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                                  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, 1999, or

          [ ] 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                       (I.R.S. Employer
Incorporation or Organization)                       Identification No.)

               3052 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 [ ]

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. [X]

The aggregate market value of the Registrant's voting and non-voting common
equity held by non-affiliates of the Registrant was approximately $39,610,000 as
of March 17, 2000, 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 15,429,750 shares of Registrant's Common Stock issued and outstanding
as of March 17, 2000.


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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 23, 2000.

               INTRODUCTORY STATEMENT, RISK FACTORS AND REFERENCES

Except for the historical information contained in this Annual Report on Form
10-K, the matters discussed herein are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements are subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected.

                                  RISK FACTORS

The Company's 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, 1999, the Company's total assets and liabilities were $28.9 million
and $16.9 million, respectively. As of such date, the Company's working capital
was $6.8 million while cash and cash equivalents amounted to $1.4 million. The
Company's need for capital is affected by the current and anticipated demand for
its products as well as procurement and production lead times in its
manufacturing processes. Changes in these factors could have a material impact
on capital requirements.

On October 1, 1999, the Company entered into a $6.0 million asset-based
borrowing arrangement with a bank with collateral values based principally on
domestic accounts receivable. The arrangement, which expires in September 2000,
allows for an over-advance relative to the collateral of $1.9 million until
December 31, 1999, then $1.0 million until March 31, 2000, at which time further
over-advances will no longer be allowed. At December 31, 1999, the Company had
approximately $4.0 million in collateral available against the $4.3 million
outstanding. In addition, NWL has in place various bank lines totaling
approximately $3.0 million that expire in 2000 under which $3.0 million in
borrowings were outstanding at December 31, 1999.

To address its capital needs, on January 14, 2000 the Company completed a
private placement of its Common Stock providing net proceeds of approximately
$1.8 million to accredited investors. The Company issued 2,500,000 shares of its
Common Stock, no



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par value per share, at a price of $0.80 per share. The Company also issued
warrants to purchase 218,875 shares of its Common Stock.

Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures to affiliates of Renaissance Capital Group,
Inc., with net proceeds to the Company 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 Common Stock of the Company, 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 the
Company's Common Stock.

The Company anticipates that future changes in cash and working capital will be
dependent on a number of factors, including management's ability to manage
effectively non-cash assets such as inventory and accounts receivable. The
Company competes in a competitive industry where technological changes and
acceptance of new and alternative procedures by its customers is rapid.
Management's ability to anticipate and adapt to these changes will significantly
affect the Company's investment in inventory and the potential for further
valuation adjustments. In addition, the level of profitability of the Company
will have a significant impact on cash resources.

From time to time, the Company may also consider the acquisition of, or evaluate
investments in, certain products and businesses complementary to the Company's
business. Any such acquisition or investment may require additional capital
resources. The Company has historically financed acquisitions using its existing
cash resources. While the Company believes its existing cash resources will be
sufficient to fund its operating needs for the next twelve months, additional
financing either through its bank lines of credit or otherwise will be required
for the Company's currently envisioned long term needs.

There also 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 the Company's shareholders, and future
debt financings could result in certain financial and operational restrictions.

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. At December 31, 1999,
the Company had an accumulated deficit of $39.2 million. The Company reported a
net loss of $7.6 million for the year ended December 31, 1999, and experienced
annual net losses of $9.8 million and $0.8 million for the years ended December
31, 1998 and 1997, respectively. There can be no assurance that the Company 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 the Company's products
and in the Company's ongoing research and development activities.



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The Company 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 premarket
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.

In the case of the most recent FDA 510(k) pre-market notification, which was
submitted by the Company in order to obtain clearance to market one of its
products for hair removal, the Company believes that it has met all the FDA
requirements in order to be granted this clearance. However, there can be no
assurance that this marketing clearance will be granted on a timely basis, if at
all. It is possible that the FDA may require the Company to provide further
clinical data or to repeat the clinical trial completely, thereby delaying this
marketing clearance indefinitely.

If the product does not qualify for the 510(k) procedure, the manufacturer must
file a premarket 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 preclinical 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 the Company's products (except for the 600 Series Dye Module)
have been marketed through the 510(k) procedure. Future applications, however,
may require clearance through the PMA procedure. There can be no assurance that
such marketing clearances can be obtained on a timely basis. Delays in receiving
such clearances could have a significant adverse impact on the Company. The FDA
may also require postmarket testing and surveillance programs to monitor certain
products.

Certain other countries require the Company to obtain clearances for its
products prior to marketing the products in those countries. The requirements
vary widely from country to country and are subject to change. The European
community is in the process of developing a new approach to the regulation of
medical products which may significantly change how medical devices are marketed
in those countries within the next several years. In February 1996, the Company
achieved ISO 9001 and CE (European Conformation) mark registration in
anticipation of this approach.



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The Company is also required to register with the FDA and state agencies, such
as the Food and Drug Branch of the California Department of Health Services, as
a medical device manufacturer. The Company is inspected on a routine basis by
both the FDA and the State of California for compliance with the FDA's Current
Good Manufacturing Practice regulations. Those regulations impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing, testing and quality control activities. If violations of
applicable regulations are noted during these inspections, the continued
marketing of any products manufactured by the Company may be adversely affected.

In addition, the Company's 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 the Company. These requirements also include affixing
warning labels to the Company's laser systems, as well as the incorporation of
certain safety features in the design of the Company's products.

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

The Company is 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. The Company believes that
it is in material compliance with these requirements.

INSURANCE REIMBURSEMENT. Demand for the Company's products is dependent, to a
significant extent, 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 the Company's products, adversely affecting the Company's
future sales. A substantial portion of the Company's 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 such cosmetic procedures may restrict the development of this
market, adversely affecting the Company.

UNCERTAINTY OF TECHNOLOGICAL CHANGE; UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND
ACCEPTANCE. The Company operates in industries that are subject to rapid
technological change. The Company's ability to remain competitive and future
operating results will depend upon, among other things, the Company's ability to
anticipate and respond rapidly to such change by developing, manufacturing and
marketing technologically innovative products in sufficient quantities at
acceptable costs



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to meet such demand. Absent introduction of new products and enhancements, the
Company's products will likely become technologically obsolete, which could
result in the write-off of inventory as well as diminished revenues. Therefore,
the Company intends to continue to invest significant amounts in research and
development.

The Company's expenditures for research and development were approximately $4.5
million, $5.2 million and $3.4 million in 1999, 1998 and 1997, respectively. The
Company anticipates that its ability to compete will require significant
research and development expenditures with a continuing flow of innovative,
high-quality products. No assurance can be given that the Company will be
successful in designing, manufacturing or selling its enhanced or new products
in a timely manner. Nor can any assurance be given that a competitor could not
introduce a new or enhanced product or technology that could have an adverse
effect on the Company's competitive position.

The Company's current research and development programs are directed toward the
development of new laser systems and delivery devices. For example, new laser
systems for the emerging aesthetic market and other applications are currently
in development. However, there can be no assurance that the aesthetic market
will develop as anticipated or that the Company's product development efforts
will prove successful. Nor can any assurance be given that such new products, if
developed and introduced, will receive market acceptance.

DEPENDENCE ON SINGLE-SOURCE SUPPLIERS AND CERTAIN THIRD PARTIES. Certain of the
components used in the Company's laser products, including KTP crystals, molded
and cast components, power supplies, and certain optical components, are
purchased from single sources. While the Company believes that most of these
components are available from alternate sources, an interruption of these or
other supplies could adversely affect the Company. In particular, KTP crystals
that are used in the Company's best selling laser products are currently
available at appropriate quality levels from only one supplier, a division of
Litton Industries. This supplier has a second crystal growing and fabrication
facility at a second location in the United States geographically isolated from
its original production facility. While the Company believes that an alternative
supplier of KTP crystals could be qualified, if the supply of crystals from the
present supplier were interrupted there could be an adverse effect on the
Company's business and results of operations.

The Company has invested substantial efforts in developing a laser treatment
that when combined with PDT drugs may be an effective treatment for certain
types of cancer. Currently, QLT PhotoTherapeutics, Inc. is the sole supplier of
PDT drugs. The inability or refusal of QLT to supply drugs for use with the
Company's lasers would have a material adverse effect on sales of the Company's
laser for such treatment.

COMPETITION. The medical equipment market is highly competitive. The
Company's competitors are numerous and include some of the world's
largest organizations as well as smaller, highly-specialized firms.
The ability of the Company to compete effectively



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depends on such factors as market acceptance of its products, product
performance and price, customer support, the success and timing of new product
development, and continued development of successful channels of distribution.
Some of the Company's current and prospective competitors have or may have
significantly greater financial, technical, research and development,
manufacturing and marketing resources than the Company. In early 1998, the
medical equipment industry experienced significant consolidation when two of the
Company's largest competitors, ESC Medical Systems and Laser Industries,
combined to become the largest participant in the medical equipment industry. To
compete, the Company will need to continue to expand its product offerings,
periodically enhance its existing products and continue to expand its
distribution internationally.

The Company competes in the nonophthalmic surgical segment of the worldwide
medical laser market, in which lasers are used in hospital operating rooms,
outpatient surgery centers and individual physician offices for a wide variety
of procedures. A large number of companies participate in this market, many of
which have significantly greater financial and other resources than the Company.

Certain surgical laser manufacturers have targeted their efforts on narrow
segments of the market, such as angioplasty and lithotripsy. To the extent that
their products compete for the same capital equipment funds, these manufacturers
may be deemed to compete with the Company. More generally, surgical laser
manufacturers such as Laserscope compete with standard surgical methods and
other medical technologies and treatment modalities. There can be no assurance
that the Company can compete effectively against such competitors. In addition,
there can be no assurance that these or other companies will not succeed in
developing technologies, products or treatments that are more effective than the
Company's or that would render the Company's technology or products obsolete or
uncompetitive.

RELIANCE ON PATENTS AND LICENSES. The Company holds 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 the Company's laser systems.

In April 1992, the Company entered into a worldwide, license agreement with PDT,
Inc. ("PDTI") (now named Miravant) for licenses to PDTI's dye laser technology.
Under the terms of the agreement, the Company acquired a fully paid up license
to manufacture products using PDTI's dye laser technology while PDTI retains
ownership of the intellectual property licensed to the Company under the
agreement and has the right to manufacture, have manufactured, use, lease and
sell the dye laser technology for use in photodynamic therapy with PDTI
photodynamic drugs.

There can be no assurance that any licenses held by the Company or any patents
that have been issued to the Company or which may be issued as a result of the
Company's patent applications will provide any competitive advantages for the



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Company's products. There is also no assurance that any of the patents held now
or in the future by the Company will not be successfully challenged, invalidated
or circumvented in the future. In addition, there can be no assurance 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 the Company's ability to
make, issue, use and sell its products.

FAILURE TO ATTRACT OR RETAIN KEY PERSONNEL CAN ADVERSELY AFFECT RESULTS. The
Company is and will continue to be dependent upon the efforts and abilities of a
number of current key personnel. Any inability by the Company to attract and
retain key employees would have a material adverse effect on the business,
financial condition and results of operations of the Company.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. A number of factors affect the
Company's financial results and stock price, especially on a quarterly basis,
including the timing of shipments and orders. The Company's laser products are
relatively expensive pieces of medical capital equipment and the precise
shipment date of specific units can have a marked effect on the Company's
results of operations on a quarterly basis. Any delay in product shipments near
the end of a quarter could cause quarterly results to fall short of anticipated
levels. Furthermore, to the extent orders are received by the Company near the
end of a quarter, the Company may not be able to fulfill the order during the
balance of that same quarter. Moreover, the Company typically receives a
disproportionate percentage of its orders toward the end of each quarter. To the
extent that anticipated orders are not received or are delayed beyond the end of
the applicable quarter, the Company's revenues may be adversely affected and the
Company's revenues may be unpredictable from quarter to quarter. In addition,
because a significant portion of the Company's revenues in each quarter result
from orders received in that quarter, the Company establishes its production,
inventory and operating expenditure levels based 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. There can be no assurance that
revenue growth or profitability on a quarterly or annual basis will be
accomplished or will not fluctuate significantly from quarter to quarter.

PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The Company's development,
manufacture and sale of surgical, dermatological and therapeutic laser systems
and related surgical instrumentation and disposable supplies and accessories
entails significant risks of product liability claims. The Company has
experienced product liability claims from time to time, which it believes are
ordinary for its business. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that these
actions will not ultimately have a material adverse impact on the Company's
financial position or results of operations.



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At present, the Company maintains 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. There can be no assurance that such insurance coverage will be
available to the Company in the future at a reasonable cost, if at all, nor can
there be any assurance that other claims will not be brought against the Company
in excess of its insurance coverage.

FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE. A number of factors affect
the Company's financial results and stock price, particularly on a quarterly
basis. One such factor is the timing of shipments. The Company's laser products
are relatively expensive pieces of medical capital equipment and the precise
shipment date of specific units can have a marked effect on the Company's
results of operations on a quarterly basis. A delay in product shipments near
the end of a quarter could cause quarterly results to fall short of anticipated
levels.

A related factor is the timing of orders. To the extent orders are received by
the Company near the end of a quarter, the Company may not be able to fulfill
the order during the balance of that same quarter. Additionally, the Company
typically receives a disproportionate percentage of its orders toward the end of
each quarter. To the extent that anticipated orders are not received or are
delayed beyond the end of the applicable quarter, the Company's revenues may be
adversely affected and the Company's revenues may be unpredictable from quarter
to quarter. Further, there can be no assurance that revenue growth or
profitability on a quarterly or annual basis will be accomplished. Factors
affecting operating results include, but are not limited to: product mix,
competitive pricing pressures, material costs, revenue and expenses related to
new products and enhancements to existing products, as well as delays in
customer purchases in anticipation of new products or product enhancements by
the Company or its competitors.

The market price of the Company's common stock may be subject to significant
fluctuations. These fluctuations may be due to factors specific to the Company,
such as quarterly fluctuations in the Company's financial results, changes in
analysts' estimates of future results, changes in investors' perceptions of the
Company or the announcement of new or enhanced products by the Company or its
competitors as well as announcements relating to acquisitions and strategic
transactions by the Company or its competitors. In addition, such fluctuations
may be due to or exacerbated by general conditions in the medical equipment
industry or conditions in the financial markets generally. 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 the Company'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 the Company's common stock.



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As of March 1, 2000, we will have 15,111,637 shares of outstanding Common Stock.
The sale of a substantial number of shares of Common Stock, including the sale
of the Shares being registered hereby, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.

INTERNATIONAL BUSINESS. International revenues were 45.0% of total revenues in
the year ended December 31, 1999, compared to 42% of total revenues during the
comparable period in 1998. International sales are made through international
distributors and wholly- and majority-owned subsidiaries with payments to the
Company typically denominated in the local currencies of the United Kingdom,
France and Germany, and in U.S. dollars in the rest of the world. The Company
intends to continue expansion of its operations outside of the United States and
to enter additional international markets, requiring significant management
attention and financial resources and further subjecting the Company 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. The Company is also subject to general geopolitical risks in
connection with its international operations, such as differing economic
conditions, changes in political climate, differing tax structures and changes
in diplomatic and trade relationships. In addition, fluctuations in currency
exchange rates may negatively affect the Company's ability to compete in terms
of price against products denominated in local currencies. Accordingly, the
Company's future results could be materially adversely affected by changes in
these regulatory, geopolitical and other factors. The effect of foreign exchange
fluctuations on the Company in the years ended 1999 and 1998 were not material,
and the Company does not engage in hedging transactions for speculative or
trading purposes.

LEGAL PROCEEDINGS. The Company 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 it, the Company believes
that the ultimate resolution of these claims will not ultimately have a material
adverse effect on its financial position or results of operations.

INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relate primarily to the Company's investment and debt portfolios.
The Company has not used derivative financial instruments in its investment or
debt portfolios. The Company invests its excess cash in money market funds and
commercial paper. The Company's debt financing consists mainly of 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, the Company's future investment
income may fall short of securities analyst expectations,



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due to changes in interest rates, or the Company 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, the Company's future interest expense may
be greater than expected due to changes in interest rates.

WARRANTY OBLIGATIONS. A direct field service organization provides service for
the Company's products. The Company generally provides a twelve month warranty
on its laser systems. After the warranty period, maintenance and support is
provided on a variety of service contract bases or on an individual call basis.
The Company also has a "99.0% Uptime Guarantee" on its laser systems. Under
provisions of this guarantee, the Company extends the term of the related
warranty or 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, there can be no assurance that the Company can maintain such
uptime rates in the future.

As of the date of this report, the Company's systems have operated without any
apparent Year 2000 related problems and appear to be Year 2000 compliant. The
Company is not aware that any of its primary vendors or systems maintained by
third parties have experienced significant Year 2000 compliance problems.
However, while no such problem has been discovered as of the date of this
report, Year 2000 issues may not become apparent immediately and, therefore, the
Company may be affected in the future. The Company will continue to monitor the
issue and work to remediate any Year 2000 issues that may arise. Through the
date of this report, the costs to Laserscope for year 2000 compliance have not
been significant.

NO DIVIDENDS. The Company has never paid any cash dividends on its Common Stock
and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. The payment of dividends on the Common Stock by the Company
will depend on its earnings, financial condition and other business and economic
factors affecting the Company at such time as the Board of Directors may
consider relevant.

"PENNY STOCK" RULES. The Company's Common Stock is presently 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. The Company's low bid price
in 1999 for each of the quarters June 30, September 30 and December 31 was $1
1/16, $1 and $5/8, respectively, and the Company's last traded price on March 1,
2000 was $3. If the Company fails to maintain its listing for its Common Stock
on the NASDAQ National Market System, and no other exclusion from the definition
of "penny stock" under the Exchange Act is available, then any broker engaging
in a transaction in the Company's



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securities would be required to provide any customer with a risk disclosure
document and the compensation of the broker/dealer in the transaction and
monthly account statements showing the market values of the Company's securities
held in the customer's 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 the Company's securities,
they would become less willing to engage in such transactions, thereby making it
more difficult for purchasers in this Private Placement to dispose of the shares
of 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 the Company's stock option plans and other options, warrants and
outstanding convertible securities.

Other risks are detailed from time to time in the Company's 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.

References made in this Report to "Laserscope," the "Company," the "Registrant"
or "We" refer to Laserscope and its subsidiaries. References made in this Report
to "HSI" refer to Heraeus Surgical, Inc. References made in the Report to "NWL"
refer to NWL Laser-Technologie GmbH.

The following are registered trademarks of Laserscope which may be mentioned
herein: Laserscope, Dermastat, KTP/532, KTP/YAG, MicroBeam, Opthostat,
ClearView, Crossfire, Digilase, Infraguide, Illumina, Laserblade, Luxus,
Permaline, Pinnacle, Sureshot, Ultralase, Ultraline and Ultraspot.

The following are common law trademarks and service marks of Laserscope which
also may be mentioned herein: AccuStat, ADD, ADDStat, Ascent Medical Systems,
Aura, Aura SL, Dermastat, DiscKit, Dual FX, Everything You Need. Everything
Unique! (SM), Endostat, FiberLife, FocalStat, KTP/YAG, Laparostat, LaparoVac,
LDD, Lyra, Medical Insite (Web Site SM), MicronSpot, Microstat, Orion, People
Who Do More (SM), The Power Family (SM), Pulsar, SmartConnector, SmartScan,
SpineScope, SpineStat, StarPulse, ArthroGuide, Enhance, Hercules, InfraTips, On
Target, OrthoProbe, QuickPulse, Radiance, Resilient, SpinaLase, SuperPulse,
UroLine and Venus.

Photofrin and Optiguide are registered trademarks of QLT PhotoTherapeutics, Inc.



                                       12
<PAGE>   13

                                     PART I

ITEM 1. BUSINESS

General Overview of Business

Laserscope(R) 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, including photodynamic
therapy to treat cancer and other diseases. Laserscope's portfolio consists of
more than 350 products, including KTP/532(R), CO(2), Nd:YAG, Er:YAG, Ruby, Diode
and Dye medical laser systems, industrial laser systems and related energy
delivery devices.

Primary medical markets served by Laserscope include dermatology, aesthetic
surgery, urology, gynecology, ear, nose and throat surgery and photodynamic
therapy. Secondary markets include general surgery, neurosurgery, orthopedics,
gastroenterology and other surgical specialties.

Mission

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

History

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

Market Focus

Laserscope products are used in several surgical applications. Since the early
1990's, the ear, nose and throat (ENT), urology and gynecology (OB/GYN)
specialties have continued to represent the primary markets into which
Laserscope sells its broad range of laser systems and the majority of its energy
delivery devices and surgical instruments. As a percentage of total revenues in
1999, the ENT, urology and OB/GYN markets accounted for approximately 15%, 8%
and 7% of revenues, respectively.

Laserscope entered the dermatology/aesthetic surgery market in the mid 1990's
with several, highly-versatile laser systems. Laserscope's desktop-sized
Aura(TM) Laser System is among the industry's leading systems for the treatment
of red leg and facial



                                       13
<PAGE>   14

veins. The Aura SL(TM) is specifically designed for the treatment of facial
veins. The Lyra(TM) is designed specifically for hair removal and for the
treatment of large leg veins. The Venus is engineered for skin resurfacing
(wrinkle removal) applications. The Levante(TM) Ruby Laser System is used for
hair and tattoo removal. As a percentage of total revenues in 1999, the
dermatology/aesthetic surgery market accounted for approximately 31% of
revenues.

The Company believes photodynamic therapy (PDT), a selective cancer treatment,
has long-term potential applications for its products. In the oncology
application of this modality, a photosensitizer drug is injected into a cancer
patient intravenously. After a short time, the drug selectively concentrates in
abnormal cells while largely clearing from normal tissue. The drug remains
inactive until exposed to laser light. When applied, the laser energy, delivered
through a disposable fiber-optic device, activates the drug and creates a toxic
form of oxygen that destroys the cancerous cells with minimal damage to healthy
cells.

The non-surgical, minimally-invasive approach of PDT allows the treating
physician to be much more precise in destroying cancer cells at the tumor site.
Both the photosensitizer drug injection and the laser treatment can be
performed, in many cases, on an outpatient basis. In December 1998, Laserscope
received approval from the FDA for its PDT Laser Systems and the photosensitizer
PHOTOFRIN(R), manufactured by QLT PhotoTherapeutics, Inc., as a treatment for
certain types of late-stage lung cancer. In January 1998, the FDA approved the
same laser-drug combination for the treatment of early-stage lung cancer. These
approvals followed an earlier FDA approval to treat certain late-stage
esophageal cancers. The Company is also involved in pursuing clinical studies on
other PDT applications, including some non-cancer applications, and is working
in collaboration with some of the leading pharmaceutical firms that have PDT
drugs in various stages of development.

Products

Laser Platforms:

The Company's Aura(TM) 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.

The Aura SL(TM) is a new configuration of the Aura Laser System, modified to
treat facial spider veins only, including superficial pigmented lesions such as
age spots. Its special design provides greater patient comfort, quicker healing
and a lower price.



                                       14
<PAGE>   15

The Orion(TM) 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.

The 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, providing an easy-to-use, in-office system for such
procedures as skin resurfacing or wrinkle removal. The Erbium:YAG wavelength is
more superficially absorbed by the skin than the CO(2) wavelength and provides a
gentler form of skin resurfacing, suitable for younger patients with mild
wrinkles or moderate sun damage, and can be used on both facial and non-facial
skin such as the hands.

The 800 Series KTP/YAG(TM) Surgical Laser System is designed for use in
hospitals. It is a high-power, dual-wavelength system with applications in
urology, OB/GYN, ENT, aesthetic surgery, orthopedics, general surgery,
neurosurgery, pulmonary surgery and gastroenterology. 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 photodynamic 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, and are portable and may be tunable to other
wavelengths.

Finally, the newest laser in the Laserscope laser system family is the Lyra(TM).
The Lyra is a variable long pulse Nd:YAG laser system and was specifically
designed for hair removal and leg vein applications. It is one of the most
powerful Nd:YAG systems on the market and is based on the Company's successful
Aura(TM) laser platform allowing for portability and high manufacturing
synergies.

Laser Devices, Instruments and Disposables:

Laserscope offers a broad line of surgical instrumentation, disposables, kits
and other accessories for use with its surgical laser systems. These products
include disposable optical fibers, diffusing fibers for PDT applications,
side-firing devices, individual custom



                                       15
<PAGE>   16

handpieces for specific surgical applications, scanning devices,
micromanipulators for microscopic surgery and various other devices,
procedure-specific kits and accessories.

The disposable optical fibers are available in different lengths and diameters
for different surgical applications and preferences. The handpieces, which are
used to hold and aim the optical fiber, give the surgeon 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

The Company concentrates much of its marketing efforts for its laser products on
high volume surgical procedures such as the treatment of facial vascular
lesions, the treatment of leg veins and hair removal. Laserscope believes 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 its laser and laser-based products. As a result, the
Company has designed its marketing and sales strategy around a strong
educational effort to promote awareness of the versatility, safety, and
cost-effectiveness of its surgical laser systems.

Laserscope promotes its products through trade shows and exhibits covering most
of the surgical specialties, physician workshops and seminars, medical journal
advertising and direct mailings. The Company supports and participates in a
substantial number of workshops and seminars. For laser products, the workshops
usually include a demonstration of the Company's laser systems and provide
surgeons with hands-on experience using the Company's products.

Distribution

In the United States, the United Kingdom and France, the Company distributes its
products to hospitals, outpatient surgical centers and physician offices through
its own direct sales force. In Germany, Laserscope products are distributed by
NWL Laser-Technologie, GmbH. Elsewhere, Laserscope products are sold 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 an
increasing percentage of total sales. Approximately 45% of Laserscope's 1999
revenues were derived from its international operations including export sales,
up from 42% in 1998 and 33% in 1997. The Company expects that international
sales will continue to represent a significant percentage of net sales in 2000.



                                       16
<PAGE>   17

In March 1995, Laserscope entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a minority equity position in
NWL and an option to purchase all of the ownership interests in NWL. In June
1997, Laserscope exercised its option and paid an additional $1 million to
increase its equity position to a 52% interest in NWL. In January 1999,
Laserscope paid an additional $1.3 million to increase its equity position to
80%.

On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL. The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would continue to distribute Laserscope's products in all countries covered by
NWL's current distribution channels. The transaction is expected to net
approximately $4.0 million in cash to Laserscope and is not expected to generate
a material gain or loss when reported in Laserscope's first quarter 2000.

Installed Base of Lasers

Laserscope has 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

A direct field service organization provides service for the Company's
products. The Company generally provides a twelve-month warranty on its laser
systems. After expiration of the warranty period, maintenance and support is
provided on a variety of service contract bases or on an individual call basis
at the election of the customer. The Company also has a "99.0% Uptime Guarantee"
on its laser systems. Under provisions of this guarantee, the Company extends
the term of the related warranty or contract if specified system uptime levels
are not maintained.

Research and Development

The Company operates in an industry that is subject to rapid technological
changes. Laserscope's ability to remain competitive in its industry depends on,
among other things, its ability to anticipate and react to such technological
changes. Therefore, the Company intends to continue to invest significant
amounts in research and development.

Laserscope's current research and development programs are directed toward the
development of new laser systems and delivery devices. For example, new laser
systems for the aesthetic surgery market and other applications are currently in



                                       17
<PAGE>   18

development. However, there can be no assurance that the aesthetic surgery
market will develop as anticipated or that Laserscope's product development
efforts will prove successful. Nor can there be any assurance that such new
products, if developed and introduced, will receive market acceptance.

Manufacturing

The Company manufactures the laser resonators, system chassis and certain
accessories used in its laser systems in the United States. The Company's laser
manufacturing operations concentrate on the assembly and test of components and
subassemblies manufactured to the Company's designs and specifications by
outside vendors. The Company believes that it has sufficient manufacturing
capacity in its present facilities to support current operations at least
through the end of 2000. NWL also manufactures certain laser products at its
facility in Germany.

In addition to its laser manufacturing capability, the Company has a production
facility in the United States for certain of its disposable products. The
Company's Endostat fibers and Angled Delivery Devices are manufactured in this
facility

Certain of the components used in the Company's products, including potassium
titanyl phosphate (KTP) crystals, molded and cast components, power supplies,
and certain optical and electronic components, are purchased from single
sources. While the Company believes that most of these components are available
from alternative sources, an interruption of these or other supplies would
adversely affect the Company. KTP crystals are currently available at
appropriate quality levels from only one supplier, a division of Litton
Industries. This supplier has a second crystal growing and fabrication facility
at a second location in the United States which is geographically isolated from
its original production facility. While the Company believes that an alternative
supplier of KTP crystals could be qualified, an interruption in the supply of
crystals would have an adverse effect on the Company's business and results of
operations.

Employees

At December 31, 1999, the Company had 220 full-time employees. The Company
believes that it maintains competitive compensation, benefit, equity
participation and work environment policies to assist in attracting and
retaining qualified personnel. The Company believes that the success of its
business will depend, in part, on its ability to attract and retain such
personnel, who are in great demand, however, there can be no assurances that it
will be able to do so.

Competition

The medical equipment market is highly competitive. The ability of the Company
to compete effectively depends on such factors as market acceptance of its
products,



                                       18
<PAGE>   19

product performance and price, customer support, the success and timing of new
product development and continued development of successful channels of
distribution. Some of the Company's current and prospective competitors have or
may have significantly greater financial, technical, manufacturing and marketing
resources than the Company. In early 1998, the medical equipment industry
experienced significant consolidation when two of the Company's largest
competitors, ESC Medical Systems and Laser Industries, combined to become the
largest participant in the medical equipment industry. To compete, the Company
will need to continue to expand its product offerings, periodically enhance its
existing products and continue to expand its distribution internationally.

Product Liability Exposure

The business of the Company entails the risk of product liability claims. The
Company has experienced product liability claims from time to time, which it
believes are ordinary for its business. While it is not feasible to predict or
determine the outcome of the actions brought against it, the Company believes
that these actions will not ultimately have a material adverse impact on the
Company's financial position or results of operations.

At present, the Company maintains 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. There can be no assurance that such insurance will be available at a
reasonable cost, if at all, in the future, nor can there be any assurance that
other claims will not be brought against the Company which would exceed
applicable insurance coverage.

Factors Affecting Financial Results and Stock Price

A number of factors affect the Company's financial results and stock price,
particularly on a quarterly basis. One such factor is the timing of shipments.
The Company's laser products are relatively expensive pieces of medical capital
equipment and the precise shipment date of specific units can have a marked
affect on the Company's results of operations on a quarterly basis. A delay in
product shipments near the end of a quarter could cause quarterly results to
fall short of anticipated levels.

A related factor is the timing of orders. To the extent orders are received by
Laserscope near the end of a quarter, the Company may not be able to fulfill the
order during the balance of that same quarter. Additionally, the Company
typically receives a disproportionate percentage of its orders toward the end of
each quarter. To the extent that anticipated orders are not received or are
delayed beyond the end of the applicable quarter, Laserscope's revenues may be
adversely affected and the Company's revenues may be unpredictable from quarter
to quarter. Further, there can be no assurance that revenue growth or
profitability on a quarterly or annual basis will be accomplished. Factors
affecting operating results include, but are not limited to:



                                       19
<PAGE>   20

Product mix, competitive pricing pressures, material costs, revenue and expenses
related to new products and enhancements to existing products, as well as delays
in customer purchases in anticipation of new products or product enhancements by
the Company or its competitors.

The market price of Laserscope's common stock may be subject to significant
fluctuations. These fluctuations may be due to factors specific to Laserscope,
such as quarterly fluctuations in the Company's financial results, changes in
analysts' estimates of future results, changes in investors' perceptions of the
Company or the announcement of new or enhanced products or strategic
transactions by the Company or its competitors. In addition, such fluctuations
may be due to or exacerbated by general conditions in the medical equipment
industry or conditions in the financial markets generally.

Patents and Licenses

While the Company believes the patents that it has and for which it has applied
are of value, other factors are of greater competitive importance. Laserscope
holds 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 the
Company's laser systems.

Government Regulation

Government regulation in the United States and other countries is a significant
factor in the development, manufacturing and marketing of many of the Company's
products and in the Company's ongoing research and development activities.

Laserscope and its products are regulated by the FDA under statutory
authorities, including 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 may qualify for a Section 510(k) ("510(k)") procedure under which the
manufacturer gives the FDA premarket 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.

If the product does not qualify for the 510(k) procedure, the manufacturer must
file a premarket 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



                                       20
<PAGE>   21

process. Approval of a PMA allowing commercial sale of a product requires
preclinical 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 the Company's products (except for the 600 Series PDT Dye
Module) have been marketed through the 510(k) procedure. Future applications,
however, may require clearance through the PMA procedure. There can be no
assurance that such marketing clearances can be obtained on a timely basis.
Delays in receiving such clearances could have a significant adverse impact on
the Company. The FDA may also require post-market testing and surveillance
programs to monitor certain products.

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

Laserscope is also required to register with the FDA and state agencies, such as
the Food and Drug Branch of the California Department of Health Services, as a
medical device manufacturer. The Company is inspected on a routine basis by both
the FDA and the State of California for compliance with the FDA's Current Good
Manufacturing Practice regulations. Those regulations impose certain procedural
and documentation requirements upon the Company with respect to manufacturing,
testing and quality control activities. If violations of applicable regulations
are noted during these inspections, the continued marketing of any products
manufactured by the Company may be adversely affected.

In addition, Laserscope's 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 the Company. These requirements also include affixing
warning labels to Laserscope's laser systems and the incorporation of certain
safety features in the design of the Company's products. The Company believes
that it is in material compliance with all of these requirements.

Complying with applicable governmental regulations and obtaining necessary
clearances or approvals can be time-consuming and expensive, and there can be no
assurance that regulatory review will not involve delays or other actions
adversely affecting the marketing and sale of Laserscope's products.
Furthermore, the Company cannot predict the extent or effect of future
legislation or regulations on its business.

Laserscope is also subject to regulation under federal and state laws regarding,
among other things, occupational safety, the use and handling of hazardous
materials and the protection of the environment. The Company believes that it is
in material compliance with these requirements.



                                       21
<PAGE>   22

Acquisitions and Dispositions

On August 30, 1996, Laserscope consummated the acquisition of Heraeus Surgical,
Inc. ("HSI"), a Delaware Corporation and wholly owned subsidiary of Heraeus Med
GmbH ("Heraeus Med"), a company organized under the laws of the Federal Republic
of Germany. As consideration for HSI and certain of the assets and liabilities
of Heraeus Med's laser distribution operations, Laserscope paid Heraeus Med $2
million and issued to Heraeus Med 4,609,345 shares of Laserscope common stock
(the "Heraeus Shares"). The Heraeus Shares were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). On August 30, 1997, certain contractual
limitations on Heraeus Med's ability to transfer the Heraeus Shares expired.
During February and March of 1998, Heraeus Med began limited sales of the
Heraeus Shares pursuant to Rule 144 of the Securities Act and through March 13,
1998 had sold 271,000 shares. The balance of the shares was sold by Heraeus Med
in a private placement in May 1998.

During November 1998, the Company and Heraeus Medical, Inc. (a division of
Heraeus Med GmbH), signed a definitive agreement for the sale of certain assets
and liabilities related to the AMS product line. The product line was originally
purchased by Laserscope in the acquisition of Heraeus Surgical, Inc. The Company
received $905,000 in exchange for certain assets and liabilities relating to the
product line.

In December of 1998, the Company concluded that the majority of the remaining
book value the intangible assets acquired in the acquisition of Heraeus
Surgical, Inc. had been impaired and recorded an impairment loss. In addition,
the Company determined that specific inventories relating to certain product
lines acquired in the acquisition were excessive, and the Company adjusted the
value of these inventories accordingly. Laserscope determined this action in
late 1998, as part of a redirection in emphasis towards higher volume product
lines.

In March 1995, the Company entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL's shareholders approximately $1.6 million
in exchange for a cross-distribution and development agreement, a minority
equity position in NWL and an option to purchase all of the ownership interests
in NWL. In June 1997, Laserscope exercised its option and paid an additional
$1.0 million to increase its equity position to a 52% interest in NWL. In
January 1999, the Company paid approximately $0.8 million cash and agreed to pay
$0.5 million on April 15, 1999 to acquire an additional 28% interest in NWL
bringing its ownership interest to 80%. The approximate purchase price
allocation for the transaction is $1.1 million for intangible assets and $0.2
million for additional interest in tangible assets.

On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would



                                       22
<PAGE>   23
continue to distribute Laserscope's products in all countries covered by NWL's
current distribution channels. The transaction is expected to net approximately
$4.0 million in cash to Laserscope and is not expected to generate a material
gain or loss when reported in Laserscope's first quarter 2000.

Recent Developments

To address its capital needs the Company recently completed a private placement
of its Common Stock to accredited investors providing net proceeds of
approximately $1.8 million to Laserscope. The transaction consisted of two
closings. The first for approximately $1.0 million in net proceeds in exchange
for 1,505,000 shares of the Company's common stock which closed on December 30,
1999. The second closing was for approximately $0.8 million in exchange for
995,000 shares of the Company's common stock which closed on January 14, 2000.
The shares had no par value per share and were issued at a price of $0.80 per
share. The Company also issued warrants to purchase 218,875 shares of its common
stock on the date of the second closing.

Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures with net proceeds to the Company 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 common stock
of the Company, 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 the Company's Common Stock.

The Company is in the process of registering the common stock, the underlying
common stock relating to the debentures and the underlying common stock relating
to the warrants on a form S-3. The Registration Statement was filed by the
Company on March 14, 2000.



                                       23
<PAGE>   24

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, 1999:

<TABLE>
<CAPTION>

      Name                     Age           Position
      ----                     ---           --------
<S>                            <C>   <C>
Robert J. Pressley, Ph.D.      67    Chairman of the Board
Eric M. Reuter                 38    President, Chief Executive Officer and Director
Robert Mathews                 54    Executive Vice President
Kevin Candio                   46    Vice President, Marketing & Sales
Van Frazier                    47    Vice President, Quality and Regulatory Affairs
Dennis LaLumandiere            46    Vice President, Finance, Chief Financial
                                         Officer and Assistant Secretary
Susan Smith                    49    Vice President, International
</TABLE>

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. Reuter joined the Company 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. Mathews joined the Company as Executive Vice President in August 1999.
Before joining the Company, 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.



                                       24
<PAGE>   25

Kevin Candio has served as Laserscope's Vice President, Sales and Marketing
since June 1999. Prior to this position, he was Vice President, Sales and
Service from November 1997 to June 1999 and was Eastern Region Sales Manager for
the Company from November 1988 to November 1997. Before joining Laserscope, he
held various sales and sales management positions at Coopervision Surgical
Systems, a medical device company, from August 1983 to November 1988.

Van Frazier joined the Company 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 LaLumandiere joined Laserscope in September 1989 as Corporate Controller.
Mr. LaLumandiere has served as Vice President, Finance since February 1995,
Chief Financial Officer since February 1996 and Assistant Secretary since
November 1996. Prior to joining Laserscope, from 1983 to 1989, Mr. LaLumandiere
held various financial and operations management positions at Raychem
Corporation, a multinational materials science company.

Susan J. Smith was appointed to the position of Vice President, International in
April 1999. Prior to this position, she held various sales and marketing
management positions with the Company from November 1990 to April 1999. Prior to
joining Laserscope, Ms. Smith held various marketing management positions at
Laser Photonics from March 1989 to November 1990. Ms. Smith terminated as an
officer of the Company in March 2000.

ITEM 2. PROPERTIES

Laserscope leases two buildings aggregating approximately 60,000 square feet in
San Jose, California under leases expiring in February 2001. The Company has
options to extend the leases at the then-current market rates. These facilities
house the Company's research and development and manufacturing operations as
well as the Company's principal sales, marketing, service and administrative
offices. The Company believes that these facilities are suitable for its current
operations and are adequate to support those operations through the end of 1999.
The Company also leases offices in the United Kingdom and France where the
Company's local sales and marketing staffs are based. NWL's facilities consist
of a leased office and a 35,000 square foot facility owned by NWL in Germany.



                                       25
<PAGE>   26

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to various legal proceedings arising in the normal course
of its business. These proceedings may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not have a material adverse impact on
the Company's financial position or results of operations.

In 1997, a medical malpractice and product liability suit was filed against a
hospital, two physicians and Laserscope relating to a laser manufactured by
Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. Although
a trial date has been set, the Company is currently pursuing mediation through
an independent third party. While there can be no assurance as to the ultimate
disposition of the case, the Laserscope does not believe the outcome of the case
will have a material adverse impact on the Company's financial position or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.



                                       26
<PAGE>   27

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The Company's common stock is traded on the Nasdaq National Market under the
symbol LSCP. As of March 17, 1999, the Company had approximately 800
shareholders of record.

The following table shows Lasercope's high and low selling prices for the years
ended December 31, 1999 and December 31, 1998 as reported by the Nasdaq National
Market System:

<TABLE>
                                                     1999
                                           ------------------------
                                           High Bid         Low Bid
                                           --------         -------
<S>                                       <C>               <C>
      First Quarter                       $ 2 3/4           $ 1 1/8
      Second Quarter                      $ 1 15/16         $ 1 1/16
      Third Quarter                       $ 1 17/32         $ 1
      Fourth Quarter                      $ 1 1/4           $   5/8
</TABLE>

<TABLE>
                                                     1998
                                           ------------------------
                                           High Bid         Low Bid
                                           --------         -------
<S>                                       <C>               <C>
      First Quarter                       $ 5 3/8           $ 2 7/16
      Second Quarter                      $ 3 3/8           $ 2 1/16
      Third Quarter                       $ 2 3/8           $ 1 1/16
      Fourth Quarter                      $ 2 5/32          $  15/16
</TABLE>

The Company has not paid dividends on its common stock and has no present plans
to do so. Provisions of the Company's bank line of credit prohibit the payment
of dividends without the bank's consent.

To address its capital needs Laserscope recently completed a private placement
of its 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
the Company's common stock which closed on December 30, 1999. The second closing
was for approximately $0.8 million in exchange for 995,000 shares of the
Company's common stock which closed on January 14, 2000. The shares had no par
value per share and were issued at a price of $0.80 per share. The Company also
issued warrants to purchase 218,875 shares of



                                       27
<PAGE>   28

its 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.

Similarly, on February 11, 2000, Laserscope 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 the Company of $3.0 million. The debentures mature seven years from issuance
and bear an interest rate of 8.00%. The debentures are convertible into common
stock of the Company, 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 the Company's common stock. The warrants are convertible
into shares of Laserscope's common stock at $1.50 per share and expire in 2005.

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


ITEM 6. SELECTED FINANCIAL DATA
        (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

                                1999(1)       1998(2)(3)     1997(4)(5)     1996(6)          1995
                               --------       ----------     ----------     --------       --------
<S>                            <C>            <C>            <C>            <C>            <C>
Net revenues                   $ 40,990       $ 52,728       $ 61,349       $ 42,844       $ 30,133
Net loss                         (7,573)        (9,796)          (843)        (1,692)        (3,552)
Basic & diluted net
  loss per share(7)               (0.60)         (0.79)         (0.07)         (0.18)         (0.51)
</TABLE>


<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):

                                1999(1)       1998(2)(3)     1997(4)(5)     1996(6)          1995
                               --------       ----------     ----------     --------       --------
<S>                            <C>            <C>            <C>            <C>            <C>
Cash, cash equivalents &
  short-term investments       $  1,449       $  1,456       $  2,465       $  3,917       $  2,278
Working capital                   6,806         13,722         20,313         18,444         12,564
Total assets                     28,956         36,593         47,306         44,469         23,582
Capital leases (excluding
  current portion)                  534          1,012            274            202             15
Other long term debt                862          1,693          2,970             --             --
Shareholders' equity             12,047         18,671         28,117         27,175         17,326
</TABLE>




                                       28
<PAGE>   29
<TABLE>
<CAPTION>

CONSOLIDATED QUARTERLY STATEMENT OF OPERATIONS DATA (UNAUDITED):

                                                             THREE MONTHS ENDED
                                          -------------------------------------------------------
                                          MAR. 31,     JUN. 30,(1)      SEP. 30,   DEC. 31,(2)(3)
                                          --------     -----------    -----------  --------------
<S>                                       <C>            <C>            <C>            <C>
1999
----
Net revenues                              $ 11,866       $  9,565       $  9,892       $  9,667
Gross Margin                                 5,510          3,009          4,482          4,343
Net income (loss)                             (639)        (3,952)        (1,308)        (1,674)
Basic & diluted net income (loss)
  per share                                  (0.05)         (0.31)         (0.10)         (0.13)

1998
----
Net revenues                              $ 13,591       $ 13,133       $ 12,779       $ 13,225
Gross Margin                                 6,570          5,512          5,803          3,271
Net  loss                                     (230)        (1,977)          (737)        (6,852)
Basic and diluted net loss per share         (0.02)         (0.16)         (0.06)         (0.55)
</TABLE>


(1)   The Company recorded $750,000 million inventory provision in the quarter
      ended June 30, 1999.

(2)   The Company sold assets & liabilities related to its AMS product line on
      November 9, 1998 at a loss of $1.1 million.

(3)   The Company recorded $2.1 million inventory provision in the quarter ended
      December 31, 1998.

(4)   The Company closed the acquisition of a 52% equity ownership of NWL
      Laser-Technologie GmbH on June 13, 1997.

(5)   The Company recorded $3.0 million inventory provision in the quarter ended
      December 31, 1997.

(6)   The Company closed the acquisition of Heraeus Surgical, Inc. on August 30,
      1996.

(7)   The net income (loss) per share amounts prior to December 1997 have been
      restated to comply with Statement of Accounting Standard Number 128,
      Earnings Per Share. (See Note 1 in Notes to the Consolidated Financial
      Statements)



                                       29

<PAGE>   30

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

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:

<TABLE>
                                            1999         1998         1997
                                           -----        -----        -----
<S>                                        <C>          <C>          <C>
Net revenues                               100.0%       100.0%       100.0%
Cost of sales                               57.7         59.9         59.1
                                           -----        -----         ----
Gross margin                                42.3         40.1         40.9
  Operating expenses:
  Research and development                  11.0          9.9          5.5
  Selling, general and administrative       47.8         41.1         36.3
  Impairment of intangible assets             --          3.6           --
                                           -----        -----         ----
                                            58.8         54.6         41.8
Operating loss                             (16.5)       (14.5)         (.9)
Interest income (expense) and
  other, net                                (2.2)        (1.3)          .3
Loss on sale of AMS                           --         (2.1)          --
                                           -----        -----         ----
Loss before income taxes and
  minority interest                        (18.7)       (17.9)         (.6)
Provision for income taxes                    --           .4           .6
                                           -----        -----         ----
Loss before minority interest              (18.7)       (18.3)        (1.2)
Minority interest                            (.2)          .3           .2
                                           -----        -----         ----
Net loss                                   (18.5)%      (18.6)%       (1.4)%
                                           =====        =====         ====
</TABLE>

Laserscope sells its 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. The Company sells in the
United States through its own direct sales force. The Company's export sales are
generated by its wholly and majority owned subsidiaries throughout the United
Kingdom, France and Germany and by independent distributors in the rest of the
world. Through December 31, 1999, sales outside of the United States have been
denominated in the local currencies of the United Kingdom, France and Germany,
and in U.S. dollars for the rest of the world.

During 1999, 1998 and 1997 fluctuations in foreign currencies did not materially
affect the results of operations reported by Laserscope. However, there is risk
exposure to the Company in a number of areas. Although Laserscope's revenues
denominated in U.S. dollars represented over 69% of total revenues in 1999, 71%
in 1998 and 81% in 1997, market risk exists in foreign countries where the
Company sells in U.S. dollars,



                                       30
<PAGE>   31

and where a major strengthening of the U.S. dollar could have a material
negative impact on its business. In addition, the introduction of the euro as a
currency in several European countries could negatively affect Laserscope's
ability to sell its products in exchange for U.S. dollars in those countries. In
January 1999, the Company's subsidiary in France began to denominate its sales
and report its financial statements in the euro, while the other subsidiaries
have not yet adopted this practice. Through 1999, the Company believes it had
not sustained any adverse impact from the introduction of the euro. However, any
major strengthening of the U.S. dollar against the euro, the British Pound
Sterling or the German Mark could have a material adverse effect on the
Company's business. Finally, the Company currently sources the majority of
material for its manufacturing production in the country of manufacture, and
therefore has insignificant foreign exchange risk relative to the settlement of
liabilities.

1999 RESULTS COMPARED TO 1998.

During 1999, Laserscope's revenues decreased approximately $11.7 million, or
22%, from 1998. The Company experienced declines in revenues from the sales of
lasers, disposables and instrumentation, and services. Sales of these products
were approximately $23.3 million, $11.6 million and $6.1 million, respectively
in 1999, compared to $28.8 million, $12.1 million and $6.6 million,
respectively, in 1998. In addition, due to the sale of the assets and
liabilities of Ascent Medical Systems in November 1998, Laserscope had no sales
of AMS products in 1999 while sales of these products were $5.2 million in 1998.
Laserscope discontinued the sales of these products in November 1998 and sold
the assets and liabilities related to the product line to Heraeus Medical, Inc.
at that time.

During 1999, Laserscope's revenues from the sales of laser equipment decreased
19% to $23.3 million, or 57% of total net revenues, compared to $28.8 million,
or 55%, of total net revenues in 1998. Decreases in revenues from sales of laser
equipment resulted from lower unit sales with lower unit prices in most
geographic regions. Lower unit volume contributed to approximately 68% of the
decline in revenue while lower unit prices contributed to approximately 32% of
the decline. Laserscope believes that strong competition in the Unites States
private physician office market continues to negatively affect domestic laser
sales. Laserscope also believes that the negative economic conditions in the
Pacific Rim region have also affected its ability to increase sales in this
region. Consequently, the Company expects that its revenue mix trends in the
U.S. market will continue to shift toward lower-priced office lasers and that
economic conditions in the Pacific Rim region will continue to impact
Laserscope's revenues negatively.

Laserscope's net revenues from shipments of disposable supplies and
instrumentation were 5% lower in 1999 than 1998, and were approximately $11.6
million, or 28% of total revenues in 1999, compared to approximately $12.1
million, or 23%, in 1998. The decrease is principally attributable to reduced
shipments of disposable fiber-optic devices for hospital surgical procedures in
the United States and the Pacific Rim. The



                                       31
<PAGE>   32
Company believes that sales of laser equipment in the United States, which have
trended towards lower-priced office lasers for aesthetic procedures and away
from lasers to be used in the hospital for non-aesthetic procedures, has
resulted in lower sales of disposable supplies and instrumentation. Office
lasers used in aesthetic procedures, although carrying one-time sales of
instrumentation, generally do not create a stream of sales of disposable
supplies. The Company expects revenues from the sales of instrumentation and
disposable supplies to depend on the Laserscope's ability to develop and promote
surgical procedures that use these products and to increase its installed base
of systems.

The Company's net service revenues during 1999 were 6% lower than 1998. These
revenues were $6.1 million, or 15%, of total net revenues in 1999, compared to
$6.6 million, or 12%, of total net revenues in 1998. The decrease is principally
attributable to lower domestic revenues resulting from reduced service contract
revenues from hospitals. Laserscope believes that future revenues will depend on
increases to the installed base of lasers as well as the acceptance of its
service contracts by its customers.

The Company believes that acceptance of lasers in aesthetic surgery,
dermatology, urology and ear, nose and throat surgery will continue to be
important to its business. In addition, the Company expects that the adoption of
photodynamic therapy by medical practitioners will be important. The Company
continues to invest in developing new instrumentation for emerging surgical
applications and in educating surgeons in the United States and internationally
to encourage the adoption of such new applications. Penetration of the
international market is generally increasing, and the Company continues to view
expansion of international sales as important to the Company's success. During
1999, international revenues accounted for 45% of total net revenues, compared
to 42% of total net revenues during 1998.

Laserscope's product gross margin as a percentage of net revenues was 45% in
each of 1999 and 1998. These percentages reflect charges recorded to provide for
inventory related to discontinued product lines totaling approximately $0.7
million in 1999 and $2.1 million in 1998. These charges reduced Laserscope's
product gross margin as a percentage of net revenues by 2 percentage points in
1999 and 5 percentage points in 1998. The increase in gross margin (without
respect to the inventory provisions) is primarily due to a shift in product mix
towards higher margin products. Laserscope expects that product gross margin as
a percentage of net revenues will be higher in 2000 than in 1999, because the
Company has reduced its fixed cost structure. However, the Company expects that
these amounts may vary from quarter to quarter during 2000 as it continues to
balance production volumes and inventory levels with product demand and as
product and distribution mix varies.



                                       32
<PAGE>   33
Gross margin from service activities as a percentage of service revenues was 26%
in 1999 compared to 6% in 1998. The increase reflects a reduction to the fixed
cost structure in response to lower revenues. Laserscope expects that gross
margin as a percentage of net revenues from service activities in 2000 will be
similar to 1999 levels.

Research and development expenses are the result of activities related to the
development of new laser, instrumentation and disposable products and the
enhancement of the Company's existing products. In 1999, amounts spent on
research and development decreased 14% from amounts spent in 1998. The decline
was due to a narrowing of focus in product development activity with fewer
products in development. The Company expects that amounts spent in research and
development during 2000 will, as a percentage of net revenues, be approximately
equal to that which was spent in 1999.

Selling, general and administrative expenses decreased 10% in 1999, but
increased as a percentage of net revenues due to decreased revenues. The
decrease in spending primarily results from expense reduction measures
implemented in July 1999 partially offset by foreign bad debt expenses.
Laserscope expects selling, general and administrative expenses to remain at
similar levels during 2000 as the Company continues to invest in marketing
programs and educational support.

During 1998, the Company recognized an impairment loss on certain intangible
assets acquired in the acquisition of Heraeus Surgical, Inc, ("HSI"). The
intangible assets related to certain laser product lines that Laserscope
discontinued as of December 31, 1998 or early in 1999. The Company determined
this action in late 1998 as part of a redirection in emphasis towards higher
volume product lines. The Company expected that the undiscounted future cash
flows for these product lines would be significantly less than the carrying
value of the intangible assets relating to these product lines. Accordingly,
Laserscope recorded an impairment charge of $1.9 million in 1998 to adjust the
assets to their estimated fair value.

During 1998, the Company concluded the sale of certain assets and liabilities
related to the AMS product line to Heraeus Medical, Inc. (a division of Heraeus
Med GmbH). Laserscope purchased the product line in the acquisition of HSI and
revenues from sales of products in this line decreased in 1997 and 1998. Due to
these declines and a desire to redirect Laserscope's resources towards laser
products, the management of the Company sold the assets and liabilities related
to the product line in November 1998. Laserscope received $0.9 million, in
exchange for certain assets and liabilities relating to the product line. The
result of the transaction was a loss to the Company of $1.1 million.

In 1999 and 1998, Laserscope recorded $13,000 and $184,000, respectively, in
income tax provisions primarily attributable to the profits of NWL.



                                       33
<PAGE>   34

Minority interest in 1999 and 1998 resulted from the minority ownership
participation in NWL's net results.

1998 RESULTS COMPARED TO 1997.

During 1998, Laserscope's revenues decreased approximately $8.6 million, or 14%,
from 1997. Almost half of the decrease was due to a decline in revenues from
sales of AMS products. These revenues accounted for approximately $5.2 million
of all revenues in 1998, compared to approximately $9.2 million in 1997.
Laserscope discontinued the sales of these products in November 1998 and sold
the assets and liabilities related to the product line to Heraeus Medical, Inc.
at that time. In addition, the Company experienced declines in revenues from the
sales of disposables and instrumentation, and services, which were approximately
$12.1 million and $6.6 million, respectively, in 1998, compared to $14.7 million
and $8.1 million, respectively, in 1997.

During 1998, Laserscope's revenues from the sales of laser equipment decreased
2% and were $28.8 million, or 55%, of total net revenues, compared to $29.3
million, or 48%, of total net revenues in 1997. Increases in revenues from sales
of laser equipment were due to a complete year of sales from NWL, which
contributed approximately $7.8 million of such revenues in 1998, compared to
approximately $4.8 million from June through December 1997. Offsetting the
increases contributed by NWL were reduced shipment levels in the United States
and Pacific Rim, and higher shipment levels in Europe. Overall, unit sales in
1998 were at approximately the same level as in 1997, with lower average unit
prices contributing to the 2% decline in revenue.

Laserscope's net revenues from shipments of disposable supplies and
instrumentation were 17% lower in 1998 than 1997, and were approximately $12.1
million, or 23%, of total revenues in 1998, compared to approximately $14.7
million, or 24%, in 1997. The decrease was principally attributable to reduced
shipments of disposable fiber-optic devices for hospital surgical procedures in
the United States and the Pacific Rim. The Company believes that trends in sales
of laser equipment in the United States, which have trended towards lower-priced
office lasers for aesthetic procedures and away from lasers to be used in the
hospital for non-aesthetic procedures, resulted in lower sales of disposable
supplies and instrumentation. Office lasers used in aesthetic procedures,
although often times carrying accompanying one-time sales of instrumentation,
generally do not create a stream of sales of disposable supplies.

The Company's net service revenues during 1998 were 18% lower than 1997. These
revenues were $6.6 million, or 12%, of total net revenues in 1998, compared to
$8.1 million, or 13%, of total net revenues in 1997. The decrease was
principally attributable to lower domestic revenues as a result of reduced
service contract revenues from hospitals.



                                       34
<PAGE>   35

Laserscope's product gross margin as a percentage of net revenues in 1998 was
45%, compared to 44% in 1997. These percentages reflect $2.1 million in charges
recorded to provide for inventory related to discontinued product lines in 1998,
and $3.0 million in charges during 1997 to provide for inventory that the
Company considered to be potentially excessive. These charges reduced
Laserscope's product gross margin as a percentage of net revenues by 4
percentage points and 5 percentage points in 1998 and 1997, respectively. The
increase in gross margin (without respect to the inventory provisions) was due a
product mix shift away from AMS products and towards laser products. Since its
acquisition of HSI, Laserscope acted as a distributor for the majority of the
AMS products. These products were manufactured by other companies. Revenues from
sales of the AMS products generally generated lower gross margins than products
manufactured by the Company.

Gross margin from service activities as a percentage of service revenues was 6%
in 1998, compared to 23% in 1997. The decrease reflected a further decline in
service revenues without a corresponding reduction to the fixed cost structure,
together with inefficiencies in performing service activities supporting the
Company's AMS products.

Research and development expenses were the result of activities related to the
development of new laser, instrumentation and disposable products and the
enhancement of the Company's existing products. In 1998, amounts spent on
research and development increased 54% from amounts spent in 1997. The growth
was due to increased laser product development activity in the United States,
and, to a lesser extent, a full year of NWL's research and development expenses
in 1998 compared to six months in 1997.

Selling, general and administrative expenses decreased 3% in 1998, but increased
as a percentage of net revenues due to decreased revenues. The decrease
primarily results from the discontinuance of the AMS product line after the sale
of related assets and liabilities in November 1998.

During 1998, the Company recognized an impairment loss on certain intangible
assets acquired in the acquisition of Heraeus Surgical, Inc, ("HSI"). The
intangible assets relate to certain laser product lines that Laserscope
discontinued as of December 31, 1998 or intends to discontinue in early 1999.
The Company determined this action in late 1998 as part of a redirection in
emphasis towards higher volume product lines. The Company expected that the
undiscounted future cash flows for these product lines would be significantly
less than the carrying value of the intangible assets relating to these product
lines. Accordingly, Laserscope recorded an impairment charge of $1.9 million in
1998 to adjust the assets to their estimated fair value.

During 1998, the Company concluded the sale of certain assets and liabilities
related to the AMS product line to Heraeus Medical, Inc. (a division of Heraeus
Med GmbH). Laserscope purchased the product line in the acquisition of HSI and
revenues from sales of products in this line decreased in 1997 and 1998. Due to
these declines and a



                                       35
<PAGE>   36

desire to redirect Laserscope's resources towards laser products, the management
of the Company sold the assets and liabilities related to the product line in
November 1998. Laserscope received $0.8 million, and rights to $0.1 million that
remained in escrow until November 1999, in exchange for certain assets and
liabilities relating to the product line. The result of the transaction was a
loss to the Company of $1.1 million.

In 1998 and 1997, Laserscope recorded $184,000 and $370,000, respectively, in
income tax provisions primarily attributable to the profits of NWL as well as
other foreign income and withholding taxes, and federal and state minimum taxes.

Minority interest in 1998 and 1997 resulted from the minority ownership
participation in NWL's net income.

FINANCIAL REVIEW - LIQUIDITY AND CAPITAL RESOURCES

Total assets and liabilities as of December 31, 1999 were $29.0 million and
$16.9 million, respectively, compared to assets and liabilities of $36.6 million
and $17.9 million, respectively, at December 31, 1998. Working capital decreased
$6.9 million from $13.7 million at December 31, 1998 to $6.8 million at December
31, 1999. Cash and cash equivalents were $1.5 million at each of December 31,
1999 and 1998. The decrease to working capital was primarily the result of the
net loss for the year.

Cash used by operating activities totaled $1.6 million. This was the combined
result of the following uses: Net loss - $7.6 million; reductions in accounts
payable - $1.9 million; warranty - $0.5 million; other accrued liabilities -
$0.4 million; deferred revenue - $0.3 million; accrued compensation - $0.2
million; and minority interest - $0.1 million; and increased other current
assets - $0.4 million. These uses were offset partially by in the following:
reductions in inventory - $3.3 million; reductions in accounts receivable - $2.9
million; depreciation - $1.8 million; amortization - $1.0 million, non-cash
inventory charges - $0.7 million and reduction of shareholder notes - $0.2
million.

Cash used by investing activities primarily consisted of an increased investment
in NWL of $1.3 million and capital expenditures of $0.6 million.

Cash provided by financing activities primarily consisted of a $3.0 million net
increase in bank borrowings and $1.2 million from the sale of common stock
partially offset by $0.4 million in payments on capital leases.

The Company has in place a $6 million asset based line of credit based on the
Company's eligible accounts receivable and inventory which expires in September
2000. The arrangement allows for an over-advance relative to the collateral of
$1.9 million until December 31, 1999, then $1.0 million until March 31, 2000, at
which time further over-advances will no longer be allowed. At December 31,
1999, the Company had approximately $4.0 million in collateral available against
the $4.3 million



                                       36
<PAGE>   37

outstanding. At December 31, 1999, the Company was in compliance with all
financial covenants. In addition, NWL has in place various short-term revolving
bank lines totaling approximately $3.0 million that expire on various dates in
2000 and under which approximately $3.0 million in borrowings were outstanding
at December 31, 1999. At December 31, 1999, NWL had covenant violations with
certain of its bank lines and currently expects to renegotiate the terms of
these lines. However, there can be no assurance NWL will be able to accomplish
this in a timely manner, on acceptable terms, or at all.

Capital expenditures totaled $0.6 million and $1.0 million in 1999 and 1998,
respectively. These expenditures were primarily for computer systems and
leasehold improvements. Laserscope expects capital expenditures in 2000 to be at
levels similar to 1999.

To address its capital needs the Company recently completed a private placement
of its Common Stock to accredited investors providing net proceeds of
approximately $1.8 million to Laserscope. The transaction consisted of two
closings. The first for approximately $1.0 million in net proceeds in exchange
for 1,505,000 shares of the Company's Common stock which closed on December 30,
1999. The second closing was for approximately $0.8 million in exchange for
995,000 shares of the Company's Common Stock which closed on January 14, 2000.
The shares had no par value per share and were issued at a price of $0.80 per
share. The Company also issued warrants to purchase 218,875 shares of its Common
Stock on the date of the second closing.

Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures with net proceeds to the Company 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 Common Stock
of the Company, 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 the Company's Common Stock.

Laserscope anticipates that future changes in cash and working capital will
depend on a number of factors, including, but not limited to, management's
ability to effectively manage non-cash assets such as inventory and accounts
receivable. The Company competes in a competitive industry where technological
changes and acceptance of new and alternative procedures by its customers is
rapid. Management's ability to anticipate and adapt to these changes will
significantly affect the Company's investment in inventory and the potential for
inventory valuation adjustments. Historically, a source of liquidity for the
Company has been the sale of common stock under stock plans, principally
employee stock option and stock purchase plans. To the extent that the market
price of the common stock discourages the exercise of stock options, this source
of liquidity may be unavailable. At December 31, 1999, options to purchase
approximately 3.4 million shares of Laserscope's common stock were outstanding,
of



                                       37
<PAGE>   38

which 1.6 million were exercisable at a weighted average exercise price of
$2.17. Finally, the level of profitability of the Company will have a
significant effect on cash resources.

From time to time, the Company may also consider the acquisition of, or evaluate
investments in, certain products and businesses complementary to the Company's
business. Any such acquisition or investment may require additional capital
resources. The Company has historically financed acquisitions using its existing
cash resources. While the Company believes its existing cash resources will be
sufficient to fund its operating needs for the next twelve months, additional
financing either through its bank lines of credit or otherwise will be required
for the Company's currently envisioned long term needs.

There also 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 the Company's shareholders, and future
debt financings could result in certain financial and operational restrictions.

PENDING SALE OF NWL

On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL. The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would continue to distribute Laserscope's products in all countries covered by
NWL's current distribution channels. The transaction is expected to net
approximately $4.0 million in cash to Laserscope and is not expected to generate
a material gain or loss when reported in Laserscope's first quarter 2000.

YEAR 2000

As of March 30, 2000 Laserscope's systems have operated without any apparent
Year 2000 related problems and appear to be Year 2000 compliant. The Company is
not aware that any of its primary vendors or systems maintained by third parties
have experienced significant Year 2000 compliance problems. However, while no
such problem has been discovered as of the date of this report, Year 2000 issues
may not become apparent immediately and, therefore, the Company may be affected
in the future. The Company will continue to monitor the issue and work to
remediate any Year 2000 issues that may arise. Through the date of this report,
the costs to Laserscope for year 2000 compliance have not been significant.



                                       38
<PAGE>   39
NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 as of the beginning of our fiscal year 2001. Our foreign
currency exchange rate hedging activities have been insignificant to date, and
we do not believe that the impact of SFAS No. 133 will be material to our
financial position, results of operations or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). Although Laserscope is currently
evaluating the impact of the SAB 101, the Company does not believe its adoption
will materially change Laserscope's financial position, results of operations,
or cash flows.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments, outstanding debt balances and
foreign currency fluctuations. In the normal course of business, the Company
employs established policies and procedures to manage its exposure to
fluctuations in interest rates and foreign currency values.

INTEREST RATE RISK

The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's investment and debt portfolios. The Company has not
used derivative financial instruments in its investment or debt portfolios. The
Company invests its excess cash in money market funds and commercial paper. The
Company's debt financing consist 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, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company 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, the Company's future interest expense may be greater than expected
due to changes in interest rates.

FOREIGN CURRENCY RISK

International revenues denominated in currencies other than the U.S. dollar were
30% of total revenues in 1999. International sales are made through
international distributors and wholly- and majority-owned subsidiaries with
payments to the Company typically denominated in the local currencies of the
United Kingdom, France and Germany, and in U.S. dollars in the rest of the
world. The



                                       39
<PAGE>   40

Company's international business is subject to risks typical of an international
business, including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, the Company's
future results could be materially adversely affected by changes in these or
other factors. The effect of foreign exchange rate fluctuations on the Company
in 1999 was not material, and the Company does 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, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, 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

      Not applicable.

                                    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, 1999 pursuant to Regulation 14A (the "Proxy Statement") for its Annual
Meeting of Shareholders to be held June 23, 2000, and the information included
in the Proxy Statement is incorporated herein by reference.



                                       40
<PAGE>   41

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 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders under the
heading "Certain Transactions."




                                       41
<PAGE>   42

                                     PART IV

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

(a)   (1)   Financial Statements:

<TABLE>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
            Report of Ernst & Young LLP, Independent
            Auditors.                                                  F-1

            Consolidated Balance Sheets at December 31, 1999
            and 1998.                                                  F-2

            Consolidated Statements of Operations - Years
            ended December 31, 1999, 1998 and 1997.                    F-3

            Consolidated Statements of Cash Flows - Years
            ended December 31, 1999, 1998 and 1997.                    F-4

            Consolidated Statements of Shareholders' Equity
            - Years ended December 31, 1999, 1998 and 1997.            F-5

            Notes to Consolidated Financial Statements.         F-6 through F-22

      (2)   The following financial statement schedule for
            the years ended December 31, 1999, 1998 and 1997
            is submitted herewith:
</TABLE>

<TABLE>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
            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):
</TABLE>



                                       42
<PAGE>   43

<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
2.1         Acquisition Agreement between Laserscope and
            Heraeus Med GmbH.(12)

2.1A        Amendment Number One to Acquisition Agreement
            between Laserscope and Heraeus Med GmbH.(14)

3.3         Seventh Amended and Restated Articles of
            Incorporation of Registrant.(1)

3.4         By-laws of Registrant, as amended.(4)

4.1         Common Shares Rights Agreement dated as of
            October 31, 1991 between Laserscope and American
            Stock Transfer & Trust Company as Rights
            Agent.(9)

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.(10)

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.(11)

10.1A       1984 Stock Option Plan, as amended, and forms of
            Incentive Stock Option Agreement and
            Nonstatutory Stock Option Agreement.(4)

10.1B       1994 Stock Option Plan and forms of Incentive
            Stock Option Agreement and Nonstatutory Stock
            Option Agreement.(7)

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.(4)

10.3A       1999 Employee Stock Purchase Plan and form of
            Subscription Agreement.(19)

10.4        401(k) Plan.(2)

10.6        Net Lease Agreement between the Registrant and
            Realtec Properties dated October 7, 1987.(2)

10.6A       Amendment No. 1 dated January 18, 1990 to Net
            Lease Agreement between the Registrant and
            Realtec Properties dated October 7, 1987.(2)
</TABLE>



                             43
<PAGE>   44

<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
10.6B       Net Lease Agreement between Registrant and
            Realtec Properties dated December 14, 1989.(2)

10.6C       Net Lease Agreement between Registrant and
            Realtec Properties dated June 25, 1990.(3)

10.6D       Amendment No. 2 dated November 10, 1992 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated October 7, 1987.(5)

10.6E       Amendment No. 3 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated October 7, 1987.(6)

10.6F       Amendment No. 1 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated June 25, 1990.(6)

10.6G       Amendment No. 1 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated December 14, 1989.(7)

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.(13)

10.11A      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            November 26, 1997.(14)

10.11B      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            18, 1998.(14)

10.11C      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            September 3, 1998.(16)

10.11D      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            November 25, 1998.(17)

10.11E      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            17, 1999.(17)

10.11F      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            30, 1999.(18)

10.11G      Loan and Security Agreement between the
            Registrant and Silicon Valley Bank dated October
            1, 1999.(19)

10.13       1990 Directors' Stock Option Plan and form of
            Option Agreement.(4)
</TABLE>



                             44
<PAGE>   45
<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
10.14.1     Form of Laserscope Management Continuity
            Agreement, as amended.(15)

10.18       1995 Directors' Stock Option Plan and form of
            Option agreement.(8)

10.18A      1999 Director's Stock Option Plan.(19)

10.19       Common Stock Placement Agreement.(19)

10.19A      Form of Common Stock Purchase Agreement.(19)

10.20       Convertible Loan Agreement.(19)

22.1        Subsidiaries of Registrant, as amended.(14)

23.1        Consent of Ernst & Young LLP, Independent
            Auditors.(19)

25.1        Power of Attorney (see pages 48 through 49).(19))

27.1        Financial Data Schedule.(19)
</TABLE>

Reports on Form 8-K:

On February 10, 2000 the Company filed a Form 8-K referring to a press release
it had issued on January 18, 2000 announcing that it had completed a private
placement of common stock providing net proceeds to the Company of approximately
$1.8 million. The placement of common stock to accredited investors was managed
by Taglich Brothers Inc.

On March 1, 2000 the Company filed a Form 8-K referring to a press release it
had issued on February 22, 2000 announcing that it had completed a private
placement of subordinate convertible debentures providing net proceeds to the
Company of approximately $2.9 million. The placement to affiliates of
Renaissance Capital Group, Inc., was managed by Taglich Brothers Inc.

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

(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.



                                       45
<PAGE>   46

(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, 1990.

(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, 1991.

(5)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
      on Form 10-K for the year ended December 31, 1992.

(6)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended June 30, 1994.

(7)   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.

(8)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
      on Form 10-K/A for the year ended December 31, 1995.

(9)   Incorporated by reference to Exhibit 1 of the Registrant's Registration
      Statement on Form 8-A filed November 15, 1991.

(10)  Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended June 30, 1996.

(11)  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.

(12)  Incorporated by reference to Exhibit A to the Definitive Proxy Statement
      for the Special Meeting of Shareholders held August 29, 1996.

(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, 1996.

(14)  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.



                                       46
<PAGE>   47

(15)  Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended March 31, 1998.

(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 September 30, 1998.

(17)  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.

(18)  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.

(19)  Filed herewith



                                       47
<PAGE>   48

                                   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 30, 2000                      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.

<TABLE>
<CAPTION>
        Signature                              Title                       Date
        ---------                              -----                       ----
<S>                                 <C>                                <C>
/s/ Robert J. Pressley                 Chairman of the Board of        March 30, 2000
-----------------------------                Directors
  (Robert J. Pressley, Ph.D.)


/s/ Eric M. Reuter                    President, Chief Executive       March 30, 2000
-----------------------------            Officer and Director
   (Eric M. Reuter)                 (Principal Executive Officer)
</TABLE>




                                       48
<PAGE>   49

<TABLE>
<CAPTION>
        Signature                              Title                       Date
        ---------                              -----                       ----
<S>                                 <C>                                <C>
/s/ Dennis LaLumandiere               Vice President of Finance,       March 30, 2000
-----------------------------        Chief Financial Officer and
   (Dennis LaLumandiere)                 Assistant Secretary
                                       (Principal Financial and
                                         Accounting Officer)

/s/ E. Walter Lange                          Director                  March 30, 2000
-----------------------------
   (E. Walter Lange)

/s/ Rudiger Naumann-Etienne                  Director                  March 30, 2000
-----------------------------
   (Rudiger Naumann-Etienne,
    Ph.D.)

/s/ Rodney Perkins                           Director                  March 30, 2000
-----------------------------
   (Rodney Perkins, M.D.)
</TABLE>



                                       49
<PAGE>   50

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Laserscope

We have audited the accompanying consolidated balance sheets of Laserscope as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, 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 24, 2000



                                      F-1
<PAGE>   51

                                   LASERSCOPE
                           CONSOLIDATED BALANCE SHEETS

<TABLE>

                                                           December 31,
(dollars in thousands)                                 1999           1998
----------------------                               --------       --------
<S>                                                  <C>            <C>
ASSETS

Current Assets:
    Cash and cash equivalents                        $  1,449       $  1,456
    Accounts receivable, net                            9,500         12,433
    Inventories                                        10,052         14,084
    Other current assets                                1,281            867
                                                     --------       --------
    Total current assets                               22,282         28,840
Property and equipment, net                             3,949          5,146
Developed technology and other intangibles, net         2,598          2,089
Other assets                                              127            518
                                                     --------       --------
Total assets                                         $ 28,956       $ 36,593
                                                     ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Accounts payable                                 $  3,412          5,360
    Accrued compensation                                1,453          1,659
    Short-term bank loans                               7,361          3,538
    Warranty                                              329            835
    Deferred revenue                                      717          1,060
    Other accrued liabilities                           1,885          2,323
    Current obligations under capital leases              319            343
                                                     --------       --------
    Total current liabilities                          15,476         15,118

Long-term liabilities:
    Obligations under capital leases                      534            786
    Mortgages & other long term loans                     862          1,693
                                                     --------       --------
    Total long term liabilities                         1,396          2,479

Commitments and contingencies

Minority interest                                          37            325

Shareholders' equity:
    Common stock 14,193,043 shares outstanding
        (12,525,818 in 1998)                           52,467         51,268
    Accumulated deficit                               (39,200)       (31,627)
    Accumulated other comprehensive income             (1,027)          (599)
    Notes receivable from shareholders                   (193)          (371
                                                     --------       --------
    Total shareholders' equity                         12,047         18,671
                                                     --------       --------
Total liabilities and shareholders' equity           $ 28,956       $ 36,593
                                                     ========       ========
</TABLE>

See notes to consolidated financial statements



                                      F-2
<PAGE>   52

                                   LASERSCOPE
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
(thousands, except per share amounts)                 1999           1998           1997
-------------------------------------               --------       --------       --------
<S>                                                 <C>            <C>            <C>
Net revenues:
    Products                                        $ 34,846       $ 46,148       $ 53,296
    Services                                           6,144          6,580          8,053
                                                    --------       --------       --------
                                                      40,990         52,728         61,349
Cost of products and services:
    Products                                          19,088         25,417         30,085
    Services                                           4,558          6,155          6,194
                                                    --------       --------       --------
                                                      23,646         31,572         36,279
                                                    --------       --------       --------
Gross margin                                          17,344         21,156         25,070

Operating expenses:
    Research and development                           4,504          5,225          3,389
    Selling, general and administrative               19,595         21,657         22,250
    Impairment of intangible assets                       --          1,937             --
                                                    --------       --------       --------
                                                      24,099         28,819         25,639
Operating loss                                        (6,755)        (7,663)          (569)
Interest income (expense) and other, net                (910)          (701)           210
Loss on sale of AMS                                       --         (1,082)            --
                                                    --------       --------       --------
Loss before income taxes and minority interest        (7,665)        (9,446)          (359)
Provision for income taxes                                13            184            370
                                                    --------       --------       --------
Loss before minority interest                         (7,678)        (9,630)          (729)
Minority interest                                        105           (166)          (114)
                                                    --------       --------       --------
Net loss                                            $ (7,573)      $ (9,796)      $   (843)
                                                    ========       ========       ========
Basic and diluted net loss per share                $  (0.60)      $  (0.79)      $  (0.07)
                                                    ========       ========       ========
Shares used in per share calculations                 12,580         12,423         12,265
                                                    ========       ========       ========
</TABLE>

See notes to consolidated financial statements



                                      F-3
<PAGE>   53
                                   LASERSCOPE
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                              Years Ended December 31,
(thousands)                                                              1999           1998           1997
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net loss                                                          $ (7,573)      $ (9,796)      $   (843)

     Adjustments to reconcile net loss to cash provided (used) by
       operating activities:
        Excess inventory charges                                            750          2,063          3,000
        Impairment of intangible assets                                      --          1,937             --
        Loss on sale of AMS                                                  --          1,082             --
        Depreciation                                                      1,835          1,915            824
        Amortization of licenses and intangibles                            977            976            790
        Repayment and write off of shareholder notes                        178             --             --
     Increase (decrease) from changes in:
        Accounts receivable                                               2,833            449             65
        Inventories                                                       3,282            473           (841)
        Other current assets                                               (414)           250            280
        Other assets                                                         --           (295)            --
        Accounts payable                                                 (1,948)           773         (4,404)
        Accrued compensation                                               (206)           (51)        (1,237)
        Warranty                                                           (507)          (206)           359
        Deferred revenue                                                   (343)          (453)          (796)
        Other accrued liabilities                                          (437)           636            372
        Minority interest                                                  (105)           165            160
                                                                       --------       --------       --------
     Cash used by operating activities                                   (1,678)           (82)        (2,271)
                                                                       --------       --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:

     Capital expenditures                                                  (562)          (987)        (1,616)
     NWL acquisition                                                     (1,278)            --           (960)
     Cash received from the sale of AMS                                     100            805             --
     Other                                                                 (428)            21           (402)
                                                                       --------       --------       --------
     Cash used by investing activities                                   (2,168)          (161)        (2,978)
                                                                       --------       --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:

     Payment on obligations under capital leases                           (352)          (249)           (39)
     Proceeds from the sale of common stock under stock plans               175            329          2,141
     Proceeds from the sale of common stock in private placement,
         net of issuance costs                                            1,024             --             --
     Proceeds from bank loans                                            13,382          1,563          3,865
     Repayment of bank loans                                            (10,390)        (2,409)        (2,170)
                                                                       --------       --------       --------
     Cash provided (used) by financing activities                         3,839           (766)         3,797
                                                                       --------       --------       --------
     Increase (decrease) in cash and cash equivalents                        (7)        (1,009)        (1,452)
     Cash and cash equivalents, beginning of year                         1,456          2,465          3,917
                                                                       --------       --------       --------
     Cash and cash equivalents, end of year                            $  1,449       $  1,456       $  2,465
                                                                       ========       ========       ========
Supplemental cash flow information:

Cash paid for income taxes (net of refunds)                            $     17       $     25       $    177
                                                                       ========       ========       ========
Cash paid for interest                                                 $    572       $    394       $    393
                                                                       ========       ========       ========
Non cash financing activities:
Equipment leases                                                       $     77       $    891       $    174
                                                                       ========       ========       ========
</TABLE>

See notes to consolidated financial statements



                                      F-4
<PAGE>   54
                                   LASERSCOPE
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                                                      Other               Notes             Total
                                                               Accumulated    Comprehensive     Receivable from     Shareholders'
(dollars in thousands)                          Common Stock       Deficit    Income (loss)        Shareholders            Equity
-------------------------------------------     -----------    -----------    -------------     ---------------     -------------
<S>                                             <C>              <C>              <C>                <C>               <C>
Balance at December 31, 1996                         48,798        (20,988)            (260)               (375)           27,175

Components of comprehensive income (loss):
     Net loss                                                         (843)                                                  (843)
     Translation adjustments                                                           (356)                                 (356)
                                                                                                                          -------
         Total comprehensive income                                                                                        (1,199)

Issuance of 479,275 shares
   under stock plans                                  2,141                                                                 2,141
                                                    -------      ---------        ---------           ---------             -----
Balance at December 31, 1997                         50,939        (21,831)            (616)               (375)           28,117

Components of comprehensive income (loss):
     Net loss                                                       (9,796)                                                (9,796)
     Translation adjustments                                                             17                                    17
                                                                                                                         --------
         Total comprehensive income                                                                                        (9,779)

Issuance of 178,372 shares
   under stock plans                                    329                                                                   329

Repayment of shareholder notes                                                                                4                 4
                                                -----------    -----------         --------            --------         ---------
Balance at December 31, 1998                         51,268        (31,627)            (599)               (371)           18,671

Components of comprehensive income (loss):
     Net loss                                                       (7,573)                                                (7,573)
     Translation adjustments                                                           (428)                                 (428)
                                                                                                                          -------
         Total comprehensive income                                                                                        (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
                                                ===========    ============      ==========              ======          ========
</TABLE>

See notes to consolidated financial statements


                                      F-5
<PAGE>   55

                                   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 surgical
lasers and other surgical systems, related instrumentation and disposable
supplies. The Company markets its products and services in over thirty 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 intercompany transactions and
balances have been eliminated.

Use of estimates

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

Cash equivalents and short-term investments

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 remaining maturities at the time of purchase of
three months or less.

At December 31, 1999 the Company had no cash equivalents. At December 31, 1998,
the Company's cash equivalents were in the form of institutional money market
accounts and totaled $0.4 million. At December 31, 1999 and 1998 the Company had
no investments in debt or equity securities.

Revenue recognition and product warranty

The Company generally recognizes revenue related to the sale of systems,
instrumentation and disposables at the time of shipment and provides currently
for the estimated cost to repair or replace products under warranty provisions
in effect at the time of the sale. Service revenue is recognized as the services
are provided or pro rata over the period of the applicable contract.

Property and equipment

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

The building is depreciated using the straight line method over an estimated
useful life of 25 years. 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.



                                      F-6
<PAGE>   56

Inventories

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

Net loss per share

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

Options to purchase 3,443,978, 2,615,317 and 2,428,397 shares of common stock
were outstanding at December 31, 1999, 1998 and 1997, respectively, but were not
included in the computation of diluted earnings (loss) per share because the
Company reported losses for the periods that ended at these dates and,
therefore, the effect 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 included in shareholders' equity. Revenues and
expenses are translated at average exchange rates in effect during the period.

Intangible assets related to acquisitions

Intangible assets related to the acquisitions of Heraeus Surgical, Inc. and NWL
Laser-Technologie GmbH included developed technology, distribution and
established workforces. These assets are amortized on a straight-line basis over
estimated useful lives from five to seven years. During the year ended December
31, 1998, the Company recorded an impairment loss to the intangible assets
related to the acquisition of Heraeus Surgical, Inc. (See Note 3)

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 than the assets' carrying
amounts. During the year ended December 31, 1998, the Company recognized such a
loss related to the write down of certain intangible assets acquired in the
acquisition of Heraeus Surgical, Inc. (See Note 3)

                                      F-7
<PAGE>   57

Advertising expense

Advertising is expensed as incurred. Advertising costs were not significant in
1999, 1998 and 1997.

Comprehensive income

The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) during the year ended December 31,
1998. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income (loss) is comprised of net loss plus
translation adjustments.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 as of the beginning of our fiscal year 2001. Our foreign
currency exchange rate hedging activities have been insignificant to date, and
we do not believe that the impact of SFAS No. 133 will be material to our
financial position, results of operations or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101. "Revenue
Recognition in Financial Statements" (SAB 101). Although Laserscope is
currently evaluating the impact of the SAB 101, the Company does not believe
its adoption will materially change Laserscope's financial position, results of
operations, or cash flows.

2. ACQUISITION OF NWL LASER-TECHNOLOGIE GMBH

In March 1995, Laserscope entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a minority equity position in
NWL and an option to purchase all of the ownership interests in NWL. In June
1997, Laserscope exercised its option and paid an additional $1 million to
increase its equity position to a 52% interest in NWL. In January 1999,
Laserscope paid an additional $1.3 million to increase its equity position to
80%. (See Note 17.)



                                      F-8
<PAGE>   58

3. SALE AND IMPAIRMENT OF ASSETS AND LIABILITIES ACQUIRED IN THE ACQUISITION OF
HERAEUS SURGICAL, INC.

During November 1998, the Company and Heraeus Medical, Inc. (a division of
Heraeus Med GmbH), signed a definitive agreement for the sale of certain assets
and liabilities related to the AMS product line. The product line was originally
purchased by Laserscope in the acquisition of Heraeus Surgical, Inc. The Company
received $905,000 in exchange for certain assets and liabilities relating to the
product line. The result of the transaction was a loss to the Company of $1.1
million as detailed below:

<TABLE>
(in thousands)
--------------
<S>                                                      <C>
    Assets and liabilities sold:
               Accounts receivable                       $1,078
               Inventories                                2,036
               Licenses and intangibles assets              800
               Accounts payable and accruals             (1,580)
               Warranty                                    (280)
               Deferred revenues                            (67)
                                                         ------
                      Total                               1,987
    Proceeds:
               Cash received                                905
                                                         ------
    Net loss                                             $1,082
                                                         ======
</TABLE>

In December 1998, the Company concluded that the majority of the remaining book
value the intangible assets acquired in the acquisition of Heraeus Surgical,
Inc. had been impaired and recorded an impairment loss. In addition, the Company
determined that specific inventories relating to certain product lines acquired
in the acquisition were excessive, and the Company adjusted the value of these
inventories accordingly. Laserscope determined this action in late 1998, as part
of a redirection in emphasis towards higher volume product lines.



                                      F-9
<PAGE>   59

4. 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.

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

<TABLE>
(in thousands)                          1999         1998         1997
--------------                        -------      -------      -------
<S>                                   <C>          <C>          <C>
By similar products and services
--------------------------------
Laser equipment                       $23,263      $28,809      $29,301
Disposables & instrumentation          11,580       12,139       14,750
Service                                 6,147        6,574        8,053
AMS equipment(1)                           --        5,206        9,245
                                      -------      -------      -------
    Total                             $40,990      $52,728      $61,349

By major geographic area(2)
---------------------------
United States                         $22,551      $30,662      $41,190
Germany(3)                              7,089        9,298        5,656
Rest of Europe(4)                       8,268        8,384        8,104
Asia Pacific(4)                         2,635        3,657        5,876
Rest of world(4)                          447          727          523
                                      -------      -------      -------
    Total                             $40,990      $52,728      $61,349
                                      =======      =======      =======
</TABLE>

(1)   Laserscope sold certain assets and liabilities related to the AMS product
      line in November 1998.

(2)   Based on the location of the external customer.

(3)   The Company acquired a 52% interest in NWL in June 1997 and further
      increased its interest to 80% in January 1999.

(4)   Individual countries within each of these geographic regions represent
      less than 10% of total revenues


                                      F-10
<PAGE>   60

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

<TABLE>
(in thousands)                   1999         1998         1997
--------------                 -------      -------      -------
<S>                            <C>          <C>          <C>
United States                  $ 5,645      $ 6,167      $ 9,982
Germany                            884        1,418        1,074
All others                         145         168          152
                               -------      -------      -------
    Total                      $ 6,674      $ 7,753      $11,208
                               =======      =======      =======
</TABLE>

5. ACCOUNTS RECEIVABLE

Accounts receivable at December 31 consisted of:

<TABLE>
(in thousands)                                1999           1998
--------------                              --------       --------
<S>                                         <C>            <C>
Trade accounts receivable                   $ 10,251       $ 12,958
Less:  allowance for doubtful accounts          (751)          (525)
                                            --------       --------
                                            $  9,500       $ 12,433
                                            ========       ========
</TABLE>

6. INVENTORIES

Inventories at December 31 consisted of:

<TABLE>
(in thousands)                                1999         1998
--------------                              -------      -------
<S>                                         <C>          <C>
Sub-assemblies and purchased parts          $ 7,013      $ 9,371
Finished goods                                3,039        4,713
                                            -------      -------
                                            $10,052      $14,084
                                            =======      =======
</TABLE>

7. PROPERTY AND EQUIPMENT

Property and equipment at December 31 consisted of:

<TABLE>
(in thousands)                               1999           1998
--------------                             --------       --------
<S>                                        <C>            <C>
Machinery and equipment                    $  4,059       $  4,008
Land and building                               825            959
Office equipment and furniture                9,679          9,069
Leasehold improvements                        3,513          3,402
                                           --------       --------
                                             18,076         17,438
Less accumulated depreciation and
   amortization                             (14,127)       (12,292)
                                           --------       --------
                                           $  3,949       $  5,146
                                           ========       ========
</TABLE>



                                      F-11
<PAGE>   61

8. DEVELOPED TECHNOLOGY AND OTHER INTANGIBLES

Developed technology and other intangibles resulting from the acquisition of
Heraeus Surgical, Inc. and NWL Laser-Technologie GmbH at December 31 consisted
of:

<TABLE>
(in thousands)                               1999          1998
--------------                             -------       -------
<S>                                        <C>           <C>
Heraeus Surgical, Inc.:

Developed technology                       $ 3,229       $ 3,229
Work force                                     400           400
                                           -------       -------
                                             3,629         3,629
Less:
     Asset impairment                       (1,937)       (1,937)
     Accumulated amortization               (1,226)       (1,196)
     AMS sale                                 (443)         (443)
                                           -------       -------
Net Heraeus Surgical, Inc.                      23            53
                                           -------       -------

NWL Laser-Technologie GmbH:

Developed technology                         1,845         1,297
Distribution                                 1,183           832
Work force                                     658           462
                                           -------       -------
                                             3,686         2,591
Less:  accumulated amortization             (1,111)         (555)
                                           -------       -------
Net NWL Laser-Technologie  GmbH              2,575         2,036
                                           -------       -------

Net developed technology and
     other intangibles                     $ 2,598       $ 2,089
                                           =======       =======
</TABLE>

9. CREDIT LINES

The Company has in place a $6 million asset based line of credit based on the
Company's eligible accounts receivable and inventory which expires in September
2000. The arrangement allows for an over-advance relative to the collateral of
$1.9 million until December 31, 1999, then $1.0 million until March 31, 2000, at
which time further over-advances will no longer be allowed. At December 31,
1999, the Company had approximately $4.0 million in collateral available against
the $4.3 million outstanding. The credit line is secured by the assets of the
Company, and bears interest at a rate equivalent to the bank's prime rate plus
3% per annum (11.5% in December 1999). 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, 1999, the Company was in compliance with all financial covenants.
In addition, NWL has in place various short-term revolving bank lines totaling
approximately $3.0 million that expire on various dates in 2000 and under which
approximately $3.0 million in borrowings were outstanding at December 31, 1999.
At December 31, 1999, NWL had covenant violations with certain of its bank lines
and currently expects to renegotiate the terms of these lines. However, there
can be no assurance NWL will be able to accomplish this in a timely manner, on
acceptable terms, or at all.



                                      F-12
<PAGE>   62

10. 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:

<TABLE>
(in thousands)                              1999        1998
--------------                             ------      ------
<S>                                        <C>         <C>
Leased equipment                           $1,491      $1,414
Accumulated amortization                      620         403
</TABLE>

There were $77,000 in additions to leased equipment in 1999, $891,000 in 1998
and $174,000 in 1997.

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
$1,557,633, $1,805,000 and $1,625,000 in each of the three years ended December
31, 1999, 1998 and 1997 respectively.

Future minimum lease payments under capital and operating leases were as follows
at December 31, 1999:

<TABLE>

                                                   Capital       Operating
(in thousands)                                      Leases          Leases
--------------                                     -------       ---------
<S>                                                  <C>            <C>
2000                                                   357           1,198
2001                                                   329             337
2002                                                   244             150
2003                                                    66             139
2004 and beyond                                          -             342
                                                      ----          ------
                                                       996          $2,166
                                                                    ======
Less amount representing interest                      143
                                                      ----
Present value of future minimum lease payments        $853
                                                      ====
</TABLE>



                                      F-13
<PAGE>   63




F-14

11. LONG-TERM DEBT

Long term debt at December 31 consisted of:

<TABLE>
(in thousands)                                          1999        1998
--------------                                         ------      ------
<S>                                                    <C>         <C>
Mortgages secured by the NWL building with
   principal and 8.1% interest payable in monthly
   installments through March 2005                     $  346      $  419
Unsecured Bavarian Development Agency loans
   to NWL with principal and 5.2% interest due
   September through December 2003                        516         905
Other                                                      --         369
                                                       ------      ------
                                                       $  862      $1,693
                                                       ======      ======
</TABLE>

For each of the five years and beyond, long-term obligations are:

<TABLE>
                                                  Long-term debt
(in thousands)                                  (Principal only)
--------------                                  ----------------
<S>                                                    <C>
2001                                                     26
2002                                                      28
2003                                                     537
2004                                                      21
2005 and beyond                                          250
                                                       -----
                                                       $ 862
                                                       =====
</TABLE>

12. 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 December 30, 1999, Laserscope completed the first closing of a private
placement of common stock. In the transaction, the company issued 1,505,000
shares to accredited investors in exchange for proceeds (net of offering
expenses) of $1.0 million.

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.



                                      F-14
<PAGE>   64

The 1984 Stock Option Plan expired by its terms with respect to any future
option grants effective in August 1994. At December 31, 1999, the 1984 Stock
Option Plan had options to purchase 247,931 shares of common stock outstanding,
all of which were exercisable.

The Company has reserved 2,750,000 shares of common stock of which there were
376,273 shares available for issuance pursuant to its 1994 stock option plan as
of December 31, 1999.

In 1998, the Company allowed employees to cancel outstanding options with
exercise prices greater than $2.00 per share that had been granted under the
1994 plan and replace them with new grants for a like number with the same
exercisability restrictions at the fair market value of the common stock at the
date of grant. None of these options had previously been repriced. Employees
elected to cancel and receive new grants to purchase an aggregate of 1,266,400
shares at an exercise price of $1.28. These options are included in the
cancellations and grants in 1998 in the table that summarizes plan activity for
the years ended December 31, 1999, 1998 and 1997.

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
76,000 shares available for issuance pursuant to its 1999 stock option plan as
of December 31, 1998

Directors' Stock Option Plans

The Company has reserved 600,000 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 the1995 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
remains a director and expire five to ten years after the date of grant. There
were 225,000 shares available in aggregate for issuance pursuant to the 1995 and
1999 Directors' Stock Option Plans at December 31, 1999.



                                      F-15
<PAGE>   65

The following table summarizes activity in the Company's stock option plans
during the years ended December 31, 1999, 1998 and 1997:

<TABLE>
                                              Options  Weighted Average
                                          Outstanding   Exercise Price
                                          -----------  ----------------
<S>                                        <C>              <C>
Balance, December 31, 1996                  2,361,731       $3.84

Granted                                       715,600       $5.82
Exercised                                    (374,661)      $4.65
Canceled                                     (274,273)      $5.73
                                           ----------       -----
Balance, December 31, 1997                  2,428,397       $4.08

Granted                                     1,872,927       $1.41
Exercised                                     (53,960)      $2.22
Canceled                                   (1,632,047)      $4.37
                                           ----------       -----
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
</TABLE>

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, 1999:

<TABLE>
<CAPTION>

             Options Outstanding                                Options Exercisable
-----------------------------------------------   --------------------------------------------
                                       Weighted
                                        Average         Weighted                      Weighted
Range of                Number        Remaining          Average        Number         Average
Exercise Prices    Outstanding Contractual Life   Exercise Price   Exercisable  Exercise Price
---------------    ----------- ----------------   --------------   -----------  --------------
<S>                  <C>                  <C>            <C>         <C>                <C>
  $0.94 - $1.25        978,150             4.65           $1.17         86,434           $1.25
  $1.28 - $1.31      1,087,169             2.33            $1.28       684,760           $1.28
      $1.50            584,400             5.66            $1.50        50,540           $1.50
      $2.00            473,029             2.10            $2.00       473,008           $2.00
  $2.31 - $5.88        321,230             2.27            $4.68       302,861           $4.83
  -------------      ---------             ----            -----     ---------           -----
  $0.94 - $5.88      3,443,978             3.52            $1.70     1,597,603           $2.17
  =============      =========             ====            =====     =========           =====
</TABLE>




                                      F-16
<PAGE>   66

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 100,000 shares of common
stock, for issuance pursuant to its 1999 Employee Stock Purchase Plan. Under
this plan, At December 31, 1999, approximately 77,000 shares had been purchased
under this plan.

SFAS 123 Disclosure

The Company follows the intrinsic value method to account for its employee stock
options because, as discussed below, the alternative fair value accounting
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under the intrinsic value method when the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The fair value for Company employee stock options granted subsequent to December
13, 1994 was estimated at the date of grant using a Black-Scholes multiple
option pricing model with the following weighted average assumptions:

<TABLE>
                                  1999       1998       1997
                                  ----       ----       ----
<S>                               <C>        <C>        <C>
Risk free interest rate           5.47%      4.74%      5.98%
Dividend yield                      --         --         --
Weighted average expected
   volatility factor              1.15       1.08       1.00
Expected life (in years)          3.57       3.70       4.00
</TABLE>



                                      F-17
<PAGE>   67
The fair value of the employees' purchase plan rights using the Black-Scholes is
estimated using the following assumptions:

<TABLE>
                                              1999       1998       1997
                                              ----       ----       ----
<S>                                           <C>        <C>        <C>
Risk free interest rate                       4.79%      5.16%      5.41%
Dividend yield                                  --         --         --
Weighted average expected
   volatility factor                          1.31       0.70       1.00
Expected life (in years)                      0.50       0.50       0.50
</TABLE>

The weighted average fair values of those purchase rights granted in 1999, 1998
and 1997 were $0.62, $0.63 and $1.81, respectively.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:

<TABLE>
(in thousands, except per share data)           1999         1998        1997
-------------------------------------         -------     --------     -------
<S>                                           <C>         <C>          <C>
Pro forma net loss                            $(9,236)    $(11,150)    $(2,202)
Pro forma basic and diluted loss per share    $ (0.73)    $  (0.90)    $ (0.18)
</TABLE>

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 become
exercisable in certain limited circumstances involving a potential business
combination transaction of the Company and are initially exercisable at a price
of $34 per share. Following certain other events after the Rights have become
exercisable, each Right entitles its



                                      F-18
<PAGE>   68

holder to purchase for $34 an amount of common stock of the Company, or in
certain circumstances, securities of the acquiror, having a then current market
value of twice the exercise price of the Right. The Rights are redeemable at the
Company's option at $0.01 per Right before they become exercisable. Until a
Right is exercised, the holder of a Right, as such, has no rights as a
shareholder of the Company. The Rights expire on November 20, 2001.

13. EMPLOYEE SAVINGS AND INVESTMENT PLAN

In October 1989, the Company adopted a 401(k) savings and investment plan which
covers all employees. The Company has matched 50% of employee contributions to
the plan up to 5% of each employee's base compensation. Laserscope's matching
contributions were approximately $213,000, $260,000 and $257,000 in the years
ended December 31, 1999, 1998 and 1997, respectively.

14. INCOME TAXES

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

<TABLE>
                                           1999      1998      1997
                                           ----      ----      ----
<S>                                        <C>       <C>       <C>
Current federal taxes                      $ --      $ --      $ 20
Current state taxes                          --        --        80
Current foreign taxes                        13       184       270
                                           ----      ----      ----
Provision for income taxes                 $ 13      $184      $370
                                           ====      ====      ====
</TABLE>

Pretax loss from foreign operations was $501,000 in 1999, income of $395,000 and
a loss of $362,000, in 1998 and 1997, respectively.

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):

<TABLE>
                                                1999        1998        1997
                                              -------     -------     -------
<S>                                           <C>         <C>         <C>
Computed expected tax                         $(2,683)    $(3,306)    $  (126)
Operating loss with no carryback benefit        2,745       3,489         371
State taxes                                        --          --          80
Benefit of net operating loss carryforward       (117)        (68)        (86)
Foreign taxes in excess of U.S. rate               13          64         107
Other                                              55           5          24
                                              -------     -------     -------
Provision for income taxes                    $    13     $   184     $   370
                                              =======     =======     =======
</TABLE>



                                      F-19
<PAGE>   69

The components of the deferred tax asset consisted of the following at December
31, 1999 and 1998(in thousands):

<TABLE>
                                                   1999           1998
                                                 --------       --------
<S>                                              <C>            <C>
Deferred tax assets:
    Net operating loss carryforwards             $  8,319       $  7,100
    General business credit carryforwards           1,701          1,310
    Inventory reserves and adjustments              2,191          2,600
    Other accruals and reserves not
      currently deductible for tax purposes         1,734          1,062
    Acquired intangibles                              704            400
    Other                                           1,074          1,078
                                                 --------       --------
    Total deferred tax assets                      15,723         13,550
    Valuation for deferred tax assets             (15,723)       (13,550)
                                                 --------       --------
    Deferred tax asset                                 --             --

Deferred tax liabilities
    Acquired intangibles                               --             --
                                                 --------       --------
Net deferred tax assets                          $     --       $     --
                                                 ========       ========
</TABLE>

Because of the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,173,000 in 1999 and by $5,650,000 in 1998. Approximately
$820,000 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 losses and tax credits
of approximately $19,300,000 and $770,000 respectively, which expire in the
years 2000 through 2020. The Company also has net operating losses and tax
credit carry forwards of approximately $2,400,000 and $800,000, respectively,
for state tax reporting purposes. The state net operating loss will expire in
the years 2000 through 2005.

The availability of the Company's net operating loss and tax credit
carryforwards may be subject to a substantial limitation if it should be
determined that there has been a change in ownership of more than 50 percent of
the value of the Company's stock over a three year period.



                                      F-20
<PAGE>   70

15. FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF 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.
Any concentration of credit risk is reduced by 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. 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.

16. CONTINGENCIES

The Company is a party to a number of legal proceedings arising in the ordinary
course of its business. These actions may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not ultimately have a material adverse
effect on its financial position or results of operations.

In 1997, a medical malpractice and product liability suit was filed against a
hospital, two physicians and Laserscope relating to a laser manufactured by
Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. Although
a trial date has been set, the Company is currently pursuing mediation through
an independent third party. While there can be no assurance as to the ultimate
disposition of the case, the Laserscope does not believe the outcome of the case
will have a material adverse impact on the Company's financial position or
results of operations.

17. SUBSEQUENT EVENTS

Final Closing of 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 issuance costs (of which approximately $1.0 million was
received on December 30, 1999) in exchange for 2.5 million shares of common
stock, including placement agent commission shares. In addition, the Company
issued warrants to purchase 218,875 shares of the Company's common stock at
$1.25 per share. The warrants expire in January 2005.



                                      F-21
<PAGE>   71

Issuance of Subordinate Convertible Debentures

On February 14, 2000, the Company concluded a private placement of subordinate
convertible debentures. In the transaction, the Company received approximately
$2.9 million, net of expenses, in exchange for subordinate convertible
debentures which bear interest at a rate of 8% and which are convertible into
common stock of the Company at an initial conversion price of $1.25 per share.
In addition, the Company issued warrants to purchase approximately 240,000
shares of the Company's common stock at $1.50 per share. The warrants expire in
February 2005.

Pending Sale of NWL Laser-Technologie, GmbH

On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL Laser-Technologie, GmbH. The sale,
which is pending Wavelight shareholder approval, which the Company expects to
occur on March 31, 2000, would have an effective date of January 1, 2000. As
part of the transaction, NWL would continue to distribute Laserscope's products
in all countries covered by NWL's current distribution channels. The transaction
is expected to net approximately $4.0 million in cash to Laserscope and is not
expected to generate a material gain or loss when reported in Laserscope's first
quarter 2000.



                                      F-22
<PAGE>   72

                                   SCHEDULE II



                                   LASERSCOPE

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

<TABLE>
<CAPTION>
                              Balance at                           Balance at
                               Beginning                                  End
        Descriptions          of  Period   Additions  Deductions    of Period
        ------------          ----------   ---------  ----------   ----------
<S>                                 <C>         <C>         <C>         <C>
Allowance for doubtful
   accounts receivable:

Year ended December 31, 1997        $700        $100        $ --        $800
                                    ====        ====        ====        ====

Year ended December 31, 1998        $800        $161        $436        $525
                                    ====        ====        ====        ====

Year ended December 31, 1999        $525        $226        $ --        $751
                                    ====        ====        ====        ====
</TABLE>

<PAGE>   73

<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
2.1         Acquisition Agreement between Laserscope and
            Heraeus Med GmbH.(12)

2.1A        Amendment Number One to Acquisition Agreement
            between Laserscope and Heraeus Med GmbH.(14)

3.3         Seventh Amended and Restated Articles of
            Incorporation of Registrant.(1)

3.4         By-laws of Registrant, as amended.(4)

4.1         Common Shares Rights Agreement dated as of
            October 31, 1991 between Laserscope and American
            Stock Transfer & Trust Company as Rights
            Agent.(9)

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.(10)

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.(11)

10.1A       1984 Stock Option Plan, as amended, and forms of
            Incentive Stock Option Agreement and
            Nonstatutory Stock Option Agreement.(4)

10.1B       1994 Stock Option Plan and forms of Incentive
            Stock Option Agreement and Nonstatutory Stock
            Option Agreement.(7)

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.(4)

10.3A       1999 Employee Stock Purchase Plan and form of
            Subscription Agreement.(19)

10.4        401(k) Plan.(2)

10.6        Net Lease Agreement between the Registrant and
            Realtec Properties dated October 7, 1987.(2)

10.6A       Amendment No. 1 dated January 18, 1990 to Net
            Lease Agreement between the Registrant and
            Realtec Properties dated October 7, 1987.(2)
</TABLE>
<PAGE>   74

<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
10.6B       Net Lease Agreement between Registrant and
            Realtec Properties dated December 14, 1989.(2)

10.6C       Net Lease Agreement between Registrant and
            Realtec Properties dated June 25, 1990.(3)

10.6D       Amendment No. 2 dated November 10, 1992 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated October 7, 1987.(5)

10.6E       Amendment No. 3 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated October 7, 1987.(6)

10.6F       Amendment No. 1 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated June 25, 1990.(6)

10.6G       Amendment No. 1 dated April 19, 1994 to Net
            Lease Agreement between Registrant and Realtec
            Properties dated December 14, 1989.(7)

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.(13)

10.11A      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            November 26, 1997.(14)

10.11B      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            18, 1998.(14)

10.11C      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            September 3, 1998.(16)

10.11D      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated
            November 25, 1998.(17)

10.11E      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            17, 1999.(17)

10.11F      Loan Modification Agreement between the
            Registrant and Silicon Valley Bank dated March
            30, 1999.(18)

10.11G      Loan and Security Agreement between the
            Registrant and Silicon Valley Bank dated October
            1, 1999.(19)

10.13       1990 Directors' Stock Option Plan and form of
            Option Agreement.(4)
</TABLE>

<PAGE>   75
<TABLE>

Exhibit
Number                      Description
-------                     -----------
<S>         <C>
10.14.1     Form of Laserscope Management Continuity
            Agreement, as amended.(15)

10.18       1995 Directors' Stock Option Plan and form of
            Option agreement.(8)

10.18A      1999 Director's Stock Option Plan.(19)

10.19       Common Stock Placement Agreement.(19)

10.19A      Form of Common Stock Purchase Agreement.(19)

10.20       Convertible Loan Agreement.(19)

22.1        Subsidiaries of Registrant, as amended.(14)

23.1        Consent of Ernst & Young LLP, Independent
            Auditors.(19)

25.1        Power of Attorney (see pages 48 through 49).(19))

27.1        Financial Data Schedule.(19)
</TABLE>

Reports on Form 8-K:

On February 10, 2000 the Company filed a Form 8-K referring to a press release
it had issued on January 18, 2000 announcing that it had completed a private
placement of common stock providing net proceeds to the Company of approximately
$1.8 million. The placement of common stock to accredited investors was managed
by Taglich Brothers Inc.

On March 1, 2000 the Company filed a Form 8-K referring to a press release it
had issued on February 22, 2000 announcing that it had completed a private
placement of subordinate convertible debentures providing net proceeds to the
Company of approximately $2.9 million. The placement to affiliates of
Renaissance Capital Group, Inc., was managed by Taglich Brothers Inc.

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

(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.


<PAGE>   76

(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, 1990.

(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, 1991.

(5)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
      on Form 10-K for the year ended December 31, 1992.

(6)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended June 30, 1994.

(7)   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.

(8)   Incorporated by reference to identically numbered exhibits filed in
      response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
      on Form 10-K/A for the year ended December 31, 1995.

(9)   Incorporated by reference to Exhibit 1 of the Registrant's Registration
      Statement on Form 8-A filed November 15, 1991.

(10)  Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended June 30, 1996.

(11)  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.

(12)  Incorporated by reference to Exhibit A to the Definitive Proxy Statement
      for the Special Meeting of Shareholders held August 29, 1996.

(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, 1996.

(14)  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.
<PAGE>   77

(15)  Incorporated by reference to identically numbered exhibits filed in
      response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
      Form 10-Q for the quarterly period ended March 31, 1998.

(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 September 30, 1998.

(17)  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.

(18)  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.

(19)  Filed herewith