##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



---

FORM 10-Q

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended March 31, 2002


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

3070 ORCHARD DRIVE, SAN JOSE, CALIFORNIA 95134-2011
(Address of Principal Executive Offices)

Registrants Telephone Number, Including Area Code: (408) 943-0636

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 [   ]

The number of shares of Registrants common stock issued and outstanding as of
April 30, 2002 was 16,342,719.

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TABLE OF CONTENTS



|                              |                                                                                                |                                                                  |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements:                                                                 
|                              |                                                                                                | Condensed Consolidated Balance Sheets                           
|                              |                                                                                                | Condensed Consolidated Statements of Operations                 
|                              |                                                                                                | Condensed Consolidated Statements of Cash Flows                 
|                              |                                                                                                | Laserscope Notes to Condensed Consolidated Financial Statements:
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations:
|                              |                                                                                                | Results of Operations:                                          
|                              |                                                                                                | Liquidity and Capital Resources:                                
|                              |                                                                                                | Risk Factors:                                                   
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk:                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                     
|                              | Item 2. Changes in Securities                                                                 
|                              | Item 3. Defaults upon Senior Securities                                                       
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   
|                              | Item 5. Other Items                                                                           
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.14                



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##### Table of Contents



TABLE OF CONTENTS

|                                        |  |         |    |                                                                                                 |  |      |    | 
|--------------------------------------- |  | ------- | -- | ----------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                        |  |         |    |                                                                                                 |  | Page
|                                        |  |         |    |                                                                                                 |  |     
|PART
          I. FINANCIAL INFORMATION |  | 3       |   
|                                       
|                                        |  | Item 1. |    | Financial
          Statements                                                                  |  |      | 3  | 
|                                       
|                                        |  |         |    | Condensed
          Consolidated Balance Sheets                                                 |  |      | 3  | 
|                                       
|                                        |  |         |    | Condensed
          Consolidated Statements of Operations                                       |  |      | 4  | 
|                                       
|                                        |  |         |    | Condensed
          Consolidated Statements of Cash Flows                                       |  |      | 5  | 
|                                       
|                                        |  |         |    | Notes
          to Condensed Consolidated Financial Statements                                  |  |      | 6  | 
|                                       
|                                        |  | Item 2. |    | Managements
          Discussion and Analysis of Financial Condition and Results of Operations |  |      | 8  | 
|                                       
|                                        |  |         |    | Results
          of Operations                                                                 |  |      | 9  | 
|                                       
|                                        |  |         |    | Liquidity
          and Capital Resources                                                       |  |      | 10 | 
|                                       
|                                        |  |         |    | Risk Factors                                                                                    |  |      | 11 | 
|                                       
|                                        |  | Item 3. |    | Quantitative
          and Qualitative Disclosures About Market Risk                            |  |      | 15 | 
|                                       
|PART
          II.OTHER INFORMATION     |  |         | 16 |                                                                                                
|                                       
|                                        |  | Item 1. |    | Legal
          Proceedings                                                                     |  |      | 16 | 
|                                       
|                                        |  | Item 2. |    | Changes
          in Securities                                                                 |  |      | 16 | 
|                                       
|                                        |  | Item 3. |    | Defaults
          upon Senior Securities                                                       |  |      | 16 | 
|                                       
|                                        |  | Item 4. |    | Submission
          of Matters to a Vote of Security Holders                                   |  |      | 16 | 
|                                       
|                                        |  | Item 5. |    | Other
          Items                                                                           |  |      | 16 | 
|                                       
|                                        |  | Item 6. |    | Exhibits
          and Reports on Form 8-K                                                      |  |      | 17 | 
|                                       
|SIGNATURES                              |  |         | 18 |                                                                                                

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements:

Laserscope




Condensed Consolidated Balance Sheets


|                                                            |                                                      |                             |                                            |         |             |        |              |         |        |        | 
|----------------------------------------------------------- | ---------------------------------------------------- | --------------------------- | ------------------------------------------ | ------- | ----------- | ------ | ------------ | ------- | ------ | ------ | 
|                                                            |                                                      |                             |                                            |         | March 31,   |        | December 31,
|(thousands)                                                 |                                                      | 2002                        |                                            | 2001   
|                                                            |                                                      |                             |                                            |        
|                                                            |                                                      |                             |                                            |         | (Unaudited) |        |              |         |       
|Assets                                                      |                                                      |                             |                                            |         |             |        |              |        
|Current assets:                                             |                                                      |                             |                                            |         |             |        |              |        
|                                                            | Cash and cash equivalents                            |                             | $                                          | 3,209   |             |        | $            | 3,408   |       
|                                                            | Accounts receivable, net                             |                             |                                            | 9,133   |             |        |              | 8,427   |       
|                                                            | Inventories                                          |                             |                                            | 8,733   |             |        |              | 9,228   |       
|                                                            | Other current assets                                 |                             |                                            | 1,208   |             |        |              | 1,283   |       
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      | Total current assets        |                                            |         | 22,283      |        |              |         | 22,346 |       
|Property and equipment, net                                 |                                                      |                             | 1,970                                      |         |             |        | 2,067        |        
|Goodwill                                                    |                                                      |                             | 655                                        |         |             |        | 655          |        
|Other assets                                                |                                                      |                             | 380                                        |         |             |        | 414          |        
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      |                             | Total assets                               |         | $           | 25,288 |              |         | $      | 25,482 | 
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|Liabilities and Shareholders Equity                        |                                                      |                             |                                            |         |             |        |              |        
|Current liabilities:                                        |                                                      |                             |                                            |         |             |        |              |        
|                                                            | Short-term bank loans                                |                             | $                                          | 1,100   |             |        | $            | 1,135   |       
|                                                            | Accounts payable                                     |                             |                                            | 2,523   |             |        |              | 2,821   |       
|                                                            | Accrued compensation                                 |                             |                                            | 1,531   |             |        |              | 1,588   |       
|                                                            | Deferred revenue                                     |                             |                                            | 1,108   |             |        |              | 1,031   |       
|                                                            | Convertible subordinated debentures, current portion |                             |                                            | 60      |             |        |              |        |       
|                                                            | Other current liabilities                            |                             |                                            | 2,541   |             |        |              | 2,435   |       
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      | Total current liabilities   |                                            |         | 8,863       |        |              |         | 9,010  |       
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|Convertible subordinated debentures, net of current portion |                                                      |                             | 2,940                                      |         |             |        | 3,000        |        
|Obligations under capital leases                            |                                                      |                             | 8                                          |         |             |        | 60           |        
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      | Total long-term liabilities |                                            |         | 2,948       |        |              |         | 3,060  |       
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|Contingencies (Note 5)                                      |                                                      |                             |                                            |         |             |        |              |        
|Shareholders equity:                                       |                                                      |                             |                                            |         |             |        |              |        
|                                                            | Common stock                                         |                             |                                            | 54,914  |             |        |              | 54,712  |       
|                                                            | Accumulated deficit                                  |                             |                                            | (39,890 | )           |        |              | (39,843 | )     
|                                                            | Accumulated other comprehensive loss                 |                             |                                            | (1,422  | )           |        |              | (1,332  | )     
|                                                            | Notes receivable from shareholders                   |                             |                                            | (125    | )           |        |              | (125    | )     
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      |                             | Total shareholders equity                 |         |             | 13,477 |              |         |        | 13,412 | 
|                                                            |                                                      |                             |                                            |         |             |        |              |        
|                                                            |                                                      |                             | Total liabilities and shareholders equity |         | $           | 25,288 |              |         | $      | 25,482 | 
|                                                            |                                                      |                             |                                            |         |             |        |              |        

See Accompanying Notes to Condensed Consolidated Financial Statements

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Laserscope




Condensed Consolidated Statements of Operations
(Unaudited)


|                                                              |                                     |                          |        |                    |       |   |        |       |       | 
|------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------------------ | ----- | - | ------ | ----- | ----- | 
|                                                              |                                     |                          |        | Three months ended
|                                                              |                                     |                          |        | March 31,         
|                                                              |                                     |                          |        |                   
|(thousands, except per share amounts)                         |                                     | 2002                     |        | 2001              
|                                                              |                                     |                          |        |                   
|Net revenue                                                   |                                     | $                        | 9,420  |                    |       | $ | 8,228  |      
|Cost of sales                                                 |                                     |                          | 4,799  |                    |       |   | 4,519  |      
|                                                              |                                     |                          |        |                    |       |   |        |      
|Gross margin                                                  |                                     |                          | 4,621  |                    |       |   | 3,709  |      
|                                                              |                                     |                          |        |                    |       |   |        |      
|Operating expenses:                                           |                                     |                          |        |                    |       |   |        |      
|                                                              | Research and development            |                          |        | 1,016              |       |   |        | 813   |      
|                                                              | Selling, general and administrative |                          |        | 3,547              |       |   |        | 3,310 |      
|                                                              |                                     |                          |        |                    |       |   |        |      
|                                                              |                                     | Total operating expenses |        |                    | 4,563 |   |        |       | 4,123 | 
|                                                              |                                     |                          |        |                    |       |   |        |      
|Operating income (loss)                                       |                                     |                          | 58     |                    |       |   | (414   | )    
|Interest and other expenses                                   |                                     |                          | (90    | )                  |       |   | (58    | )    
|                                                              |                                     |                          |        |                    |       |   |        |      
|Loss before income taxes                                      |                                     |                          | (32    | )                  |       |   | (472   | )    
|Provision for income taxes                                    |                                     |                          | 15     |                    |       |   | 18     |      
|                                                              |                                     |                          |        |                    |       |   |        |      
|Net loss                                                      |                                     | $                        | (47    | )                  |       | $ | (490   | )    
|                                                              |                                     |                          |        |                    |       |   |        |      
|Basic and diluted net loss per share                          |                                     | $                        | 0.00   |                    |       | $ | (0.03  | )    
|                                                              |                                     |                          |        |                    |       |   |        |      
|Shares used in computing basic and diluted net loss per share |                                     |                          | 16,155 |                    |       |   | 15,884 |      
|                                                              |                                     |                          |        |                    |       |   |        |      

See Accompanying Notes to Condensed Consolidated Financial Statements

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Laserscope




Condensed Consolidated Statements of Cash Flows
(Unaudited)


|                                                     |                                                                                       |                                    |                           |        |                    |      |       |        |     |     |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------- | ------ | ------------------ | ---- | ----- | ------ | --- | --- | -
|                                                     |                                                                                       |                                    |                           |        | Three Months Ended
|                                                     |                                                                                       |                                    |                           |        | March 31,         
|                                                     |                                                                                       |                                    |                           |        |                   
|(thousands)                                          |                                                                                       | 2002                               |                           | 2001  
|                                                     |                                                                                       |                                    |                           |       
|Cash flows from operating activities:                |                                                                                       |                                    |                           |        |                    |      |       |       
|                                                     | Net loss                                                                              |                                    | $                         | (47    | )                  |      | $     | (490   | )  
|                                                     | Adjustments to reconcile net loss to
cash provided by (used in) operating activities: |                                    |                           |        |                    |      |       |        |    
|                                                     |                                                                                       | Depreciation and amortization      |                           |        | 318                |      |       |        | 234 |    
|                                                     |                                                                                       | Changes in assets and liabilities: |                           |        |                    |      |       |        |     |    
|                                                     |                                                                                       |                                    | Accounts receivable, net  |        |                    | (742 | )     |        |     | 674 |  
|                                                     |                                                                                       |                                    | Inventories               |        |                    | 466  |       |        |     | 242 |  
|                                                     |                                                                                       |                                    | Other current assets      |        |                    | 65   |       |        |     | (39 | )
|                                                     |                                                                                       |                                    | Accounts payable          |        |                    | (294 | )     |        |     | 389 |  
|                                                     |                                                                                       |                                    | Accrued compensation      |        |                    | (56  | )     |        |     | (58 | )
|                                                     |                                                                                       |                                    | Deferred revenue          |        |                    | 77   |       |        |     | 299 |  
|                                                     |                                                                                       |                                    | Other current liabilities |        |                    | 121  |       |        |     | 35  |  
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Net cash provided by (used in) operating activities  |                                                                                       |                                    | (92                       | )      |                    |      | 1,286 |       
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Cash flows from investing activities:                |                                                                                       |                                    |                           |        |                    |      |       |       
|                                                     | Acquisition of property and equipment                                                 |                                    |                           | (187   | )                  |      |       | (396   | )  
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Net cash used in investing activities                |                                                                                       |                                    | (187                      | )      |                    |      | (396  | )     
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Cash flows from financing activities:                |                                                                                       |                                    |                           |        |                    |      |       |       
|                                                     | Payments on obligations under capital leases                                          |                                    |                           | (52    | )                  |      |       | (109   | )  
|                                                     | Proceeds from the sale of common stock under stock plans                              |                                    |                           | 203    |                    |      |       |       |    
|                                                     | Proceeds from bank loans                                                              |                                    |                           | 3,320  |                    |      |       | 5,350  |    
|                                                     | Repayment of bank loans                                                               |                                    |                           | (3,355 | )                  |      |       | (5,802 | )  
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Net cash provided by (used in) financing activities  |                                                                                       |                                    | 116                       |        |                    |      | (561  | )     
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Effect of exchange rate changes on cash              |                                                                                       |                                    | (36                       | )      |                    |      | (321  | )     
|Net increase (decrease) in cash and cash equivalents |                                                                                       |                                    | (199                      | )      |                    |      | 8     |       
|Cash and cash equivalents, beginning of period       |                                                                                       |                                    | 3,408                     |        |                    |      | 2,698 |       
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Cash and cash equivalents, end of period             |                                                                                       | $                                  | 3,209                     |        |                    | $    | 2,706 |       
|                                                     |                                                                                       |                                    |                           |        |                    |      |       |       
|Supplemental disclosure of cash flow information:    |                                                                                       |                                    |                           |        |                    |      |       |       
|                                                     |                                                                                       | Cash paid during the period for:   |                           |        |                    |      |       |        |     |    
|                                                     |                                                                                       |                                    | Interest                  |        | $                  | 77   |       |        | $   | 116 |  
|                                                     |                                                                                       |                                    | Income taxes              |        | $                  | 3    |       |        | $   |    |  

See Accompanying Notes to Condensed Consolidated Financial Statements

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Laserscope Notes to Condensed Consolidated Financial Statements:

1. Basis of presentation

The accompanying unaudited condensed consolidated financial statements include
Laserscope (the Company, management, we, us, our) and its wholly
and majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated. While the financial information in this
report is unaudited, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position and results of operations as of and for the periods
indicated have been recorded. We suggest that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes for the year ended December 31, 2001
included in the Companys annual report on Form 10-K for the year ended
December 31, 2001. The results of operations for the three month period
ended March 31, 2002 are not necessarily indicative of the results
expected for the full year.

2. Inventories

Inventories were comprised of the following (in thousands):

|                                   |  |           |       |              |  |   |       | 
|---------------------------------- |  | --------- | ----- | ------------ |  | - | ----- | 
|                                   |  | March 31, |       | December 31,
|                                   |  | 2002      |       | 2001        
|                                   |  |           |       |             
|Sub-assemblies and purchased parts |  | $         | 3,970 |              |  | $ | 4,743 | 
|Work-in-process                    |  |           | 2,842 |              |  |   | 2,345 | 
|Finished goods                     |  |           | 1,921 |              |  |   | 2,140 | 
|                                   |  |           |       |              |  |   |       | 
|                                   |  | $         | 8,733 |              |  | $ | 9,228 | 
|                                   |  |           |       |              |  |   |       | 

3. Net loss per share

Basic net loss per share is calculated using the weighted average number
of common shares outstanding. Diluted net loss per share is calculated
using the weighted average number of common shares outstanding plus
dilutive common equivalent shares from stock options and warrants. Options
to purchase approximately 3,055,000 and 2,757,000 shares of common stock
and warrants to purchase approximately 454,000 and 459,000 shares of
common stock were outstanding at March 31, 2002 and 2001, respectively,
and debentures convertible into 2,400,000 shares of common stock were
outstanding at March 31, 2002 and 2001. The stock options and warrants
outstanding were not included in the computation of diluted earnings per
share for the periods we presented because the effect would be
anti-dilutive.

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4. Comprehensive loss

Total comprehensive loss consisted of (in thousands):

|                        |  |                    |      |      |  |   |      |  
|----------------------- |  | ------------------ | ---- | ---- |  | - | ---- | -
|                        |  | Three months ended
|                        |  | March 31,         
|                        |  |                   
|                        |  | 2002               |      | 2001
|                        |  |                    |      |     
|Net loss                |  | $                  | (47  | )    |  | $ | (490 | )
|Translation adjustments |  |                    | (90  | )    |  |   | (322 | )
|                        |  |                    |      |      |  |   |      |  
|Comprehensive loss      |  | $                  | (137 | )    |  | $ | (812 | )
|                        |  |                    |      |      |  |   |      |  

5. Contingencies

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

6. Recent accounting pronouncements

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

In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations. SFAS No. 141 requires the purchase
method of accounting for business combinations initiated after June 30,
2001 and eliminates the

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pooling-of-interests method. Adoption of SFAS No. 141 has not had a
significant impact on our financial statements.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of
goodwill amortization. The standard also requires a change in the
method of testing for the impairment of long-lived assets, including
goodwill, from the method previously used by the Company as of
December 31, 2001. The initial transitional impairment analysis
is required to be completed prior to June 30, 2002. The Company
expects that the change in the method of testing for impairment as
well as the other aspects of the adoption of SFAS No. 142 will
have no significant impact on its financial statements.

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




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations:

INTRODUCTORY STATEMENT

Some of the statements in this Quarterly Report on Form 10-Q, including but not
limited to Managements Discussion and Analysis of Financial Condition and
Results of Operations, and elsewhere in this document are forward-looking
statements within the meaning of the Private Securities Litigation Act of 1995.
These statements relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially
different from those expressed or implied by any forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
may, will, could, would, should, expect, plan, anticipate,
intend, believe, estimate, predict, potential or continue or the
negative of these terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. We refer you
to the factors described under the heading Risk Factors in this Quarterly
Report on Form 10-Q as well as to our Annual Report on Form 10-K for the year
ended December 31, 2001 under the heading Risk Factors in Part I. Item 1.
Business. Readers are cautioned not to place undue reliance on
forward-looking statements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those statements. We are
under no duty to update any of the forward-looking statements after the date of
this document to reflect the occurrence of unanticipated events.

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Results of Operations:

The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes included in Part I 
Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes contained in the Companys Annual Report on Form 10-K for
the year ended December 31, 2001 and the accompanying Managements Discussion
and Analysis of Financial Condition and Results of Operations.

The following table contains selected income statement information, which
serves as the basis of the discussion of the Companys results of operations
for the quarters ended March 31, 2002 and 2001 (in thousands, except
percentages):

|                          |                                       |   |                    |       |                |  |        |    |      |   |        |       |  |  |     |    |   |  |    |    |   
|------------------------- | ------------------------------------- | - | ------------------ | ----- | -------------- |  | ------ | -- | ---- | - | ------ | ----- |  |  | --- | -- | - |  | -- | -- | --
|                          |                                       |   | Three months ended |       |                |  |       
|                          |                                       |   |                    |       |                |  |       
|                          |                                       |   | March 31, 2002     |       | March 31, 2001 |  |        |    |     
|                          |                                       |   |                    |       |                |  | %     
|                          |                                       |   | Amount             |       | %(a)           |  | Amount |    | %(a) |   | Change
|                          |                                       |   |                    |       |                |  |        |    |      |   |       
|Revenues from sales of:   |                                       |   |                    |       |                |  |        |    |      |   |        |       |  |  |     |    |   |  |    |   
|                          | Lasers                                |   | $                  | 4,078 |                |  |        | 43 | %    |   | $      | 4,053 |  |  |     | 49 | % |  |    | 1  | % 
|                          | Instrumentation & disposable supplies |   |                    | 3,898 |                |  |        | 41 | %    |   |        | 2,696 |  |  |     | 33 | % |  |    | 45 | % 
|                          | Service                               |   |                    | 1,444 |                |  |        | 16 | %    |   |        | 1,479 |  |  |     | 18 | % |  |    | (2 | )%
|                          |                                       |   |                    |       |                |  |        |    |      |   |        |       |  |  |     |    |   |  |    |   
|Total net revenues        |                                       | $ | 9,420              |       |                |  | 100    | %  |      | $ | 8,228  |       |  |  | 100 | %  |   |  | 14 | % 
|Gross margin              |                                       | $ | 4,621              |       |                |  | 49     | %  |      | $ | 3,709  |       |  |  | 45  | %  |   |  | 25 | % 
|Research & development    |                                       | $ | 1,016              |       |                |  | 11     | %  |      | $ | 813    |       |  |  | 10  | %  |   |  | 25 | % 
|Selling, general & admin. |                                       | $ | 3,547              |       |                |  | 38     | %  |      | $ | 3,310  |       |  |  | 40  | %  |   |  | 7  | % 



---

|(a) |  | expressed as a percentage of total net revenues.
|--- |  | ------------------------------------------------

Net revenues for the quarter ended March 31, 2002 were $9.4 million, an
increase of approximately 14% from net revenues of $8.2 million in the
corresponding quarter of 2001. This increase is due to higher sales of
instrumentation and disposable supplies.

Revenues from the sales of lasers increased marginally during the three months
ended March 31, 2002 compared to the same period in 2001. In the quarter ended
March 31, 2002 we sold 111 lasers, and in the quarter ended March 31, 2001, we
sold 90. While there was a 23% increase in the number of units sold, the
increase in unit sales was offset by lower average unit prices due to the mix
of lasers sold as well as our distribution arrangement with McKesson Corp. for
aesthetic lasers. The distribution arrangement with McKesson Corp. was
implemented during the first quarter of 2001, and unit volumes through that
channel were lower in the start-up period than in the first quarter of 2002.
As unit volumes to McKesson Corp increased, our average unit price decreased
due to the favorable pricing which we give to McKesson Corp. The Company
expects that sales of aesthetic lasers will continue to be a major source of
revenue. In addition, as the year progresses, we anticipate increasing the
sales of Niagara PVTM lasers. The Niagara PV is a surgical laser used for the
treatment of benign prostatic hyperplasia (BPH). Our first revenue shipments of
the Niagara PV laser were in the three month period ended March 31, 2002 during
which we sold six units.

Revenues from the sales of instrumentation and disposable supplies increased
during the three months ended March 31, 2002 compared to the corresponding
period in 2001. This increase is driven by the higher laser unit volumes and
the associated increase in volume of accessories that are sold with lasers. In
addition, we sold more accessories per laser. The Company expects revenues
from the sales of instrumentation and disposable supplies to

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incrementally increase as we ship more Niagara PV lasers which require a
single-use fiber optic energy delivery device.

Laserscopes service revenues decreased marginally during the three months
ended March 31, 2002 compared to the same period in 2001. The Company believes
that future revenues depend on increases to the installed base of lasers as
well as the acceptance of its service contracts by its customers.

Gross margin as a percentage of revenues increased during the quarter ended
March 31, 2002 relative to the corresponding period of 2001. The increase in
gross margin percentage is due primarily to higher manufacturing overhead
absorption due to higher production volumes.

Research and development expenses are the result of activities related to
the development of new laser, instrumentation and disposable products and the
modification and enhancement of Laserscopes existing products. These expenses
increased during the three months ended March 31, 2002 compared to the same
period in 2001. The increase was driven by product development activity in the
United States on the new Niagara PV laser as well as the
AuraTM, LyraTM, and
VenusTM i-series lasers. While development of these lasers is now virtually
complete, the Company expects that amounts spent in research and development
will decline only marginally in the remainder of the year relative to the level
of the quarter ended March 31, 2002 as other development projects are pursued.

Selling, general and administrative expenses increased during the quarter ended
March 31, 2002 compared to the corresponding period in 2001, but decreased as a
percentage of revenue. The increase in the absolute spending level was driven
by an increase in sales and marketing efforts, principally for the launch of
the Niagara PV laser. Laserscope expects amounts spent in selling, general and
administrative expenses to increase during the remainder of 2002 as variable
selling and marketing expenses increase.




Liquidity and Capital Resources:

The following table contains selected balance sheet information that serves as
the basis of the discussion of the Companys liquidity and capital resources at
March 31, 2002 and for the three months then ended (in thousands):

|                          |  |           |        |              |  |   |        | 
|------------------------- |  | --------- | ------ | ------------ |  | - | ------ | 
|                          |  | March 31, |        | December 31,
|                          |  | 2001      |        | 2001        
|                          |  |           |        |             
|Cash and cash equivalents |  | $         | 3,209  |              |  | $ | 3,408  | 
|Total assets              |  | $         | 25,288 |              |  | $ | 25,842 | 
|Total liabilities         |  | $         | 11,811 |              |  | $ | 12,070 | 
|Net working capital       |  | $         | 13,420 |              |  | $ | 13,336 | 

The decrease in cash and cash equivalents was due primarily to cash used by
operating and investing activities, partially offset by cash provided by
financing activities.

Cash used in operating activities totaled $0.1 million. This was the combined
result of the following uses: increase in accounts receivable  $0.7 million;
decrease in accounts payable and accrued compensation  $0.3 million. These
uses were partially offset by the following sources: decrease in inventory -
$0.5 million; depreciation and amortization   $0.3 million; increase in
deferred revenue and other current liabilities  $0.2 million, and a decrease
in other current assets  $0.1 million.

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Cash used in investing activities consisted of capital expenditures of $0.2
million.

Cash provided by financing activities consisted of sale of common stock under
stock plans  $0.2 million; and was partly offset by payments on obligations
under capital leases of $0.1 million.

Laserscope has in place an asset-based line of credit that provides for
borrowing up to $5.0 million and expires in September 2002. Credit is extended
based on eligible accounts receivable and inventory. At March 31, 2002, we had
approximately $2.5 million in borrowing capacity available against borrowings
of $1.1 million outstanding and $1.1 million in letter of credit reserve
requirements. This resulted in $218,000 of unused borrowing capacity. As of
March 31, 2002 we were in compliance with all covenants associated with the
line of credit and our convertible debentures. We anticipate that future
changes in cash and working capital will be dependent on a number of factors
including:

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | our ability to effectively manage inventory and accounts receivable;                                              
|
| | our ability to anticipate and adapt to the changes in our industry such as
new and alternative medical procedures;
|
| | our level of profitability;                                                                                       
|
| | our determination to acquire or invest in products and businesses
complementary to ours; and                      
|
| | the market price for our common stock as it affects the exercise of stock
options.                                

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

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




Risk Factors:

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

Limited Working Capital; Potential Need to Raise Additional Capital.

Current and anticipated demand for our products as well as procurement and
production affect our need for capital. Changes in these or other factors could
have a material impact on capital requirements and may require us to raise
additional capital.

History of Losses; Uncertain Future Profitability.

There can be no assurance that we can achieve or maintain profitability on a
quarterly basis or at all.

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Government Regulation; Uncertainty of Obtaining Regulatory Approval.

Government regulation in the United States and other countries is a significant
factor in the development, manufacturing and marketing of many of our products.
There can be no assurance that the appropriate regulatory agencies will grant
us the clearance to market our future products on a timely basis, or at all.

Insurance Reimbursement.

Demand for certain of our products depends on government and private insurance
reimbursement of hospitals and physicians for health care costs, including, but
not limited to, reimbursement of capital equipment costs. Reductions or delays
in such insurance coverage or reimbursement may negatively impact hospitals
and physicians decision to purchase our products, adversely affecting our
future sales.

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

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

Dependence on Single-Source Suppliers and Certain Third Parties.

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

Competition.

We compete in the non-ophthalmic surgical segment of the worldwide medical
laser market. In this market, lasers are used in hospital operating rooms,
outpatient surgery centers and individual physician offices for a wide variety
of procedures. This market is highly competitive. Our competitors are numerous
and include some of the worlds largest organizations as well as smaller,
highly-specialized firms. We cannot assure that we can compete successfully
against these organizations.

Reliance on Patents and Licenses.

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

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

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

Reliance on Key Customers.

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

Fluctuations in Quarterly Operating Results.

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

Product Liability Risk; Limited Insurance Coverage.

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

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

Factors Affecting Financial Results and Stock Price.

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

| |                               
| | ------------------------------
| | product mix;                  
|
| | competitive pricing pressures;

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| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | material costs;                                                                                                           
|
| | revenue and expenses related to new products and enhancements to existing products;                                       
|
| | and delays in customer purchases in anticipation of new products
or product enhancements by Laserscope or its competitors.

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

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

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

As of April 30, 2002, we had 16,342,719 shares of outstanding common stock.
The sale of a substantial number of shares of common stock or the perception
that such sales could occur, could adversely affect prevailing market prices
for our common stock.

International Business.

We intend to continue our operations outside of the United States and
potentially to enter additional international markets. These activities
require significant management attention and financial resources and further
subject us to the risks of operating internationally.

Legal Proceedings.

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

Interest Rate Risk.

(See Item 3.-Quantitative and Qualitative Disclosures About Market Risk in this
Quarterly Report on Form 10-Q.)

Warranty Obligations.

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

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No Dividends.

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

Penny Stock Rules.

Our common stock is traded on the National Association of Securities Dealers
Automated Quotation (NASDAQ) National Market System, which requires that a
company have, among other things, a minimum bid price of $1.00 in order to
qualify for continued listing. If we fail to maintain our listing for our
common stock on the NASDAQ National Market System, and no other exclusion from
the definition of penny stock under the Exchange Act is available, any
brokers engaging in transactions in our securities would be required to provide
their customers with a risk disclosure document, the compensation of the
broker/dealer in the transaction and monthly account statements showing the
market values of our securities held in the customers accounts. The bid and
offer quotations and compensation information must be provided prior to
effecting the transaction and must be contained on the customers confirmation.
If brokers become subject to the penny stock rules when engaging in
transactions in our securities, they would become less willing to engage in
such transactions, thereby making it more difficult for shareholders to dispose
of their shares of Laserscope common stock.

Dilution.

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

Other.

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk:

Laserscope 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

Laserscopes exposure to market rate risk for changes in interest rates relates
primarily to our outstanding debt. In 2002 and 2001 we did not use derivative
financial instruments. We invest our excess cash in money market funds. Our
debt financings 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

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floating-rate securities may produce less income than expected if interest
rates fall. In addition, our future investment income may fall short of
expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities that 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, Laserscopes
future interest expense may be greater than expected due to changes in interest
rates.

Foreign Currency Risk

International revenues were 23% of total revenues in the quarter ended March
31, 2002, compared to 39% during the comparable period in 2001. 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 and France, and in U.S. dollars in the rest of
the world. Our 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, our future results could be materially adversely affected by
changes in these or other factors. We do not engage in hedging transactions
for speculative or trading purposes.




PART II. OTHER INFORMATION




Item 1. 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, we believe that the ultimate
resolution of these claims will not have a material adverse effect on our
financial position, results of operations, or future cash flows.




Item 2. Changes in Securities

Not applicable.




Item 3. Defaults upon Senior Securities

Not applicable.




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

Not applicable.




Item 5. Other Items

Not applicable.

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Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits filed herewith (numbered in accordance with Item 601 of
Regulation S-K):
|--- |  | ---------------------------------------------------------------------------------

|        |  |                                                                  |  |  |  | 
|------- |  | ---------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                  |  |  |  | 
|Number  |  | Description                                                      |  |  |  | 
|        |  |                                                                  |  |  |  | 
|10.14   |  | Form of Laserscopes Management Continuity agreement as amended.

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SIGNATURES

Pursuant to the requirements 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
Registrant
| | ---------------------



| | /s/ Dennis LaLumandiere
Dennis LaLumandiere
Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
| | --------------------------------------------------------------------------------------------------------------------------------------------

Date: May 14, 2002

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EXHIBIT INDEX

|        |  |                                                                  |  |  |  | 
|------- |  | ---------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                  |  |  |  | 
|Number  |  | Description                                                      |  |  |  | 
|        |  |                                                                  |  |  |  | 
|10.14   |  | Form of Laserscopes Management Continuity agreement as amended.