.

Selling, general and administrative expenses
increased 8% in 2001 compared to 2000. The increase in spending
primarily results from increased sales expenses as we increased
our selling efforts. We expect a similar increase in selling,
general and administrative expenses during 2002 as we continue
to invest in educational support as well as marketing programs
for the Niagara and other lasers.

In 2001 we recorded an income tax provision of
$45,000 because of the profitability of our UK subsidiary. The
U.S. and French entities reported net losses in 2001 and both
have significant net operating loss carry forwards.
Consequently, no income tax provision was recorded for these
entities in 2001. In 2000 we recorded no income tax provision
due to the availability of net operating loss carry forwards.
Due to a history of operating losses, management believes that
there is sufficient uncertainty regarding the realization of
deferred tax assets and a full valuation allowance is
appropriate in 2001 and 2000 for our entities that had net
operating losses.

2000 results compared to 1999

During 2000, total revenues decreased
approximately $5.6 million, or 14%, from 1999. The majority
of the decrease resulted from the sale of our NWL subsidiary
effective January 1, 2000. In 1999, sales of NWL products
and services contributed $5.0 million in revenue while we
had no sales of NWL products and services in 2000.

During 2000, revenues from the sales of non-NWL
laser equipment decreased 6% to $18.5 million, or 52% of
total net revenues, compared to $19.7 million, or 48%, of
total net revenues in 1999. Decreases in revenues from sales of
laser equipment resulted from higher unit shipments at lower
average selling prices due to an increased number of aesthetic
lasers sold.

Net revenues from shipments of non-NWL disposable
supplies and instrumentation were 2% higher in 2000 than 1999,
and were approximately $11.2 million, or 32%, of total
revenues in 2000, compared to approximately $11.0 million,
or 27% of total revenues in 1999. The increase is principally
due to higher sales of scanning equipment and hand pieces for
use with our aesthetic lasers. This increase was offset
partially by reduced shipments of disposable fiber-optic devices
for hospital surgical procedures in the United States and the
Pacific Rim.

Non-NWL service revenues during 2000 were 9%
higher than 1999. These revenues were $5.7 million, or 16%,
of total net revenues in 2000, compared to $5.2 million, or
13%, of total net revenues in 1999. The increase is primarily
due to higher domestic service contract revenues.

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Product gross margin as a percentage of net
revenues was 50% in 2000 compared to 45% in 1999. The increase
reflects a combination of higher margins on aesthetic laser
product sales, the elimination of lower margin NWL product sales
in 2000 and charges recorded to provide for inventory related to
discontinued product lines totaling $0.7 million in 1999.

Gross margin from service activities as a
percentage of service revenues was 36% in 2000 compared to 26%
in 1999. The increase reflects continued overhead reduction.

In 2000, amounts spent on research and
development (excluding NWLs research and development)
decreased 20% from amounts spent in 1999. The decline was due to
our continued narrowing of focus in product development activity
with fewer products in development.

Selling, general and administrative expenses
decreased 34% in 2000 compared to 1999. The decrease in spending
primarily results from the sale of NWL and continuation of
expense reduction measures implemented in July 1999.

In 2000 we recorded no income tax provision due
to the availability of net operating loss carry forwards. In
1999 we recorded $13,000 in income tax provisions primarily
attributable to the profits of NWL.

Minority interest in 1999 resulted from the
minority ownership participation in NWLs net results.

Financial Review  Liquidity and
Capital Resources

The following table contains selected balance
sheet information at December 31, 2001 and 2000 (in
thousands):

|                          |  |              |        |              |  |   |        | 
|------------------------- |  | ------------ | ------ | ------------ |  | - | ------ | 
|                          |  | December 31, |        | December 31,
|                          |  | 2001         |        | 2000        
|                          |  |              |        |             
|Cash and cash equivalents |  | $            | 3,408  |              |  | $ | 2,698  | 
|Total assets              |  | $            | 25,482 |              |  | $ | 24,087 | 
|Working capital           |  | $            | 13,336 |              |  | $ | 14,793 | 

The net increase in cash and cash equivalents in
2001 compared to 2000 was due primarily to operating activities.

Cash provided by operating activities in 2001
totaled $1.4 million. This was the combined result of the
following sources: Increases in accounts payable 
$1.4 million; accrued compensation 
$0.3 million; and warranty  $0.3 million;
as well as depreciation  $0.9 million;
amortization of debt issuance costs 
$0.1 million; and a decrease in accounts
receivable  $0.5 million. These sources were
partly offset by the following uses: net loss of
$0.8 million; as well as increases in
inventories  $1.0 million; and prepayments and
other current assets  $0.3 million.

Cash used in investing activities totaled
$1.1 million and consisted of capital
expenditures  $1.1 million.

Cash provided by financing activities totaled
$0.4 million and consisted of a net increase in line of
credit borrowings  $0.4 million; and proceeds
from the sale of common stock under stock plans 
$0.2 million. These sources were offset by payments on
obligations under capital leases  $0.3 million.

Laserscope has in place an asset based line of
credit which provides up to $5.0 million in borrowings and
expires in September 2002. Credit is extended based on eligible
accounts receivable and inventory. At December 31, 2001, we
had approximately $2.5 million in borrowing capacity
available against $1.1 million borrowed and
$1.1 million in letter of credit reserve requirements. This
left us with $300,000 of unused borrowing capacity.
Laserscopes assets collateralize the credit line which
bears an interest rate equivalent to the banks prime rate
plus 1.75% per annum (6.50% in December 2001). Borrowings
against the line of credit are paid down as the Company collects
its accounts receivable. Provisions of the bank loan agreement
prohibit the payment of dividends on non-preferred stock, or the
redemption, retirement, repurchase or other acquisition of
Laserscope stock. The agreement further requires us to maintain
a minimum tangible net worth. As of December 31, 2001, we
complied with all covenants.

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Capital expenditures totaled $1.1 million
and $0.4 million in 2001 and 2000, respectively. These
expenditures were primarily for computer systems and leasehold
improvements. We expect capital expenditures in 2002 to be at
levels similar to 2001.

To address our capital needs, on January 14,
2000 we completed a private placement of our common stock
providing net proceeds of approximately $1.8 million to
accredited investors, of which $1.0 million was received in
1999. We issued 2.5 million shares of our no par value
common stock at a price of $0.80 per share. We also issued
warrants to purchase 218,875 shares of our common stock.

On February 11, 2000, we completed a private
placement of $3.0 million of subordinate convertible
debentures to affiliates of Renaissance Capital Group, Inc.,
with net proceeds to us of approximately $2.9 million. The
debentures mature seven years from issuance and bear an annual
interest rate of 8.00%. The debentures are convertible into
Laserscope common stock with an initial conversion price, which
is subject to adjustment, of $1.25. The private placement also
included warrants convertible into 240,000 shares of our
common stock.

There are covenants associated with the
debentures for debt-to-equity ratio, current ratio, and interest
coverage. If we were unable to satisfy any of these covenants,
then we would be in default and the lender would have the right
to exercise various remedies including declaring due all
outstanding principal and interest. The interest coverage ratio
requirement is 1.5 for the trailing twelve months, and as of
December 31, 2001 our interest coverage was 1.7.
Future ability to meet the interest coverage requirement will
depend primarily on our ability to generate profits. The
debt-to-equity requirement is a maximum of 1.5, and the
current ratio requirement is a minimum of 1.0. As of
December 31, 2001 we were in compliance with the provisions
of the covenants.

Future payments due under debt and lease
obligations as of December 31, 2001 (in thousands) is as
follows:

|               |  |            |       |                |  |           |       |         |  |       |       |  |  |  |     |  |  |  |        | 
|-------------- |  | ---------- | ----- | -------------- |  | --------- | ----- | ------- |  | ----- | ----- |  |  |  | --- |  |  |  | ------ | 
|               |  |            |       |                |  | Operating |       | Capital |  |      
|               |  | Debentures |       | Line of Credit |  | Leases    |       | Leases  |  | Total
|               |  |            |       |                |  |           |       |         |  |      
|2002           |  |            |      |                |  |           | 1,135 |         |  |       | 1,690 |  |  |  | 221 |  |  |  | 3,046  | 
|2003           |  |            | 314   |                |  |           |      |         |  |       | 1,721 |  |  |  | 80  |  |  |  | 2,115  | 
|2004           |  |            | 305   |                |  |           |      |         |  |       | 1,753 |  |  |  |    |  |  |  | 2,058  | 
|2005           |  |            | 270   |                |  |           |      |         |  |       | 1,383 |  |  |  |    |  |  |  | 1,653  | 
|2006           |  |            | 240   |                |  |           |      |         |  |       |      |  |  |  |    |  |  |  | 240    | 
|2007 and after |  |            | 1,871 |                |  |           |      |         |  |       |      |  |  |  |    |  |  |  | 1,871  | 
|               |  |            |       |                |  |           |       |         |  |       |       |  |  |  |     |  |  |  |        | 
|Total          |  |            | 3,000 |                |  |           | 1,135 |         |  |       | 6,547 |  |  |  | 301 |  |  |  | 10,983 | 

We anticipate that future changes in cash and
working capital will be dependent on a number of factors
including:



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | 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 level of profitability; and                                                                                     
|
| | Our determination to acquire or invest in
	products and businesses complementary to ours.                           

We have historically financed acquisitions using
our existing cash resources. While we believe our existing cash
resources, including our bank line of credit will be sufficient
to fund our operating needs for the next twelve months,
additional financing will be required for our currently
envisioned long term needs.

There can be no assurance that any additional
financing will be available on terms acceptable to us, or at
all. In addition, future equity financings could result in
dilution to our shareholders, and future debt financings could
result in certain financial and operational restrictions.

25



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##### Table of Contents



Recent Accounting Pronouncements

In May 2000, the Emerging Issues Task
Force (EITF) issued EITF Issue No. 00-14,
Accounting for Certain Sales Incentives.
EITF Issue No. 00-14 addresses the recognition,
measurement, and income statement classification for sales
incentives that a vendor voluntarily offers to customers
(without charge), which the customer can use in, or exercise as
a result of, a single exchange transaction. Sales incentives
that fall within the scope of EITF Issue No. 00-14
include offers that a customer can use to receive a reduction in
the price of a product or service at the point of sale. The EITF
changed the transition date for Issue 00-14, concluding
that a company should apply this consensus no later than the
companys annual or interim financial statements for the
periods beginning after December 15, 2001. In June 2001,
the EITF issued EITF Issue No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a
Reseller of the Vendors Products, effective for
periods beginning after December 15, 2001. EITF Issue
No. 00-25 addresses whether consideration from a vendor to
a reseller is (a) an adjustment of the selling prices of
the vendors products and, therefore, should be deducted
from revenue when recognized in the vendors statement of
operations or (b) a cost incurred by the vendor for assets
or services received from the reseller and, therefore, should be
included as a cost or expense when recognized in the
vendors statement of operations. In September of 2001, the
EITF issued EITF Issue No. 01-09, Accounting for
Consideration Given by Vendor to a Customer or a Reseller of the
Vendors Products, which is a codification of EITF
Issues No. 00-14, No. 00-25 and No. 00-22
Accounting for Points and Certain Other Time-
or Volume-Based Sales Incentive Offers and Offers for Free
Products or Services to be Delivered in the Future. The
Company believes that the adoption of EITF issue No. 01-09
will not have a significant impact on its financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires
the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the
adoption of SFAS No. 141 will not have a significant impact
on its financial statements.

In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets, which is
effective for fiscal years beginning after December 15,
2001. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. The
Company believes that the adoption of SFAS No. 142 will not
have a significant impact on its financial statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and develops a single
accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are to be applied
prospectively. The Company believes that the adoption of SFAS
No. 144 will not have a significant impact on its financial
statements.

Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

We are exposed to a variety of risks, including
changes in interest rates affecting the return on investments,
outstanding debt balances and foreign currency fluctuations. In
the normal course of business, we employ established policies
and procedures to manage exposure to fluctuations in interest
rates and foreign currency values.

26



---



##### Table of Contents



Interest Rate Risk

Laserscopes exposure to market rate risk
for changes in interest rates relates primarily to our
outstanding debt. We have not used derivative financial
instruments in 2001, 2000, or 1999. We invest excess cash in
money market funds. Our debt financing consists of convertible
debentures and bank loans requiring either fixed or variable
rate interest payments. Investments in and borrowings under both
fixed-rate and floating-rate interest-earning instruments carry
a degree of interest rate risk. On the investment side,
fixed-rate securities may have their fair market value adversely
affected due to a rise in interest rates, while floating-rate
securities may produce less income than expected if interest
rates fall. In addition, our future investment income may fall
short of securities analyst expectations due to changes in
interest rates, or we may suffer losses in principal if forced
to sell securities which have declined in market value due to
changes in interest rates. On the debt side, borrowings that
require fixed-rate interest payments require greater than
current market rate interest payments if interest rates fall,
while floating rate borrowings may require greater interest
payments if interest rates rise. Additionally, our future
interest expense may be greater than expected due to changes in
interest rates.

The following table presents principal amounts
and related weighted average interest rates by year of maturity
for our convertible debenture obligations as of
December 31, 2001 and 2000.

|                |  |           |       |               |  |      |       |      |  |  |       |  |  |  |       | 
|--------------- |  | --------- | ----- | ------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                |  |           |       |               |  |     
|                |  |           |       | Average      
|                |  | Principal |       | Interest Rate
|                |  |           |       |              
|                |  | 2001      |       | 2000          |  | 2001 |       | 2000
|                |  |           |       |               |  |      |       |     
|                |  |           |       |               |  |     
|                |  | ($000s)  |       |               |  |     
|2002            |  | $         |      |               |  | $    |      |      |  |  | 8.00% |  |  |  | 8.00% | 
|2003            |  |           | 314   |               |  |      | 314   |      |  |  | 8.00% |  |  |  | 8.00% | 
|2004            |  |           | 305   |               |  |      | 305   |      |  |  | 8.00% |  |  |  | 8.00% | 
|2005            |  |           | 270   |               |  |      | 270   |      |  |  | 8.00% |  |  |  | 8.00% | 
|2006            |  |           | 240   |               |  |      | 240   |      |  |  | 8.00% |  |  |  | 8.00% | 
|2007 and beyond |  |           | 1,871 |               |  |      | 1,871 |      |  |  | 8.00% |  |  |  | 8.00% | 
|                |  |           |       |               |  |      |       |      |  |  |       |  |  |  |       | 
|                |  | $         | 3,000 |               |  | $    | 3,000 |      |  |  |       |  |  |  |       | 
|                |  |           |       |               |  |      |       |      |  |  |       |  |  |  |       | 

Foreign Currency Risk

International revenues were 35% of total revenues
in the year ended December 31, 2001, compared to 38% of
total revenues during the comparable period in 2000. Our
international sales are made through international distributors
and wholly-owned subsidiaries with payments to us typically
denominated in the local currencies of the United Kingdom and
France, and in U.S. Dollars in the rest of the world. We intend
to continue our operations outside of the United States and
potentially to enter additional international markets. These
activities, require significant management attention and
financial resources and further subject us to the risks of
operating internationally. These risks include, but are not
limited to:

 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.

We are also subject to general geopolitical risks
in connection with our international operations, such as:

 differing economic conditions;

 changes in political climate;

 differing tax structures; and

 changes in diplomatic and trade
relationships.

27



---



##### Table of Contents



In addition, fluctuations in currency exchange
rates may negatively affect our ability to compete in terms of
price against products denominated in local currencies.

Accordingly, our future results could be
materially adversely affected by changes in these regulatory,
geopolitical and other factors.

We do not engage in hedging transactions for
speculative or trading purposes.




Item 8. Financial Statements and
Supplementary Data

Consolidated financial statements of Laserscope
at December 31, 2001 and 2000, and for each of the three
years in the period ended December 31, 2001, the report of
independent auditors thereon and Supplementary Data are included
as separate sections in this Annual Report on Form 10-K in
Item 6 Selected Financial Data and
Item 14, Exhibits, Financial Statement Schedules and
reports on Form 8-K.




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

None.

28



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##### Table of Contents






PART III

Certain information required by Part III is
omitted from this Annual Report on Form 10-K because the
Company will file a definitive proxy statement prior to
April 30, 2002 pursuant to Regulation 14A (the
Proxy Statement) for its Annual Meeting of
Shareholders to be held June 21, 2002, and the information
included in the Proxy Statement is incorporated herein by
reference.




Item 10. Directors and Executive
Officers of the Registrant

The information concerning the Companys
directors and executive officers required by this Item 10
is incorporated by reference from the Companys Proxy
Statement for the 2002 Annual Meeting of Shareholders under the
headings Election of Directors and
Management, respectively.




Item 11. Executive
Compensation

The information required by this Item 11 is
incorporated by reference from the Companys Proxy
Statement for the 2002 Annual Meeting of Shareholders under the
heading Executive Compensation.




Item 12. Security Ownership of Certain
Beneficial Owners and Management

The information required by this Item 12 is
incorporated by reference from the Companys Proxy
Statement for the 2002 Annual Meeting of Shareholders under the
heading Election of Directors and Beneficial
Ownership of Securities.




Item 13. Certain Relationships and
Related Transactions

The information required by this Item 13 is
incorporated by reference from the Companys Proxy
Statement for the 2002 Annual Meeting of Stockholders under the
heading Certain Transactions.

29



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##### Table of Contents






PART IV




Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K

(a)(1) Financial Statements:

|                                                                                                 |  |      |                  | 
|------------------------------------------------------------------------------------------------ |  | ---- | ---------------- | 
|                                                                                                 |  | Page
|                                                                                                 |  |     
|Report of PricewaterhouseCoopers LLP, Independent
	Accountants                                   |  |      | F-1              | 
|Report of Ernst & Young LLP, Independent
	Auditors                                               |  |      | F-2              | 
|Consolidated Balance Sheets at December 31,
	2001 and 2000                                       |  |      | F-3              | 
|Consolidated Statements of Operations 
	Years ended December 31, 2001, 2000 and 1999            |  |      | F-4              | 
|Consolidated Statements of Cash Flows 
	Years ended December 31, 2001, 2000 and 1999            |  |      | F-5              | 
|Consolidated Statements of Shareholders
	Equity  Years ended December 31, 2001, 2000 and
	1999 |  |      | F-6              | 
|Notes to Consolidated Financial Statements                                                       |  |      | F-7 through F-21 | 



| |     |                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------
| | (2) | The following financial statement schedule for
	the years ended December 31, 2001, 2000 and 1999 is
	submitted herewith:

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



| |  |                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All other schedules are omitted because they are
	not applicable or the required information is shown in the
	consolidated financial statements or notes thereto



| |     |                                                                                    
| | --- | -----------------------------------------------------------------------------------
| | (3) | Exhibits included herein (numbered in accordance
	with Item 601 of Regulation S-K):

|        |       |             |  |                                                                                                                                                                     
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 2.1   |             |  | Acquisition Agreement between Laserscope and
	Heraeus Med GmbH.(9)                                                                                                  
|        | 2.1A  |             |  | Amendment Number One to Acquisition Agreement
	between Laserscope and Heraeus Med GmbH.(11)                                                                         
|        | 3.3   |             |  | Seventh Amended and Restated Articles of
	Incorporation of Registrant.(1)                                                                                           
|        | 3.4   |             |  | By-laws of Registrant, as amended.(3)                                                                                                                               
|        | 4.1   |             |  | Common Shares Rights Agreement dated as of
	October 31, 1991 between Laserscope and American Stock
	Transfer & Trust Company as Rights Agent.(6)                    
|        | 4.1A  |             |  | First Amendment to Common Shares Rights
	Agreements between the Company and American Stock
	Transfer & Trust Company as Rights Agent dated as of
	April 22, 1996.(7)
|        | 4.1B  |             |  | Second Amendment to Common Shares Rights
	Agreement between the Company and American Stock
	Transfer & Trust Company as Rights Agent dated as of
	August 6, 1996.(8)
|        | 10.1A |             |  | 1984 Stock Option Plan, as amended, and forms of
	Incentive Stock Option Agreement and Non-statutory Stock Option
	Agreement.(3)                                    
|        | 10.1B |             |  | 1994 Stock Option Plan and forms of Incentive
	Stock Option Agreement and Non-statutory Stock Option
	Agreement.(4)                                                 
|        | 10.2  |             |  | 1984 Stock Purchase Plan and form of Common Stock
	Purchase Agreement.(2)                                                                                           
|        | 10.3  |             |  | 1989 Employee Stock Purchase Plan and form of
	Subscription Agreement.(3)                                                                                           
|        | 10.3A |             |  | 1999 Employee Stock Purchase Plan and form of
	Subscription Agreement.(15)                                                                                          
|        | 10.4  |             |  | 401(k) Plan.(2)                                                                                                                                                     
|        | 10.6  |             |  | Net Lease Agreement between the Registrant and
	Realtec Properties dated June 20, 2000.(18)                                                                         
|        | 10.6A |             |  | Net Lease Agreement between the Registrant and
	Realtec Properties dated October 18, 2000.(18)                                                                      
|        | 10.10 |             |  | Form of indemnification agreement.(2)                                                                                                                               

30



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##### Table of Contents



|        |        |             |  |                                                                                                                               
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 10.11  |             |  | Amended and Restated Loan and Security Agreement
	between the Registrant and Silicon Valley Bank Dated
	November 23, 1996.(10)
|        | 10.11A |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated November 26,
	1997.(11)                     
|        | 10.11B |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 18, 1998.(11)                         
|        | 10.11C |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated September 3,
	1998.(12)                     
|        | 10.11D |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated November 25,
	1998.(13)                     
|        | 10.11E |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 17, 1999.(13)                         
|        | 10.11F |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 30, 1999.(14)                         
|        | 10.11G |             |  | Loan and Security Agreement between the
	Registrant and Silicon Valley Bank dated October 1,
	1999.(15)                       
|        | 10.11H |             |  | Amendment to Loan and Security Agreement between
	the Registrant and Silicon Valley Bank dated September 25,
	2000.(17)       
|        | 10.11I |             |  | Amendment to Loan and Security Agreement between
	the Registrant and Silicon Valley Bank dated September 26,
	2001.(19)       
|        | 10.13  |             |  | 1990 Directors Stock Option Plan and form
	of Option Agreement.(3)                                                           
|        | 10.14  |             |  | Form of Laserscope Management Continuity
	Agreement, as amended.(16)                                                          
|        | 10.18  |             |  | 1995 Directors Stock Option Plan and form
	of Option agreement.(5)                                                           
|        | 10.18A |             |  | 1999 Directors Stock Option Plan.(15)                                                                                        
|        | 10.19  |             |  | Common Stock Placement Agreement.(15)                                                                                         
|        | 10.19A |             |  | Form of Common Stock Purchase Agreement.(15)                                                                                  
|        | 10.20  |             |  | Convertible Loan Agreement.(15)                                                                                               
|        | 22.1   |             |  | Subsidiaries of Registrant, as amended.(18)                                                                                   
|        | 23.1   |             |  | Consent of Independent Accountants.(20)                                                                                       
|        | 23.2   |             |  | Consent of Ernst & Young LLP.(20)                                                                                             
|        | 25.1   |             |  | Power of Attorney (see page 47).(20)                                                                                          

Reports on Form 8-K:

None.






| |     |                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | 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, 1989.                                                                                   
|
| | (2) | 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.
|
| | (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, 1991.                                                                                   
|
| | (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 for the year ended December 31, 1994.                                                                                   

31



---



##### Table of Contents





| |     |                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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/A for the year ended December 31, 1995.      
|
| | (6) | Incorporated by reference to Exhibit 1 of
	the Registrants Registration Statement on Form 8-A
	filed November 15, 1991.                                                                                  
|
| | (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 June 30,
	1996.
|
| | (8) | Incorporated by reference to identically numbered
	exhibits filed in response to Item 6(a),
	Exhibits, the Companys Form 8-A/A filed
	September 4, 1996.                                               
|
| | (9) | Incorporated by reference to Exhibit A to
	the Definitive Proxy Statement for the Special Meeting of
	Shareholders held August 29, 1996.                                                                  



|     |                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | 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, 1996.           
|    
|(11) | 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, 1997.           
|    
|(12) | 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, 1998.
|    
|(13) | 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, 1998.           
|    
|(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,
	1999.    
|    
|(15) | 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.             
|    
|(16) | 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.    
|    
|(17) | 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.
|    
|(18) | 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.             
|    
|(19) | 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.
|    
|(20) | Filed herewith.                                                                                                                                                                                                

32



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##### Table of Contents



SIGNATURES

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



| |           
| | ----------
| | LASERSCOPE

Date: March 19, 2002

| |     |                   
| | --- | ------------------
| | By: | /s/ ERIC M. REUTER

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

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Eric M. Reuter and Dennis LaLumandiere as his
attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report
on Form 10-K, and to file the same, with exhibits thereto
and other documents in connection therewith with the Securities
and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

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

|                                                            |  |                                                                                                              |  |               
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------------
|Signature                                                   |  | Title                                                                                                        |  | Date          
|                                                            |  |                                                                                                              |  |               
|/s/ ROBERT J. PRESSLEY(Robert J. Pressley, Ph.D.)           |  | Chairman of the Board of Directors                                                                           |  | March 19, 2002
|                                                           
|/s/ ERIC M. REUTER(Eric M. Reuter)                          |  | President, Chief Executive Officer and
	Director
	(Principal Executive Officer)                              |  | March 19, 2002
|                                                           
|/s/ DENNIS LALUMANDIERE(Dennis LaLumandiere)                |  | Vice President, Finance, Chief Financial Officer
	and Secretary (Principal Financial and Accounting Officer) |  | March 19, 2002
|                                                           
|/s/ JAMES BAUMGARDT(James Baumgardt)                        |  | Director                                                                                                     |  | March 19, 2002
|                                                           
|/s/ RUDIGER NAUMANN-ETIENNE(Rudiger Naumann-Etienne, Ph.D.) |  | Director                                                                                                     |  | March 19, 2002
|                                                           
|/s/ RODNEY PERKINS(Rodney Perkins, M.D.)                    |  | Director                                                                                                     |  | March 19, 2002

33



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of

Laserscope:


In our opinion, the accompanying consolidated
balance sheet as of December 31, 2001 and the related
consolidated statements of operations, of shareholders
equity and of cash flows present fairly, in all material
respects, the financial position of Laserscope and its
subsidiaries at December 31, 2001, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
item 14(a)(2) on page 30 presents fairly in all
material respects, the information set forth therein for the
year ended December 31, 2001 when read in conjunction with
the related consolidated financial statements. These financial
statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

February 14, 2002


F-1



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Shareholders

Laserscope


We have audited the accompanying consolidated
balance sheet of Laserscope as of December 31, 2000, and
the related consolidated statements of operations,
shareholders equity and cash flows for each of the two
years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Laserscope at
December 31, 2000, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

San Jose, California

February 16, 2001


F-2



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##### Table of Contents



LASERSCOPE

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |         |        |        | 
|-------------------------------------- | ---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------ | ------ | ------ | ------- | ------ | ------ | 
|                                       |                                          |                                                                                                                                                                      
|                                       |                                          | December 31,                                                                                                                                                         
|                                       |                                          |                                                                                                                                                                      
|                                       |                                          | 2001                                                                                                                                                                  |                                            | 2000   
|                                       |                                          |                                                                                                                                                                       |                                            |        
|                                       |                                          |                                                                                                                                                                      
|                                       |                                          | (in thousands except                                                                                                                                                 
|                                       |                                          | share amounts)                                                                                                                                                       
|Current assets:                        |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       | Cash and cash equivalents                |                                                                                                                                                                       | $                                          | 3,408   |        |        | $      | 2,698   |       
|                                       | Accounts receivable, net                 |                                                                                                                                                                       |                                            | 8,427   |        |        |        | 9,549   |       
|                                       | Inventories                              |                                                                                                                                                                       |                                            | 9,228   |        |        |        | 8,279   |       
|                                       | Prepayments and other current assets     |                                                                                                                                                                       |                                            | 1,283   |        |        |        | 963     |       
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       |                                          |                                                                                                                                                                       | Total current assets                       |         |        | 22,346 |        |         |        | 21,489 | 
|Property and equipment, net            |                                          |                                                                                                                                                                       | 2,067                                      |         |        |        | 1,944  |        
|Other assets                           |                                          |                                                                                                                                                                       | 1,069                                      |         |        |        | 654    |        
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|Total assets                           |                                          | $                                                                                                                                                                     | 25,482                                     |         |        | $      | 24,087 |        
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|LIABILITIES AND SHAREHOLDERS EQUITY  
|Current liabilities:                   |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       | Line of credit                           |                                                                                                                                                                       | $                                          | 1,135   |        |        | $      | 702     |       
|                                       | Accounts payable                         |                                                                                                                                                                       |                                            | 2,821   |        |        |        | 1,444   |       
|                                       | Accrued compensation                     |                                                                                                                                                                       |                                            | 1,588   |        |        |        | 1,290   |       
|                                       | Warranty                                 |                                                                                                                                                                       |                                            | 748     |        |        |        | 497     |       
|                                       | Deferred revenue                         |                                                                                                                                                                       |                                            | 1,031   |        |        |        | 1,022   |       
|                                       | Other accrued liabilities                |                                                                                                                                                                       |                                            | 1,470   |        |        |        | 1,446   |       
|                                       | Current obligations under capital leases |                                                                                                                                                                       |                                            | 217     |        |        |        | 295     |       
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       |                                          |                                                                                                                                                                       | Total current liabilities                  |         |        | 9,010  |        |         |        | 6,696  | 
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|Long-term liabilities:                 |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       | Convertible subordinated debentures      |                                                                                                                                                                       |                                            | 3,000   |        |        |        | 3,000   |       
|                                       | Obligations under capital leases         |                                                                                                                                                                       |                                            | 60      |        |        |        | 277     |       
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       |                                          |                                                                                                                                                                       | Total long-term liabilities                |         |        | 3,060  |        |         |        | 3,277  | 
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|Commitments and contingencies (Note 9) |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|Shareholders equity:                  |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       | Common stock, no par value:              |                                                                                                                                                                       |                                            |         |        |        |        |         |       
|                                       |                                          | Authorized shares  25,000,000 at
	December 31, 2001 and 2000
	Issued and outstanding shares  16,085,798 and
	15,883,026 at December 31, 2001 and 2000, respectively |                                            |         | 54,712 |        |        |         | 54,480 |       
|                                       | Accumulated deficit                      |                                                                                                                                                                       |                                            | (39,843 | )      |        |        | (39,014 | )     
|                                       | Accumulated other comprehensive loss     |                                                                                                                                                                       |                                            | (1,332  | )      |        |        | (1,218  | )     
|                                       | Notes receivable from shareholders       |                                                                                                                                                                       |                                            | (125    | )      |        |        | (134    | )     
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       |                                          |                                                                                                                                                                       | Total shareholders equity                 |         |        | 13,412 |        |         |        | 14,114 | 
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        
|                                       |                                          |                                                                                                                                                                       | Total liabilities and shareholders equity |         | $      | 25,482 |        |         | $      | 24,087 | 
|                                       |                                          |                                                                                                                                                                       |                                            |         |        |        |        |        

See notes to consolidated financial statements

F-3



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##### Table of Contents



LASERSCOPE

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |        | 
|-------------------------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                         |                                     |                                      
|                                                         |                                     | Years Ended December 31,             
|                                                         |                                     |                                      
|                                                         |                                     | 2001                                  |        | 2000   |  | 1999
|                                                         |                                     |                                       |        |        |  |     
|                                                         |                                     |                                      
|                                                         |                                     | (thousands, except per share amounts)
|Net revenues:                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         | Products                            |                                       | $      | 29,264 |  |      | $      | 29,694 |  |   | $      | 34,846 | 
|                                                         | Services                            |                                       |        | 5,823  |  |      |        | 5,705  |  |   |        | 6,144  | 
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         |                                     |                                       | 35,087 |        |  |      | 35,399 |        |  |   | 40,990 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Cost of products and services:                           |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         | Products                            |                                       |        | 13,661 |  |      |        | 14,914 |  |   |        | 19,088 | 
|                                                         | Services                            |                                       |        | 4,074  |  |      |        | 3,660  |  |   |        | 4,558  | 
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         |                                     |                                       | 17,735 |        |  |      | 18,574 |        |  |   | 23,646 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Gross margin                                             |                                     |                                       | 17,352 |        |  |      | 16,825 |        |  |   | 17,344 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Operating expenses:                                      |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         | Research and development            |                                       |        | 3,756  |  |      |        | 3,284  |  |   |        | 4,504  | 
|                                                         | Selling, general and administrative |                                       |        | 14,043 |  |      |        | 13,005 |  |   |        | 19,595 | 
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                                         |                                     |                                       | 17,799 |        |  |      | 16,289 |        |  |   | 24,099 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Operating income (loss)                                  |                                     |                                       | (447   | )      |  |      | 536    |        |  |   | (6,755 | )     
|Interest income                                          |                                     |                                       |       |        |  |      | 11     |        |  |   | 6      |       
|Interest expense and other                               |                                     |                                       | (337   | )      |  |      | (361   | )      |  |   | (916   | )     
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income (loss) before income taxes and
	minority interest |                                     |                                       | (784   | )      |  |      | 186    |        |  |   | (7,665 | )     
|Provision for income taxes                               |                                     |                                       | 45     |        |  |      |       |        |  |   | 13     |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income (loss) before minority interest                   |                                     |                                       | (829   | )      |  |      | 186    |        |  |   | (7,678 | )     
|Minority interest                                        |                                     |                                       |       |        |  |      |       |        |  |   | 105    |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Net income (loss)                                        |                                     | $                                     | (829   | )      |  | $    | 186    |        |  | $ | (7,573 | )     
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Basic and diluted net income (loss) per share            |                                     | $                                     | (0.05  | )      |  | $    | 0.01   |        |  | $ | (0.60  | )     
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Shares used in basic per share calculations              |                                     |                                       | 15,953 |        |  |      | 15,489 |        |  |   | 12,580 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Shares used in diluted per share calculations            |                                     |                                       | 15,953 |        |  |      | 16,504 |        |  |   | 12,580 |       
|                                                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       

See notes to consolidated financial statements

F-4



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##### Table of Contents



LASERSCOPE

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |         |        |  
|------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------- | - | ------- | ----- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                                                                    |                                         
|                                      |                                                                                    | Years Ended December 31,                
|                                      |                                                                                    |                                         
|                                      |                                                                                    | 2001                                     |   | 2000    |       | 1999
|                                      |                                                                                    |                                          |   |         |       |     
|                                      |                                                                                    |                                         
|                                      |                                                                                    | (in thousands)                          
|Cash flows from operating activities: |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Net Income (loss)                                                                  |                                          | $ | (829    | )     |      | $ | 186     |        |   | $ | (7,573  | )     
|                                      | Adjustments to reconcile net income
	(loss) to cash                                |                                          |   |         |       |      |   |         |        |   |   |         |       
|                                      | Provided by (used in) operating activities:                                        |                                          |   |         |       |      |   |         |        |   |   |         |       
|                                      |                                                                                    | Depreciation and amortization            |   |         | 938   |      |   |         | 1,569  |   |   |         | 1,835  |  
|                                      |                                                                                    | Amortization of licenses and intangibles |   |         |      |      |   |         | 23     |   |   |         | 977    |  
|                                      |                                                                                    | Amortization of debt issuance costs      |   |         | 140   |      |   |         | 118    |   |   |         |       |  
|                                      |                                                                                    | Excess inventory charges                 |   |         |      |      |   |         |       |   |   |         | 750    |  
|                                      |                                                                                    | Minority Interest                        |   |         |      |      |   |         |       |   |   |         | (105   | )
|                                      | Changes in assets and liabilities:                                                 |                                          |   |         |       |      |   |         |        |   |   |         |       
|                                      |                                                                                    | Accounts receivable, net                 |   |         | 500   |      |   |         | (2,127 | ) |   |         | 2,833  |  
|                                      |                                                                                    | Inventories                              |   |         | (987  | )    |   |         | (741   | ) |   |         | 3,282  |  
|                                      |                                                                                    | Prepayments and other current assets     |   |         | (329  | )    |   |         | (95    | ) |   |         | (414   | )
|                                      |                                                                                    | Other assets                             |   |         |      |      |   |         | (77    | ) |   |         |       |  
|                                      |                                                                                    | Accounts payable                         |   |         | 1,405 |      |   |         | (738   | ) |   |         | (1,948 | )
|                                      |                                                                                    | Accrued compensation                     |   |         | 298   |      |   |         | (163   | ) |   |         | (206   | )
|                                      |                                                                                    | Warranty                                 |   |         | 251   |      |   |         | 168    |   |   |         | (507   | )
|                                      |                                                                                    | Deferred revenue                         |   |         | 9     |      |   |         | 305    |   |   |         | (343   | )
|                                      |                                                                                    | Other accrued liabilities                |   |         | 29    |      |   |         | (88    | ) |   |         | (437   | )
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Cash provided by (used in) operating activities                                    |                                          |   | 1,425   |       |      |   | (1,660  | )      |   |   | (1,856  | )     
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|Cash flows from investing activities: |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Capital expenditures                                                               |                                          |   | (1,066  | )     |      |   | (401    | )      |   |   | (562    | )     
|                                      | NWL acquisition                                                                    |                                          |   |        |       |      |   |        |        |   |   | (1,278  | )     
|                                      | NWL divestiture                                                                    |                                          |   |        |       |      |   | 3,133   |        |   |   |        |       
|                                      | Cash received from the sale of AMS                                                 |                                          |   |        |       |      |   |        |        |   |   | 100     |       
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Cash provided by (used in) investing activities                                    |                                          |   | (1,066  | )     |      |   | 2,732   |        |   |   | (1,740  | )     
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|Cash flows from financing activities: |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Payment on obligations under capital leases                                        |                                          |   | (295    | )     |      |   | (301    | )      |   |   | (352    | )     
|                                      | Proceeds from the sale of common stock under
	stock plans                          |                                          |   | 232     |       |      |   | 992     |        |   |   | 175     |       
|                                      | Proceeds from the sale of common stock in private
	placement                       |                                          |   |        |       |      |   | 710     |        |   |   | 1,024   |       
|                                      | Proceeds from the sale of convertible
	subordinated debentures                     |                                          |   |        |       |      |   | 2,632   |        |   |   |        |       
|                                      | Repayment and write-off of shareholder notes                                       |                                          |   | 9       |       |      |   | 59      |        |   |   | 178     |       
|                                      | Proceeds from line of credit                                                       |                                          |   | 12,700  |       |      |   | 18,162  |        |   |   | 13,382  |       
|                                      | Repayment of line of credit                                                        |                                          |   | (12,267 | )     |      |   | (21,781 | )      |   |   | (10,390 | )     
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Cash provided (used) by financing activities                                       |                                          |   | 379     |       |      |   | 473     |        |   |   | 4,017   |       
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Effect of exchange rate changes on cash                                            |                                          |   | (28     | )     |      |   | (296    | )      |   |   | (428    | )     
|                                      | Increase (decrease) in cash and cash
	equivalents                                  |                                          |   | 710     |       |      |   | 1,249   |        |   |   | (7      | )     
|                                      | Cash and cash equivalents, beginning of year                                       |                                          |   | 2,698   |       |      |   | 1,449   |        |   |   | 1,456   |       
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Cash and cash equivalents, end of year                                             |                                          | $ | 3,408   |       |      | $ | 2,698   |        |   | $ | 1,449   |       
|                                      |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|Supplemental cash flow information:   |                                                                                    |                                          |   |         |       |      |   |         |        |   |   |        
|                                      | Cash paid for income taxes, net of refunds                                         |                                          | $ | 11      |       |      | $ | 15      |        |   | $ | 17      |       
|                                      | Cash paid for interest                                                             |                                          | $ | 365     |       |      | $ | 562     |        |   | $ | 572     |       
|                                      | Non-cash reduction in assets relating to NWL sale                                  |                                          | $ |        |       |      | $ | 8,949   |        |   | $ |        |       
|                                      | Non-cash reduction in liabilities relating to NWL
	sale                            |                                          | $ |        |       |      | $ | 5,415   |        |   | $ |        |       
|                                      | Acquisition of minority interest in affiliate in
	exchange for accounts receivable |                                          | $ | 555     |       |      | $ |        |        |   | $ |        |       
|                                      | Non-cash financing, equipment lease                                                |                                          | $ |        |       |      | $ |        |        |   | $ | 77      |       

See notes to consolidated financial statements

F-5



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##### Table of Contents



LASERSCOPE

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |        |        |  
|------------------------------------------------------------------------------- | ----------------------- | ----------------------------------- | ------ | ----------- |  | ------------- | ------- | ------------ | - | ------------- | ------ | ---- | - | - | ---- | - |  | - | ------ | ------ | ------ | -
|                                                                                |                         |                                     |        |             |  | Accumulated   |         | Notes        |   |              
|                                                                                |                         |                                     |        |             |  | Other         |         | Receivable   |   | Total        
|                                                                                |                         | Common                              |        | Accumulated |  | Comprehensive |         | from         |   | Shareholders
|                                                                                |                         | Stock                               |        | Deficit     |  | Loss          |         | Shareholders |   | Equity       
|                                                                                |                         |                                     |        |             |  |               |         |              |   |              
|                                                                                |                         |                                    
|                                                                                |                         | (in thousands except share amounts)
|Balance at December 31, 1998                                                    |                         | $                                   | 51,268 |             |  | $             | (31,627 | )            |   | $             | (599   | )    |   | $ | (371 | ) |  | $ | 18,671 |       
|Components of comprehensive loss:                                               |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                | Net loss                |                                     |        |             |  |               |         | (7,573       | ) |               |        |      |   |   |      |   |  |   |        | (7,573 | )     
|                                                                                | Translation adjustments |                                     |        |             |  |               |         |              |   |               |        | (428 | ) |   |      |   |  |   |        | (428   | )     
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                |                         | Total comprehensive loss            |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |        | (8,001 | )
|Issuance of 162,225 shares under stock plans                                    |                         |                                     | 175    |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 175    |       
|Issuance of 1,505,000 shares in private
	placement, net of issuance costs       |                         |                                     | 1,024  |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 1,024  |       
|Repayment and write off of shareholder notes                                    |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   | 178  |   |  |   | 178    |       
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|Balance at December 31, 1999                                                    |                         | $                                   | 52,467 |             |  | $             | (39,200 | )            |   | $             | (1,027 | )    |   | $ | (193 | ) |  | $ | 12,047 |       
|Components of comprehensive loss:                                               |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                | Net income              |                                     |        |             |  |               |         | 186          |   |               |        |      |   |   |      |   |  |   |        | 186    |       
|                                                                                | Translation adjustments |                                     |        |             |  |               |         |              |   |               |        | (191 | ) |   |      |   |  |   |        | (191   | )     
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                |                         | Total comprehensive loss            |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |        | (5     | )
|Issuance of 694,983 shares under stock plans                                    |                         |                                     | 992    |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 992    |       
|Issuance of 995,000 shares in private placement,
	net of issuance costs         |                         |                                     | 710    |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 710    |       
|Issuance of 240,000 warrants in connection with
	convertible debenture issuance |                         |                                     | 311    |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 311    |       
|Repayment of shareholder notes                                                  |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   | 59   |   |  |   | 59     |       
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|Balance at December 31, 2000                                                    |                         | $                                   | 54,480 |             |  | $             | (39,014 | )            |   | $             | (1,218 | )    |   | $ | (134 | ) |  | $ | 14,114 |       
|Components of comprehensive loss:                                               |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                | Net loss                |                                     |        |             |  |               |         | (829         | ) |               |        |      |   |   |      |   |  |   |        | (829   | )     
|                                                                                | Translation adjustments |                                     |        |             |  |               |         |              |   |               |        | (114 | ) |   |      |   |  |   |        | (114   | )     
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|                                                                                |                         | Total comprehensive loss            |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |        | (943   | )
|Issuance of 197,772 shares under stock plans                                    |                         |                                     | 225    |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 225    |       
|Issuance of 5,000 shares upon warrant exercises                                 |                         |                                     | 7      |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   | 7      |       
|Repayment of shareholder notes                                                  |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   | 9    |   |  |   | 9      |       
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       
|Balance at December 31, 2001                                                    |                         | $                                   | 54,712 |             |  | $             | (39,843 | )            |   | $             | (1,332 | )    |   | $ | (125 | ) |  | $ | 13,412 |       
|                                                                                |                         |                                     |        |             |  |               |         |              |   |               |        |      |   |   |      |   |  |   |        |       

See notes to consolidated financial statements

F-6



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##### Table of Contents



LASERSCOPE

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Summary of Significant Accounting
Policies

Business

The Company primarily operates in one business
segment, the medical systems business. The Company develops,
manufactures, markets and supports aesthetic and surgical lasers
and other surgical systems, related instrumentation and
disposable supplies. The Company markets its products and
services in over thirty-five countries worldwide to hospitals,
outpatient surgery centers and physicians.

Basis
of presentation

The accompanying consolidated financial
statements include the Company and its wholly and majority-owned
subsidiaries. All inter-company transactions and balances have
been eliminated.

Potential
Need to Raise Additional Capital

As of December 31, 2001, the Companys
total assets were $25.5 million and the total liabilities
were $12.1 million. As of the same date, working capital
was $13.3 million and cash and cash equivalents totaled
$3.4 million. Current and anticipated demand for the
Companys products as well as procurement and production
affect the need for capital. Changes in these or other factors
could have a material impact on capital requirements and may
require the Company to raise additional capital.

The Companys line of credit and debentures
contain certain financial covenants. The covenants associated
the debentures are debt-to-equity ratio, current ratio, and
interest coverage. In the event that the Company is unable to
satisfy any of these covenants, then it would be in default and
the lender would have the right to exercise various remedies
including declaring due all outstanding principal and interest.
The interest coverage ratio requirement is 1.5 for the
trailing twelve months, and as of December 31, 2001 the
interest coverage was 1.7. The Companys future
ability to meet the interest coverage requirement will depend
primarily on its ability to generate profits. The debt-to-equity
requirement is a maximum of 1.5, and the current ratio
requirement is a minimum of 1.0. As of December 31,
2001 the Company was in compliance with all debt covenants.

While the Company believes that its existing cash
resources, including the bank line of credit, will be sufficient
to fund its operating needs for the next twelve months,
additional financing will be required for the Companys
currently envisioned long tem needs.

There can be no assurance that any additional
financing will be available on terms acceptable to the Company,
or at all. In addition, future equity financings could result in
dilution to shareholders, and future debt financings could
result in certain financial and operational restrictions.

Use
of estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make certain
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.

Fair
value of financial instruments

Carrying amounts of the Companys financial
instruments including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities,
approximate their fair values due to their short maturities.
Based on the borrowing rates currently available to the Company
for loans with similar terms, the carrying values of the line of
credit, capital lease obligations, and convertible debentures
approximate their fair values.

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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Cash
and cash equivalents

The Company considers cash equivalents to be
short-term financial instruments that are readily convertible to
cash, subject to no more than insignificant interest rate risk
and that have original maturities of three months or less.

Revenue
recognition and product warranty

The Company recognizes revenue on products and
services when the persuasive evidence of an arrangement is in
place, the price is fixed or determinable, collectibility is
reasonably assured, and title and risk of ownership has been
transferred. Transfer of title and risk of ownership generally
occurs when the product is shipped to the customer or when the
customer receives the product, depending on the nature of the
arrangement. The Company currently provides for the estimated
cost to repair or replace products under warranty at the time of
sale. Service revenue is recognized as the services are provided
and for service contracts on a pro rata basis over the period of
the applicable service contract.

Research
and development expenditures

Costs related to research, design and development
of products are charged to research and development expense as
incurred.

Property
and equipment

Property and equipment is stated at cost less
accumulated depreciation and amortization.

Equipment is depreciated using principally
accelerated methods over estimated useful lives of three to
seven years. Equipment under capital leases is amortized over
the period of the lease. Leasehold improvements are amortized
using the straight-line method over the remaining term of the
lease or useful life if shorter. Maintenance and repairs are
charged to operations as incurred.

Inventories

Inventories are stated at the lower of cost
(computed on a first-in, first-out basis) or market.

Net
income (loss) per share

Basic net income (loss) per share is calculated
using the weighted average number of common stock outstanding.
Diluted net income (loss) per share is calculated using the
weighted average number of common stock outstanding plus
dilutive common equivalent shares from stock options.

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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table sets forth the computation of
basic and diluted net income (loss) per common share:

|                                    |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |        |  
|----------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------------- | ----- | ------ | - | ---- | ---- | ------ |  | - | ----- | ------ | -
|                                    |                                                                                                 | 2001                               |       | 2000   |   | 1999
|                                    |                                                                                                 |                                    |       |        |   |     
|                                    |                                                                                                 |                                   
|                                    |                                                                                                 | (thousands, except per share data)
|Numerator:                          |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|                                    | Basic and diluted net income (loss)                                                             |                                    | $     | (829   | ) |      | $    | 186    |  |   | $     | (7,573 | )
|                                    |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|Denominator:                        |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|                                    | Denominator for basic net income (loss) per
	share  weighted average basis                     |                                    |       | 15,953 |   |      |      | 15,489 |  |   |       | 12,580 |  
|                                    |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|                                    | Effect of dilutive securities:                                                                  |                                    |       |        |   |      |      |        |  |   |       |        |  
|                                    | Employee stock options                                                                          |                                    |       |       |   |      |      | 613    |  |   |       |       |  
|                                    | Warrants                                                                                        |                                    |       |       |   |      |      | 402    |  |   |       |       |  
|                                    |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|                                    | Dilutive potential common shares                                                                |                                    |       |       |   |      |      | 1,015  |  |   |       |       |  
|                                    |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|                                    | Denominator for diluted net income
	(loss) per common share  adjusted
	weighted-average shares |                                    |       | 15,953 |   |      |      | 16,504 |  |   |       | 12,580 |  
|Net income (loss) per common share: |                                                                                                 |                                    |       |        |   |      |      |        |  |   |       |       
|Basic                               |                                                                                                 | $                                  | (0.05 | )      |   | $    | 0.01 |        |  | $ | (0.60 | )     
|Diluted                             |                                                                                                 | $                                  | (0.05 | )      |   | $    | 0.01 |        |  | $ | (0.60 | )     

Options to purchase 3,188,405, 2,819,606, and
3,443,978 shares of common stock were outstanding at
December 31, 2001, 2000, and 1999, respectively. In
addition, warrants to purchase 453,875, and 458, 875 shares of
common stock were outstanding at December 31, 2001 and 2000
respectively. At December 31, 1999 there were no warrants
outstanding. During 2001 and 1999, the options and warrants were
not included in the computation of diluted net loss per share
because the Company reported net losses for the periods that
ended at these dates and, therefore, the effect would be
antidilutive.

At December 31, 2001 the Company had
outstanding debentures convertible into 2.4 million shares
of common stock. The interest on these debentures and the shares
has been excluded from the calculation of diluted net income
(loss) per share in 2001 and 2000 because the effect of
including them would be antidilutive.

Foreign
currency translation

The functional currencies of the Companys
foreign subsidiaries are their local currencies. Accordingly,
all assets and liabilities related to their operations are
translated at the current exchange rates at the end of each
period. The resulting cumulative translation adjustments are
recorded directly to the translation adjustments account, a
component of the accumulated other comprehensive loss, and are
included in shareholders equity. Revenues and expenses are
translated at average exchange rates in effect during the
period. Foreign currency transaction gains and losses are
included in the statement of operations.

Income
taxes

Deferred tax assets and liabilities are
determined based on the differences between financial reporting
and tax basis of assets and liabilities, measured at tax rates
that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be
realized.

Impairment
of assets

The Company recognizes impairment losses on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less

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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

than the assets carrying amounts. There
were no such losses recognized during the years ended
December 31, 2001, 2000, and 1999.

Goodwill
and intangible assets related to acquisitions

On September 17, 2001, the Company purchased
the remaining 25% minority interest in its subsidiary,
Laserscope France S.A. through the exercise of a buy-out option
of $555,000 which was paid through the assignment of accounts
receivable. Goodwill of $655,000 arose on the acquisition. The
Company has adopted the transitional rules of SFAS 142 that
apply to goodwill acquired after June 30, 2001 and has not
amortized this goodwill. The Company has reviewed the goodwill
for impairment in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, and has concluded that no impairment charge
is required. The goodwill was included within other assets at
December 31, 2001.

Advertising
expense

Advertising costs are expensed as incurred.
Advertising costs were not significant in 2001, 2000, and 1999.

Stock-based
compensation

The Company accounts for stock-based compensation
arrangements in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and its
interpretations, and complies with the disclosure provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB Opinion No. 25, compensation
expense is based on the difference, if any, on the date of
grant, between the fair value of the Companys stock and
the exercise price. SFAS No. 123 defines a fair
value based method of accounting for an employee stock
option or similar equity instrument. The Company accounts for
equity instruments issued to non-employees in accordance with
the provisions of SFAS No. 123 and EITF Issue
No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods and Services (EITF Issue
No. 96-18). Under SFAS No. 123 and EITF Issue
No. 96-18, the fair value of options granted to
non-employees is estimated using the Black-Scholes option
pricing model and is periodically remeasured as the options vest.

Comprehensive
loss

Comprehensive loss is defined as the change in
equity from transactions and other events and circumstances
other than those resulting from investments by owners and
distributions to owners. For the years ended December 31,
2001, 2000 and 1999, comprehensive loss comprised of net income
(loss) and foreign currency translation adjustments.

New
Accounting Pronouncements

In May 2000, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-14, Accounting
for Certain Sales Incentives. EITF Issue No. 00-14
addresses the recognition, measurement, and income statement
classification for sales incentives that a vendor voluntarily
offers to customers (without charge), which the customer can use
in, or exercise as a result of, a single exchange transaction.
Sales incentives that fall within the scope of EITF Issue No.
00-14 include offers that a customer can use to receive a
reduction in the price of a product or service at the point of
sale. The EITF changed the transition date for Issue 00-14,
concluding that a company should apply this consensus no later
than the companys annual or interim financial statements
for the periods beginning after December 15, 2001. In June
2001, the EITF issued EITF Issue No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a
Reseller of the Vendors Products, effective for
periods beginning after December 15, 2001. EITF Issue
No. 00-25 addresses whether consideration from a vendor to
a reseller is (a) an adjustment of the selling prices of
the vendors products

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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

and, therefore, should be deducted from revenue
when recognized in the vendors statement of operations or
(b) a cost incurred by the vendor for assets or services
received from the reseller and, therefore, should be included as
a cost or expense when recognized in the vendors statement
of operations. In September of 2001, the EITF issued EITF Issue
No. 01-09, Accounting for Consideration Given by
Vendor to a Customer or a Reseller of the Vendors
Products, which is a codification of EITF Issues
No. 00-14, No. 00-25 and No. 00-22
Accounting for Points and Certain Other
Time-or Volume-Based Sales Incentive Offers and Offers for Free
Products or Services to be Delivered in the Future. The
Company believes that the adoption of EITF issue No. 01-09
will not have a significant impact on its financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires
the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the
adoption of SFAS No. 141 will not have a significant impact
on its financial statements.

In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets, which is
effective for fiscal years beginning after December 15,
2001. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. The
Company believes that the adoption of SFAS No. 142 will not
have a significant impact on its financial statements.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and develops a single
accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are to be applied
prospectively. The Company believes that the adoption of SFAS
No. 144 will not have a significant impact on its financial
statements.

2. Sale of NWL
Laser-Technologie

On February 18, 2000, the Company signed an
agreement with Wavelight Laser Technologie AG
(Wavelight) to sell its interest in NWL Laser
Technologie GmbH (NWL). The sale, which was approved
by Wavelights shareholders on March 31, 2000, had an
effective date of January 1, 2000. As part of

F-11



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

the transaction, NWL continued to distribute
Laserscopes products in all countries covered by
NWLs then current distribution channels. The details of
the transaction are as follows (in thousands):

|                                           |                              |  |       |        |  
|------------------------------------------ | ---------------------------- |  | ----- | ------ | -
|Book value of assets and liabilities sold: |                              |  |       |       
|                                           | Cash                         |  | $     | 296    |  
|                                           | Accounts receivable          |  |       | 2,477  |  
|                                           | Inventory                    |  |       | 2,514  |  
|                                           | Other current assets         |  |       | 329    |  
|                                           | Property, plant & equipment  |  |       | 857    |  
|                                           | Licenses & intangible assets |  |       | 2,707  |  
|                                           | Accounts payable & accruals  |  |       | (1,255 | )
|                                           | Income taxes payable         |  |       | (323   | )
|                                           | Short-term bank loans        |  |       | (3,040 | )
|                                           | Long-term bank loans         |  |       | (863   | )
|                                           | Minority interest & other    |  |       | (37    | )
|                                           |                              |  |       |       
|                                           |                              |  | 3,662 |       
|Proceeds:                                  |                              |  |       |       
|                                           | Received May 2000            |  |       | 3,429  |  
|                                           |                              |  |       |       
|                                           | Net loss on disposal         |  | $     | 233    |  
|                                           |                              |  |       |       

The net loss on disposal of $233,000 was included
within selling, general and administrative expenses during the
year ended December 31, 2000.

3. Segment information

Laserscopes revenue base is derived from
the sales of interrelated products and services on a world-wide
basis. Although discrete components that earn revenues and incur
expenses exist, significant expenses such as research and
development and corporate administration are not incurred by nor
allocated to these operating units but rather are employed by
the entire enterprise. Additionally, the chief operating
decision maker evaluates resource allocation not on a product or
geographic basis, but rather on an enterprise wide basis.
Therefore, the Company has concluded that it contains only one
reportable segment, which is the medical systems business.

F-12



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Revenues from sales to external customers by
similar products and services and by major geographic area for
the years ended December 31 were:

|                                 |       |                |        |        |  |      |        |        |  |   |        |        | 
|-------------------------------- | ----- | -------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                 |       | 2001           |        | 2000   |  | 1999
|                                 |       |                |        |        |  |     
|                                 |       |               
|                                 |       | (in thousands)
|By similar products and services |       |                |        |        |  |      |        |        |  |   |        |       
|Laser equipment                  |       | $              | 15,328 |        |  | $    | 18,472 |        |  | $ | 23,263 |       
|Disposables & instrumentation    |       |                | 13,936 |        |  |      | 11,222 |        |  |   | 11,580 |       
|Service                          |       |                | 5,823  |        |  |      | 5,705  |        |  |   | 6,147  |       
|                                 |       |                |        |        |  |      |        |        |  |   |        |       
|                                 | Total |                | $      | 35,087 |  |      | $      | 35,399 |  |   | $      | 40,990 | 
|                                 |       |                |        |        |  |      |        |        |  |   |        |       
|By major geographic area(1)      |       |                |        |        |  |      |        |        |  |   |        |       
|United States                    |       | $              | 22,831 |        |  | $    | 22,007 |        |  | $ | 22,551 |       
|Germany(2)                       |       |                | 978    |        |  |      | 1,300  |        |  |   | 7,089  |       
|Rest of Europe(3)                |       |                | 7,853  |        |  |      | 8,456  |        |  |   | 8,268  |       
|Asia Pacific(3)                  |       |                | 2,685  |        |  |      | 2,871  |        |  |   | 2,635  |       
|Rest of world(3)                 |       |                | 740    |        |  |      | 765    |        |  |   | 447    |       
|                                 |       |                |        |        |  |      |        |        |  |   |        |       
|                                 | Total |                | $      | 35,087 |  |      | $      | 35,399 |  |   | $      | 40,990 | 
|                                 |       |                |        |        |  |      |        |        |  |   |        |       




|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the location of the external customer.                                                                                                                                    
|   
|(2) | The Company acquired a 52% interest in NWL in
	June 1997 and further increased its interest to 80% in January
	1999. Effective January 2000, the Company divested itself from
	NWL.
|   
|(3) | Individual countries within each of these
	geographic regions represent less than 10% of total revenues.                                                                           

Location of long lived assets by major geographic
area at December 31 were:

|              |  |                |       |      |  |      |       |  |  |   |       | 
|------------- |  | -------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|              |  | 2001           |       | 2000 |  | 1999
|              |  |                |       |      |  |     
|              |  |               
|              |  | (in thousands)
|United States |  | $              | 2,412 |      |  | $    | 2,462 |  |  | $ | 5,645 | 
|Germany       |  |                |      |      |  |      |      |  |  |   | 884   | 
|France        |  |                | 702   |      |  |      | 84    |  |  |   | 60    | 
|U.K.          |  |                | 22    |      |  |      | 52    |  |  |   | 85    | 
|              |  |                |       |      |  |      |       |  |  |   |       | 
|              |  | $              | 3,136 |      |  | $    | 2,598 |  |  | $ | 6,674 | 
|              |  |                |       |      |  |      |       |  |  |   |       | 

4. Accounts Receivable

Accounts receivable at December 31 consisted
of:

|                                      |  |                |       |      |  |   |        |  
|------------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | -
|                                      |  | 2001           |       | 2000
|                                      |  |                |       |     
|                                      |  |               
|                                      |  | (in thousands)
|Trade accounts receivable             |  | $              | 8,801 |      |  | $ | 10,349 |  
|Less: allowance for doubtful accounts |  |                | (374  | )    |  |   | (800   | )
|                                      |  |                |       |      |  |   |        |  
|                                      |  | $              | 8,427 |      |  | $ | 9,549  |  
|                                      |  |                |       |      |  |   |        |  

F-13



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5. Inventories

Inventories at December 31 consisted of:

|                                   |  |                |       |      |  |   |       | 
|---------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                   |  | 2001           |       | 2000
|                                   |  |                |       |     
|                                   |  |               
|                                   |  | (in thousands)
|Sub-assemblies and purchased parts |  | $              | 7,088 |      |  | $ | 6,295 | 
|Finished goods                     |  |                | 2,140 |      |  |   | 1,984 | 
|                                   |  |                |       |      |  |   |       | 
|                                   |  | $              | 9,228 |      |  | $ | 8,279 | 
|                                   |  |                |       |      |  |   |       | 

6. Property and Equipment

Property and equipment at December 31
consisted of:

|                                               |  |                |         |      |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                               |  | 2001           |         | 2000
|                                               |  |                |         |     
|                                               |  |               
|                                               |  | (in thousands)
|Machinery and equipment                        |  | $              | 4,015   |      |  | $ | 3,961   |  
|Office equipment and furniture                 |  |                | 10,469  |      |  |   | 9,804   |  
|Leasehold improvements                         |  |                | 1,238   |      |  |   | 805     |  
|                                               |  |                |         |      |  |   |         |  
|                                               |  |                | 15,722  |      |  |   | 14,570  |  
|Less accumulated depreciation and amortization |  |                | (13,655 | )    |  |   | (12,626 | )
|                                               |  |                |         |      |  |   |         |  
|                                               |  | $              | 2,067   |      |  | $ | 1,944   |  
|                                               |  |                |         |      |  |   |         |  

7. Goodwill and Other
Intangibles

On September 17, 2001, the Company purchased
the remaining 25% minority interest in its subsidiary,
Laserscope France S.A. through the exercise of a buy-out option
of $555,000 which was paid through the assignment of accounts
receivable. Goodwill of $655,000 arose on the acquisition. The
Company has adopted the transitional rules of SFAS 142 that
apply to goodwill acquired after June 30, 2001 and has not
amortized this goodwill. The Company has reviewed the goodwill
for impairment in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, and has concluded that no impairment charge
is required. The goodwill was included within other assets at
December 31, 2001.

8. Line of Credit

The Company has in place an asset based line of
credit which provides up to $5.0 million in borrowings and
expires September 2002. Credit is extended based on the
Companys eligible accounts receivable and inventory. At
December 31, 2001, the Company had approximately
$2.5 million in borrowing capacity available against
$1.1 million borrowed and $1.1 million in letter of
credit reserve requirements. This resulted in $300,000 of unused
borrowing capacity. The Companys assets collateralize the
line of credit which bears an interest rate equivalent to the
banks prime rate plus 1.75% per annum (6.50% in December
2001). Borrowings against the line of credit are paid down as
the Company collects its accounts receivable. Provisions of the
bank loan agreement prohibit the payment of dividends on
non-preferred stock, or the redemption, retirement, repurchase
or other acquisition of Company stock. The agreement further
requires the Company to maintain a minimum tangible net worth.
As of December 31, 2001, the Company was in compliance with
all covenants.

F-14



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9. Commitments and
Contingencies

Lease Obligations

The Company leases certain equipment under lease
agreements that have been accounted for as capital leases.
Leased equipment and accumulated amortization related to assets
under capital leases at December 31 were as follows:

|                         |                                           |                |        |       |  |   |      |       | 
|------------------------ | ----------------------------------------- | -------------- | ------ | ----- |  | - | ---- | ----- | 
|                         |                                           | 2001           |        | 2000 
|                         |                                           |                |        |      
|                         |                                           |               
|                         |                                           | (in thousands)
|Leased equipment         |                                           |                |        |       |  |   |      |      
|                         | (Primarily office equipment and software) |                | $      | 1,485 |  |   | $    | 1,485 | 
|Accumulated amortization |                                           |                | (1,132 | )     |  |   | (873 | )    
|                         |                                           |                |        |       |  |   |      |      
|                         |                                           | $              | 353    |       |  | $ | 612  |      

There were no additions to leased equipment in
2001, $20,000 in 2000 and $77,000 in 1999.

Amortization of equipment under capital leases is
included in depreciation expense.

The Company leases certain facilities and
equipment under non-cancelable operating leases. Rent expense
under these leases amounted to approximately $1,681,000,
$1,130,000 and $1,558,000 in each of the three years ended
December 31, 2001, 2000 and 1999, respectively

Future minimum lease payments under capital and
operating leases were as follows at December 31, 2001:

|                                               |  |                |     |           |  |   |       | 
|---------------------------------------------- |  | -------------- | --- | --------- |  | - | ----- | 
|                                               |  | Capital        |     | Operating
|                                               |  | Leases         |     | Leases   
|                                               |  |                |     |          
|                                               |  |               
|                                               |  | (in thousands)
|2002                                           |  | $              | 221 |           |  | $ | 1,690 | 
|2003                                           |  |                | 80  |           |  |   | 1,721 | 
|2004                                           |  |                |    |           |  |   | 1,753 | 
|2005                                           |  |                |    |           |  |   | 1,383 | 
|2006 and beyond                                |  |                |    |           |  |   |      | 
|                                               |  |                |     |           |  |   |       | 
|                                               |  |                | 301 |           |  | $ | 6,547 | 
|                                               |  |                |     |           |  |   |       | 
|Less amount representing interest              |  |                | (24 | )         |  |   |       | 
|                                               |  |                |     |           |  |   |       | 
|Present value of future minimum lease payments |  |                | 277 |           |  |   |       | 
|                                               |  |                |     |           |  |   |       | 
|Less current portion                           |  |                | 217 |           |  |   |       | 
|                                               |  |                |     |           |  |   |       | 
|                                               |  | $              | 60  |           |  |   |       | 
|                                               |  |                |     |           |  |   |       | 

Contingencies

The Company is at times a party to legal
proceedings arising in the ordinary course of its business.
While it is not feasible to predict or determine the outcome of
the actions brought against the Company, management believes
that the ultimate resolution of these claims will not ultimately
have a material adverse effect on the Companys financial
position, results of operations, or future cash flows.

10. Long-term Debt

In February of 2000, the Company sold
$3 million of 8.00% convertible debentures in a private
placement. The debentures mature in February 2007 and pay
interest monthly. Starting in February 2003, 1% of the
outstanding principal will be repaid per month. The debentures
are convertible at the option of the

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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

holder at any time prior to the close of business
on the maturity date, unless previously repurchased, into
2.4 million shares of common stock at a conversion price of
$1.25, subject to adjustment in certain circumstances. In
connection with the sale of the convertible debentures, the
Company issued warrants to purchase 240,000 shares of the
Companys common stock at $1.50 per share. The warrants
expire in 2005. The value of the warrants is being amortized as
interest expense in our statement of operations.

There are covenants associated with the
debentures for debt-to-equity ratio, current ratio, and interest
coverage. If the Company were unable to satisfy any of these
covenants, then it would be in default and the lender may
exercise various remedies including declaring due all
outstanding principal and interest. The interest coverage ratio
minimum requirement is 1.5 for the trailing twelve months, and
as of December 31, 2001 the Companys interest
coverage was 1.7. The debt-to-equity requirement is a maximum or
1.5, and the current ratio requirement is a minimum of 1.0. As
of December 31, 2001 the Company was in compliance with the
covenants.

The holder of the debentures would have the right
to redeem the debentures under certain circumstances including
if one of the following were to occur: 1) the
Companys common stock is not listed on the NASDAQ National
Market System or quoted on the NASDAQ Small Cap System,
2) there is a change of at least two-thirds of the members
of the Companys Board of Directors, without the written
consent of the holder, 3) the Company is merged into
unaffiliated entities, without the written consent of the
holder, 4) the holder elects to receive more than 20% or
more of the outstanding Common Stock as a result of the
application of an anti-dilution provision of the debentures, and
the Company fails to obtain the vote or consent of its
stockholders necessary to approve the issuance to the holder. If
the holder were to redeem the debentures prior to maturity, the
amount payable to the holder would be equal to the principal
plus an amount equal to an 18% yield on the principal amount
through the date of redemption.

The Company has the right to redeem the
debentures at 101% of par if all the following conditions are
satisfied: 1) the closing bid price for the common stock of
the Company for the 20 consecutive trading days prior to the
irrevocable notice of redemption exceeds an amount equal to 2.75
times the conversion price, 2) the average daily trading
volume for the 20 consecutive days prior to the irrevocable
notice shall be no less than 200,000 shares, 3) the market
price for the common stock at the time of notice reflects a
price-earnings-ratio of no greater than 30 times fully diluted
earnings per share, 4) the Company shall have filed a
registration statement covering the shares of common stock
issuable upon conversion of this debenture.

Long-term debt at December 31 consisted of:

|                                                                                                  |  |                |       |      |  |   |       | 
|------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                                                                  |  | 2001           |       | 2000
|                                                                                                  |  |                |       |     
|                                                                                                  |  |               
|                                                                                                  |  | (in thousands)
|Convertible Debentures with 8% interest payable
	Monthly from February 2003 through February 2007 |  | $              | 3,000 |      |  | $ | 3,000 | 
|                                                                                                  |  |                |       |      |  |   |       | 

Required principal payments at December 31,
2001 are:

|                |  |                |       | 
|--------------- |  | -------------- | ----- | 
|                |  | Long-term debt
|                |  |               
|                |  | (in thousands)
|2003            |  |                | 314   | 
|2004            |  |                | 305   | 
|2005            |  |                | 270   | 
|2006            |  |                | 240   | 
|2007 and beyond |  |                | 1,871 | 
|                |  |                |       | 
|                |  | $              | 3,000 | 
|                |  |                |       | 

F-16



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

11. Shareholders Equity

The Company has 25,000,000 shares of no par value
common stock authorized. In addition, the Company has authorized
5,000,000 shares of undesignated preferred stock with rights,
preferences and privileges to be determined by the
Companys Board of Directors.

Private
Placement of Common Stock

On January 14, 2000, the Company completed
the final closing of a private placement of common stock. In the
transaction, the Company received approximately
$1.8 million, net of expenses, of which approximately
$1.0 million was received in 1999, in exchange for
2.5 million shares of common stock, including placement
agent commission shares.

Warrants

In 2000, in connection with common stock and
convertible debenture issuances, the Company issued 458,875
warrants to purchase Laserscope stock at prices ranging form
$1.25 to $1.50. The warrants expire in 2005. As of 12/31/01,
there remained 453,875 warrants outstanding.

1994 and 1984
Stock Option Plans

During 1994 and 1984, the Company adopted stock
option plans under which the Board of Directors may grant
incentive stock options to purchase shares of common stock to
employees of the Company at a price not less than the fair value
of the shares as of the date of grant. The Board of Directors
may also grant non-statutory stock options to employees and
consultants, including directors who serve as employees or
consultants, at not less than 85% of the fair market value of
the shares as of the date of grant. Options issued pursuant to
the 1984 plan vest and become exercisable over periods of up to
five years and expire five to ten years after the date of grant.
Options issued pursuant to the 1994 plan vest and become
exercisable over periods of up to four years and expire five
years after the date of grant.

At December 31, 2001, options to purchase
142,832 shares of common stock were outstanding under the 1984
Stock Option Plan, all of which were exercisable.

The Company has reserved 3,250,000 shares of
common stock of which there were 190,881 shares available for
issuance pursuant to its 1994 stock option plan as of
December 31, 2001.

1999 Retention
Stock Option Plan

During 1999, the Company adopted a stock option
plan under which the Board of Directors may grant non-statutory
options to purchase shares of common stock to non-officer
employees of the Company at a price not less than the fair value
of the shares as of the date of grant. Options issued pursuant
to the 1999 plan vest and become exercisable over periods of up
to four years and expire five years after the date of grant.

The Company has reserved 698,000 shares of common
stock of which there were 223,500 shares available for issuance
pursuant to its 1999 Retention Stock Option Plan as of
December 31, 2001.

Directors
Stock Option Plans

The Company has reserved 840,000 shares of its
common stock for issuance pursuant to its 1999 and 1995
Directors Stock Option Plans in aggregate. Under these
plans, non-employee directors of the Company have been granted
options to purchase up to 105,000 shares (45,000 shares pursuant
to the 1995 plan and 60,000 shares pursuant to the 1999 plan) of
the Companys common stock exercisable at the fair market
value of such shares on the respective grant dates. Options
issued pursuant to these plans vest and become exercisable over
three years from the respective original date of issuance with
respect to each optionee who

F-17



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

remains a director and expire five to ten years
after the date of grant. Upon the adoption of the 1999
Directors Stock Option Plan, the 1995 Directors
Stock Option Plan expired with respect to future grants. There
were 240,000 shares available for issuance pursuant to the 1999
Directors Stock Option Plan at December 31, 2001.

The following table summarizes activity in the
Companys stock option plans during the years ended
December 31, 2001, 2000 and 1999:

|                           |           |             |           |                  |   |   |      |      | 
|-------------------------- | --------- | ----------- | --------- | ---------------- | - | - | ---- | ---- | 
|                           |           | Options     |           | Weighted Average
|                           |           | Outstanding |           | Exercise Price  
|                           |           |             |           |                 
|Balance, December 31, 1998 |           |             | 2,615,317 |                  |   | $ | 2.03 |     
|                           | Granted   |             |           | 1,508,553        |   |   | $    | 1.36 | 
|                           | Exercised |             |           | (28,685          | ) |   | $    | 1.26 | 
|                           | Canceled  |             |           | (651,207         | ) |   | $    | 2.23 | 
|                           |           |             |           |                  |   |   |      |     
|Balance, December 31, 1999 |           |             | 3,443,978 |                  |   | $ | 1.70 |     
|                           | Granted   |             |           | 692,066          |   |   | $    | 2.18 | 
|                           | Exercised |             |           | (568,507         | ) |   | $    | 1.50 | 
|                           | Canceled  |             |           | (747,931         | ) |   | $    | 2.14 | 
|                           |           |             |           |                  |   |   |      |     
|Balance, December 31, 2000 |           |             | 2,819,606 |                  |   | $ | 1.74 |     
|                           | Granted   |             |           | 603,500          |   |   | $    | 1.62 | 
|                           | Exercised |             |           | (72,355          | ) |   | $    | 1.10 | 
|                           | Canceled  |             |           | (162,346         | ) |   | $    | 1.57 | 
|                           |           |             |           |                  |   |   |      |     
|Balance, December 31, 2001 |           |             | 3,188,405 |                  |   | $ | 1.73 |     
|                           |           |             |           |                  |   |   |      |     

The following table displays a summary of
relevant ranges of exercise prices for options outstanding and
options exercisable for the Companys stock option plans at
December 31, 2001:

|                |               |                     |  |                  |           |                     |  |             |      |                |  |   |      |  |  |  |           |  |  |   |      | 
|--------------- | ------------- | ------------------- |  | ---------------- | --------- | ------------------- |  | ----------- | ---- | -------------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|                |               |                     |  |                  |           |                    
|                |               | Options Outstanding |  |                  |           | Options Exercisable
|                |               |                     |  |                  |           |                    
|                |               |                     |  | Weighted         |           |                     |  |            
|                |               |                     |  | Average          |           |                     |  |            
|                |               |                     |  | Remaining        |           | Weighted            |  |             |      | Weighted      
|Range of        |               | Number              |  | Contractual Life |           | Average             |  | Number      |      | Average       
|Exercise Prices |               | Outstanding         |  | (Years)          |           | Exercise Price      |  | Exercisable |      | Exercise Price
|                |               |                     |  |                  |           |                     |  |             |      |               
|                | $0.69  $1.25 |                     |  |                  | 741,306   |                     |  |             | 2.92 |                |  | $ | 1.15 |  |  |  | 620,310   |  |  | $ | 1.14 | 
|                | $1.28  $1.31 |                     |  |                  | 628,027   |                     |  |             | 1.29 |                |  | $ | 1.28 |  |  |  | 579,289   |  |  | $ | 1.28 | 
|                | $1.38  $1.59 |                     |  |                  | 457,900   |                     |  |             | 3.76 |                |  | $ | 1.50 |  |  |  | 290,572   |  |  | $ | 1.50 | 
|                | $1.60  $1.80 |                     |  |                  | 688,201   |                     |  |             | 4.80 |                |  | $ | 1.64 |  |  |  | 73,382    |  |  | $ | 1.69 | 
|                | $1.91  $2.31 |                     |  |                  | 325,039   |                     |  |             | 3.49 |                |  | $ | 1.99 |  |  |  | 223,663   |  |  | $ | 1.98 | 
|                | $3.00  $5.88 |                     |  |                  | 347,932   |                     |  |             | 2.10 |                |  | $ | 4.04 |  |  |  | 261,626   |  |  | $ | 4.38 | 
|                |               |                     |  |                  |           |                     |  |             |      |                |  |   |      |  |  |  |           |  |  |   |      | 
|                | $0.69  $5.88 |                     |  |                  | 3,188,405 |                     |  |             | 3.09 |                |  | $ | 1.73 |  |  |  | 2,048,842 |  |  | $ | 1.76 | 
|                |               |                     |  |                  |           |                     |  |             |      |                |  |   |      |  |  |  |           |  |  |   |      | 

1989 and 1999
Employee Stock Purchase Plans

During 1989 and 1999, the Company adopted
Employee Stock Purchase Plans under which qualified employees
can purchase up to a specified maximum amount of the
Companys common stock through payroll deduction at 85% of
its fair market value. In July 1999, the Companys 1989
Employee Stock Purchase Plan expired by its term and at its
expiration date, approximately 650,000 shares had been purchased
under this plan. Laserscope has reserved 500,000 shares of
common stock for issuance pursuant to its 1999 Employee Stock
Purchase Plan. Under this plan, as of December 31, 2001,
approximately 329,000 shares had been purchased.

F-18



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Pro Forma
Stock-Based Compensation

The Company has adopted the disclosure only
provisions of SFAS No. 123 for stock options granted to
employees. Had compensation cost for the Companys
stock-based compensation plans been determined based on the
estimated fair value of the awards on the date of grant, the
Companys net income (loss) and net income
(loss) per share would have been as follows:

|                                           |  |                                       |        |      |  |      |        |   |  |   |        |  
|------------------------------------------ |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                           |  | 2001                                  |        | 2000 |  | 1999
|                                           |  |                                       |        |      |  |     
|                                           |  |                                      
|                                           |  | (in thousands, except per share data)
|Pro forma net loss                         |  | $                                     | (1,854 | )    |  | $    | (1,265 | ) |  | $ | (9,236 | )
|Pro forma basic and diluted loss per share |  | $                                     | (0.12  | )    |  | $    | (0.08  | ) |  | $ | (0.73  | )

Pro forma information regarding net loss and net
loss per share as if the Company accounted for its employee
stock options granted subsequent to December 15, 1994 under the
fair value method is calculated based on the fair value of the
option grants at the date of grant using a Black-Scholes
multiple option pricing model with the following weighted
average assumptions:

|                         |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                         |  | 2001 |      | 2000 |  | 1999
|                         |  |      |      |      |  |     
|Risk free interest rate  |  |      | 6.54 | %    |  |      | 6.07 | % |  |  | 5.47 | %
|Dividend yield           |  |      |     |      |  |      |     |   |  |  |     |  
|Volatility               |  |      | 1.21 |      |  |      | 1.12 |   |  |  | 1.15 |  
|Expected life (in years) |  |      | 3.59 |      |  |      | 3.50 |   |  |  | 3.57 |  

The weighted average per share grant date fair
values of employee stock options granted in 2001, 2000, and 1999
were $1.62, $2.18, and $1.36, respectively.

Pro forma reporting compensation cost with
respect to the Companys 1999 Employee Stock Purchase Plan
is estimated using the fair value of the employees
purchase rights under the Black-Scholes model with the following
weighted average assumptions:

|                         |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                         |  | 2001 |      | 2000 |  | 1999
|                         |  |      |      |      |  |     
|Risk free interest rate  |  |      | 4.74 | %    |  |      | 6.09 | % |  |  | 4.79 | %
|Dividend yield           |  |      |     |      |  |      |     |   |  |  |     |  
|Volatility               |  |      | 0.99 |      |  |      | 1.49 |   |  |  | 1.31 |  
|Expected life (in years) |  |      | 0.50 |      |  |      | 0.50 |   |  |  | 0.50 |  

The weighted average per share fair values of
those purchase rights granted in 2001, 2000 and 1999 were $0.47,
$0.68 and $0.62, respectively.

1991
Shareholder Rights Plan

In November 1991, the Company adopted a
shareholder rights plan and distributed a dividend of one right
to purchase one share of common stock (a Right) for
each outstanding share of common stock of the Company. The
Rights would have become exercisable in certain limited
circumstances involving a potential business combination
transaction of the Company and were initially exercisable at a
price of $34.00 per share. The Rights expired by their term on
November 20, 2001 and the Company did not adopt a
replacement shareholder rights plan.

12. Employee Savings and Investment
Plan

In October 1989, the Company adopted a 401(k)
savings and investment plan, which covers all employees. The
Companys contributions to the plan have been 50% matching
of employee contributions up to 5% of each employees base
compensation and were approximately $171,000, $173,000, and
$213,000 in the years ended December 31, 2001, 2000, and
1999, respectively.

F-19



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LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

13. Income Taxes

Significant components of the provision for
income taxes were as follows (in thousands):

|                           |  |      |    |      |  |      |   |  |  |   |    | 
|-------------------------- |  | ---- | -- | ---- |  | ---- | - |  |  | - | -- | 
|                           |  | 2001 |    | 2000 |  | 1999
|                           |  |      |    |      |  |     
|Current federal taxes      |  | $    |   |      |  | $    |  |  |  | $ |   | 
|Current state taxes        |  |      |   |      |  |      |  |  |  |   |   | 
|Current foreign taxes      |  |      | 45 |      |  |      |  |  |  |   | 13 | 
|                           |  |      |    |      |  |      |   |  |  |   |    | 
|Provision for income taxes |  | $    | 45 |      |  | $    |  |  |  | $ | 13 | 
|                           |  |      |    |      |  |      |   |  |  |   |    | 

Pretax loss from foreign operations was $106,000
in 2001, $665,000 in 2000 and income of $501,000 in 1999.

Income taxes differ from the amount computed by
applying the statutory federal income tax rate of 35% to income
(loss) before taxes. The reasons for the differences and the tax
effect of each are as follows (in thousands):

|                                           |  |      |      |      |  |      |      |   |  |   |        |  
|------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                                           |  | 2001 |      | 2000 |  | 1999
|                                           |  |      |      |      |  |     
|Computed expected tax                      |  | $    | (274 | )    |  | $    | 65   |   |  | $ | (2,683 | )
|Operating loss with no carryback benefit   |  |      | 274  |      |  |      | 162  |   |  |   | 2,745  |  
|Benefit of net operating loss carryforward |  |      |     |      |  |      | (227 | ) |  |   | (117   | )
|Foreign taxes in excess of U.S. rate       |  |      | 45   |      |  |      |     |   |  |   | 13     |  
|Other                                      |  |      |     |      |  |      |     |   |  |   | 55     |  
|                                           |  |      |      |      |  |      |      |   |  |   |        |  
|Provision for income taxes                 |  | $    | 45   |      |  | $    |     |   |  | $ | 13     |  
|                                           |  |      |      |      |  |      |      |   |  |   |        |  

The components of the deferred tax asset
consisted of the following at December 31, 2001 and 2000
(in thousands):

|                     |                                                                        |      |   |         |   |  |   |         |  
|-------------------- | ---------------------------------------------------------------------- | ---- | - | ------- | - |  | - | ------- | -
|                     |                                                                        | 2001 |   | 2000   
|                     |                                                                        |      |   |        
|Deferred tax assets: |                                                                        |      |   |         |   |  |   |        
|                     | Net operating loss carryforwards                                       |      | $ | 9,636   |   |  | $ | 8,744   |  
|                     | General business credit carryforwards                                  |      |   | 2,187   |   |  |   | 1,708   |  
|                     | Inventory reserves and adjustments                                     |      |   | 1,217   |   |  |   | 1,344   |  
|                     | Other accruals and reserves not currently
	deductible for tax purposes |      |   | 769     |   |  |   | 2,324   |  
|                     | Capitalized research and development                                   |      |   | 913     |   |  |   | 882     |  
|                     | Depreciation & amortization                                            |      |   | 2,267   |   |  |   |        |  
|                     | Other                                                                  |      |   | 81      |   |  |   | 2,156   |  
|                     |                                                                        |      |   |         |   |  |   |        
|                     | Total deferred tax assets                                              |      |   | 17,070  |   |  |   | 17,158  |  
|                     | Less valuation allowance                                               |      |   | (17,070 | ) |  |   | (17,158 | )
|                     |                                                                        |      |   |         |   |  |   |        
|                     | Net deferred tax asset                                                 |      | $ |        |   |  | $ |        |  
|                     |                                                                        |      |   |         |   |  |   |        

Due to a history of operating losses, management
believes that there is sufficient uncertainty regarding the
realization of deferred tax assets and a full valuation
allowance is appropriate. The valuation allowance decreased by
$88,000 in 2001 and increased by $1,435,000 in 2000.
Approximately $1,463,000 of the valuation allowance is
attributed to stock option deductions, the benefit of which will
be credited to paid-in-capital when realized.

For federal tax purposes, the Company has net
operating loss and tax credit carryforwards of approximately
$27,727,000 and $1,231,00,000, respectively, which expire in the
years 2006 through 2021. The Company has net operating loss and
research and development credit carryforwards of approximately

F-20



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##### Table of Contents



LASERSCOPE


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

$3,748,000 and $1,472,000, respectively, for
state tax reporting purposes. The state net operating loss
carryforwards will expire in the years 2002 through 2011.

Utilization of the Companys net operating
loss and tax credit carryforwards may be subject to substantial
annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the
expiration of the net operating loss carryforwards and tax
credits before utilization.

14. Financial Instruments With Market Risk and
Concentrations of Customer and Credit Risk

The Companys trade receivables are made up
of amounts due from its health care industry customers,
primarily in the United States, Europe and the Pacific Rim. The
Companys credit evaluation and collection practices and
the relative lack of concentration as well as geographical
dispersion of customer accounts comprising its accounts
receivable in the opinion of management substantially alleviate
the concentration of credit risk. In 1999 and 2000, Laserscope
had no customers whose purchases amounted to 10% or more of our
total annual revenue. However, in 2001, our U.S. distributor,
McKesson Corporation, made purchases from us of approximately
$7.0 million which was 20% of our total 2001 revenue. We
had no other customers whose purchases were 10% or more of our
annual revenue. At December 31, 2001 our McKesson
Corporation accounts receivable balance was approximately
$1,400,000 which represented 16% of Laserscopes total
gross accounts receivable. Bad debt expense has been
insignificant.

The Company also has an Investment Policy
approved by its Board of Directors related to its short-term
cash investment practices. That policy limits the amount of
credit exposure to any one financial institution and restricts
investments to certain types of financial instruments based on
specified credit criteria.

15. Consolidated Quarterly Statement of
Operations Data (Unaudited):

|                                              |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|--------------------------------------------- |  | ------------------ | ----- | -------- |  | ------------- | ----- | ------------ |  | - | ----- | - |  | - | ----- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | March 31,          |       | June 30, |  | September 30, |       | December 31,
|                                              |  |                    |       |          |  |               |       |             
|2001                                          |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|Net revenues                                  |  | $                  | 8,228 |          |  | $             | 9,302 |              |  | $ | 7,953 |   |  | $ | 9,604 |  
|Gross margin                                  |  |                    | 3,709 |          |  |               | 5,021 |              |  |   | 3,799 |   |  |   | 4,823 |  
|Net income (loss)                             |  |                    | (490  | )        |  |               | 182   |              |  |   | (641  | ) |  |   | 120   |  
|Basic & diluted net income (loss) per
	share  |  |                    | (0.03 | )        |  |               | 0.01  |              |  |   | (0.04 | ) |  |   | 0.01  |  
|2000                                          |  |                    |       |          |  |               |       |              |  |   |       |   |  |   |       |  
|Net revenues                                  |  | $                  | 8,628 |          |  | $             | 9,294 |              |  | $ | 9,254 |   |  | $ | 8,223 |  
|Gross margin                                  |  |                    | 3,869 |          |  |               | 4,392 |              |  |   | 4,640 |   |  |   | 3,924 |  
|Net income ( loss)                            |  |                    | (352  | )        |  |               | 303   |              |  |   | 505   |   |  |   | (270  | )
|Basic and diluted net income (loss) per share |  |                    | (0.02 | )        |  |               | 0.02  |              |  |   | 0.03  |   |  |   | (0.02 | )

F-21



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##### Table of Contents



SCHEDULE II

LASERSCOPE

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)


|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |       | 
|------------------------------------------- | ---------------------------- | ---------- | - | --------- |  | ---------- | - | ---------- |  |  | - | ----- |  |  | - | ----- | 
|                                            |                              | Balance at |   |           |  |            |   | Balance at
|                                            |                              | Beginning  |   |           |  |            |   | End       
|Descriptions                                |                              | of Period  |   | Additions |  | Deductions |   | of Period 
|                                            |                              |            |   |           |  |            |   |           
|Allowance for doubtful accounts receivable: |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 1999 |            | $ | 525       |  |            | $ | 226        |  |  | $ |      |  |  | $ | 751   | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 2000 |            | $ | 751       |  |            | $ | 49         |  |  | $ |      |  |  | $ | 800   | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 2001 |            | $ | 800       |  |            | $ |           |  |  | $ | 426   |  |  | $ | 374   | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|Reserve for excess and obsolete inventory:  |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 1999 |            | $ | 5,914     |  |            | $ | 750        |  |  | $ | 1,742 |  |  | $ | 4,922 | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 2000 |            | $ | 4,922     |  |            | $ |           |  |  | $ | 2,024 |  |  | $ | 2,898 | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      
|                                            | Year ended December 31, 2001 |            | $ | 2,898     |  |            | $ |           |  |  | $ | 384   |  |  | $ | 2,514 | 
|                                            |                              |            |   |           |  |            |   |            |  |  |   |       |  |  |   |      

S-1



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##### Table of Contents



EXHIBIT INDEX

|        |        |             |  |                                                                                                                                                                    
|------- | ------ | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 2.1    |             |  | Acquisition Agreement between Laserscope and
	Heraeus Med GmbH.(9)                                                                                                 
|        | 2.1A   |             |  | Amendment Number One to Acquisition Agreement
	between Laserscope and Heraeus Med GmbH.(11)                                                                        
|        | 3.3    |             |  | Seventh Amended and Restated Articles of
	Incorporation of Registrant.(1)                                                                                          
|        | 3.4    |             |  | By-laws of Registrant, as amended.(3)                                                                                                                              
|        | 4.1    |             |  | Common Shares Rights Agreement dated as of
	October 31, 1991 between Laserscope and American Stock
	Transfer & Trust Company as Rights Agent.(6)                   
|        | 4.1A   |             |  | First Amendment to Common Shares Rights
	Agreements between the Company and American Stock Transfer &
	Trust Company as Rights Agent dated as of April 22, 1996.(7)
|        | 4.1B   |             |  | Second Amendment to Common Shares Rights
	Agreement between the Company and American Stock Transfer &
	Trust Company as Rights Agent dated as of August 6, 1996.(8)
|        | 10.1A  |             |  | 1984 Stock Option Plan, as amended, and forms of
	Incentive Stock Option Agreement and Non-statutory Stock Option
	Agreement.(3)                                   
|        | 10.1B  |             |  | 1994 Stock Option Plan and forms of Incentive
	Stock Option Agreement and Non-statutory Stock Option
	Agreement.(4)                                                
|        | 10.2   |             |  | 1984 Stock Purchase Plan and form of Common Stock
	Purchase Agreement.(2)                                                                                          
|        | 10.3   |             |  | 1989 Employee Stock Purchase Plan and form of
	Subscription Agreement.(3)                                                                                          
|        | 10.3A  |             |  | 1999 Employee Stock Purchase Plan and form of
	Subscription Agreement.(15)                                                                                         
|        | 10.4   |             |  | 401(k) Plan.(2)                                                                                                                                                    
|        | 10.6   |             |  | Net Lease Agreement between the Registrant and
	Realtec Properties dated June 20, 2000.(18)                                                                        
|        | 10.6A  |             |  | Net Lease Agreement between the Registrant and
	Realtec Properties dated October 18, 2000.(18)                                                                     
|        | 10.10  |             |  | Form of indemnification agreement.(2)                                                                                                                              
|        | 10.11  |             |  | Amended and Restated Loan and Security Agreement
	between the Registrant and Silicon Valley Bank Dated
	November 23, 1996.(10)                                     
|        | 10.11A |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated November 26,
	1997.(11)                                                          
|        | 10.11B |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 18, 1998.(11)                                                              
|        | 10.11C |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated September 3,
	1998.(12)                                                          
|        | 10.11D |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated November 25,
	1998.(13)                                                          
|        | 10.11E |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 17, 1999.(13)                                                              
|        | 10.11F |             |  | Loan Modification Agreement between the
	Registrant and Silicon Valley Bank dated March 30, 1999.(14)                                                              
|        | 10.11G |             |  | Loan and Security Agreement between the
	Registrant and Silicon Valley Bank dated October 1,
	1999.(15)                                                            
|        | 10.11H |             |  | Amendment to Loan and Security Agreement between
	the Registrant and Silicon Valley Bank dated September 25,
	2000.(17)                                            
|        | 10.11I |             |  | Amendment to Loan and Security Agreement between
	the Registrant and Silicon Valley Bank dated September 26,
	2001.(19)                                            
|        | 10.13  |             |  | 1990 Directors Stock Option Plan and form
	of Option Agreement.(3)                                                                                                
|        | 10.14  |             |  | Form of Laserscope Management Continuity
	Agreement, as amended.(16)                                                                                               



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##### Table of Contents



|        |        |             |  |                                                                    
|------- | ------ | ----------- |  | -------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 10.18  |             |  | 1995 Directors Stock Option Plan and form
	of Option agreement.(5)
|        | 10.18A |             |  | 1999 Directors Stock Option Plan.(15)                             
|        | 10.19  |             |  | Common Stock Placement Agreement.(15)                              
|        | 10.19A |             |  | Form of Common Stock Purchase Agreement.(15)                       
|        | 10.20  |             |  | Convertible Loan Agreement.(15)                                    
|        | 22.1   |             |  | Subsidiaries of Registrant, as amended.(18)                        
|        | 23.1   |             |  | Consent of Independent Accountants.(20)                            
|        | 23.2   |             |  | Consent of Ernst & Young LLP.(20)                                  
|        | 25.1   |             |  | Power of Attorney (see page 47).(20)                               




|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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, 1989.                                                                                   
|   
|(2) | 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.
|   
|(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, 1991.                                                                                   
|   
|(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 for the year ended December 31, 1994.                                                                                   
|   
|(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/A for the year ended December 31, 1995.                                                                                 
|   
|(6) | Incorporated by reference to Exhibit 1 of
	the Registrants Registration Statement on Form 8-A
	filed November 15, 1991.                                                                                                                                                             
|   
|(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 June 30,
	1996.                                                                           
|   
|(8) | Incorporated by reference to identically numbered
	exhibits filed in response to Item 6(a),
	Exhibits, the Companys Form 8-A/A filed
	September 4, 1996.                                                                                                                          
|   
|(9) | Incorporated by reference to Exhibit A to
	the Definitive Proxy Statement for the Special Meeting of
	Shareholders held August 29, 1996.                                                                                                                                             



|     |                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | 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, 1996.           
|    
|(11) | 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, 1997.           
|    
|(12) | 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, 1998.
|    
|(13) | 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, 1998.           
|    
|(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,
	1999.    
|    
|(15) | 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.             
|    
|(16) | 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.    
|    
|(17) | 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.
|    
|(18) | 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.             



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##### Table of Contents





|     |                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(19) | 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.
|    
|(20) | Filed herewith.