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 June 30, 2001

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 July 31, 2001 was 16,008,560 shares.

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
		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

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		7
	Results of Operations		7
	Liquidity and Capital Resources		9
	Risk Factors		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14
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 Information		17
Item 6.	Exhibits and Reports on Form 8-K		17
SIGNATURES			18

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:

Laserscope
Condensed Consolidated Balance Sheets
(Unaudited)

				June 30,			December 31,
(thousands)				2001			2000
Assets
Current assets:
	Cash and cash equivalents			$	3,002			2,698
	Accounts receivable, net				9,650			9,549
	Inventories				8,564			8,279
	Other current assets				992			963
		Total current assets			22,208			21,489
Property and equipment, net					1,998			1,944
Other assets					588			654
			Total assets	$	24,794		$	24,087
Liabilities and Shareholders’ Equity
Current liabilities:
	Short-term bank loans			$	894		$	702
	Accounts payable				1,699			1,444
	Accrued compensation				1,607			1,290
	Deferred revenue				1,593			1,022
	Other current liabilities				2,487			2,238
		Total current liabilities			8,280			6,696
Convertible subordinated debentures					3,000			3,000
Obligations under capital leases					93			277
		Total long-term liabilities			3,093			3,277
Commitments and contingencies
Shareholders’ equity:
		Common stock			54,498			54,480
		Accumulated deficit			(39,322	)		(39,014	)
		Accumulated other comprehensive income (loss)			(1,621	)		(1,218	)
		Notes receivable from shareholders			(134	)		(134	)
			Total shareholders’ equity		13,421			14,114
			Total liabilities and shareholders’ equity	$	24,794		$	24,087

See Notes to Condensed Consolidated Financial Statements

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Laserscope
Condensed Consolidated Statements Of Operations
(Unaudited)

		Three months ended						Six months ended
		June 30,						June 30,
(thousands except per share amounts)		2001			2000			2001			2000
Net revenue		$	9,302		$	9,294		$	17,530		$	17,922
Cost of sales			4,281			4,902			8,800			9,661
Gross margin			5,021			4,392			8,730			8,261
Operating expenses:
	Research and development		978			825			1,791			1,691
	Selling, general and administrative		3,774			3,141			7,084			6,429
			4,752			3,966			8,875			8,120
Operating income (loss)			269			426			(145	)		141
Interest income (expense) and other, net			(73	)		(123	)		(131	)		(190	)
Income (loss) before income taxes			196			303			(276	)		(49	)
Provision for income taxes			14			—			32			—
Net income (loss)		$	182		$	303		$	(308	)	$	(49	)
Basic net income (loss) per share		$	0.01		$	0.02		$	(0.02	)	$	( 0.00	)
Diluted net income (loss) per share		$	0.01		$	0.02		$	(0.02	)	$	0.00
Shares used in basic per share calculations			15,902			15,491			15,893			15,407
Shares used in diluted per share calculations			19,029			18,667			19,020			15,407

See Notes to Condensed Consolidated Financial Statements

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Laserscope
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				Six Months Ended
				June 30,
(thousands)				2001			2000
Cash flows from operating activities:
	Net loss			$	(308	)	$	(49	)
	Adjustments to reconcile net income to cash provided/ (used) by operating activities:
		Depreciation and amortization			559			925
		Increase (decrease) from changes in:
			Accounts receivable		(101	)		(1,552	)
			Inventories		(285	)		378
			Other current assets		(29	)		238
			Accounts payable		255			(294	)
			Accrued compensation		317			(120	)
			Deferred revenue		571
			Other current liabilities		249			26
			Repayment of shareholder note		—			14
Cash provided (used) by operating activities					1,228			(434	)
Cash flows from investing activities:
	Capital expenditures				(547	)		(281	)
	Other				(403	)		(248	)
Cash used by investing activities					(950	)		(529	)
Cash flows from financing activities:
	Payments on obligations under capital leases				(184	)		(157	)
	Cash transferred to Wavelight in NWL sale				—			(296	)
	Proceeds from the NWL sale				—			3,429
	Proceeds from the sale of common stock under stock plans				18			520
	Proceeds from the sale of common stock in private placement(1)				—			731
	Proceeds from the issuance of convertible subordinated debentures(1)				—			2,632
	Proceeds from bank loans				6,244			14,834
	Repayment of bank loans				(6,052	)		(17,655	)
Cash provided (used) by financing activities					26			4,038
Increase in cash and cash equivalents					304			3,075
Cash and cash equivalents, beginning of period					2,698			1,449
Cash and cash equivalents, end of period				$	3,002		$	4,524
Supplemental disclosure of cash flow information:
		Cash paid during the period for:
			Interest	$	201		$	282
			Income taxes	$	8		$	15
		Non-cash reduction is assets relating to NWL sale			—		$	8,949
		Non-cash reduction in liabilities relating to NWL sale			—		$	5,415

⁽¹⁾ Net of issuance costs

See Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements:

1.

The accompanying 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, 2000 included in the Company’s annual report on Form 10-K/A for the year ended December 31, 2000. The results of operations for the three and six month periods ended June 30, 2001 are not necessarily indicative of the results expected for the full year.

2.

Inventory was comprised of the following (in thousands):

	June 30,		December 31,
	2001		2000
Sub-assemblies and purchased parts	$	6,668	$	6,295
Finished goods		1,896		1,984
	$	8,564	$	8,279

3.	Basic net income (loss) per share is calculated using the weighted average of common stock outstanding. Diluted net income (loss) per share is calculated using the weighted average of common stock outstanding plus dilutive common equivalent shares from stock options and warrants. Options to purchase approximately 2,769,000 and 2,887,000 shares of common stock were outstanding at June 30, 2001 and 2000, respectively and warrants to purchase approximately 459,000 shares of common stock were outstanding at June 30, 2001. The stock options and warrants outstanding were not included in the computation of diluted earnings per share for the periods Laserscope reported losses because the effect would be anti-dilutive.
4.	We consider cash equivalents to be short-term financial instruments that are readily convertible to cash, subject to no more than insignificant interest rate risk and that have original maturities of three months or less.
	At June 30, 2001 and December 31, 2000, our cash equivalents were in the form of institutional money market accounts and totaled $3.0 million and $2.7 million respectively. At June 30, 2001 and December 31, 2000, we had no investments in debt or equity securities.
5.	Total comprehensive loss during the quarters ended June 30, 2001 and 2000 consisted of (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2001			2000			2001			2000
Net income (loss)	$	182		$	303		$	(308	)	$	(49	)
Translation adjustments		(82	)		(228	)		(403	)		(248	)
Comprehensive income (loss)	$	100		$	75		$	(711	)	$	297	)

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6.	During all periods presented, we conducted our business predominantly within one industry segment: the medical systems business.
7.	On February 18, 2000, we signed an agreement with Wavelight Laser Technologie AG (‘Wavelight”) to sell our interest in NWL Laser Technologie GmbH (“NWL”).
	During April 2001, Laserscope and Wavelight reached an agreement whereby Laserscope waved its rights to $400,000 held by Wavelight in escrow and Wavelight waved the right to make any future claims against Laserscope with respect to its purchase of NWL.

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/A for the fiscal year ended December 31, 2000 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.

Results of Operations:

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes included in Part I — Item 1 of this Quarterly Report and the audited financial statements and notes contained in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2000 and the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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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 quarter and six months ended June 30, 2001 (in thousands except for percentages):

		Three months ended											Six months ended
		June 30, 2001				June 30, 2000				%			June 30, 2001				June 30, 2000				%
		Amount %(a)				Amount %(a)				Change			Amount %(a)				Amount %(a)				Change
Revenues from sales of:
	Lasers	$	4,193	45	%	$	5,104	55	%		(18	)%	$	8,246	47	%	$	9,428	52	%		(13	)%
	Instruments & supplies		3,669	39	%		2,836	30	%		29	%		6,365	36	%		5,684	32	%		12	%
	Service		1,440	16	%		1,354	15	%		6	%		2,919	17	%		2,810	16	%		4	%
Total net revenues		$	9,302	100	%	$	9,294	100	%		0	%	$	17,530	100	%	$	17,922	100	%		(2	)%
Gross margin		$	5,021	54	%	$	4,392	47	%		14	%	$	8,730	50	%	$	8,261	46	%		6	%
Research & development		$	978	11	%	$	825	9	%		18	%	$	1,791	10	%	$	1,691	9	%		6	%
Selling, general & admin		$	3,774	41	%	$	3,141	34	%		20	%	$	7,084	41	%	$	6,429	36	%		10	%

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

Net revenues were level for the three months ended June 30, 2001 relative to the corresponding period of 2000, and revenues declined slightly for the six months ended June 30, 2001 relative to the corresponding period of 2000.

Revenues from the sales of laser systems decreased during the three-month and six-month periods ended June 30, 2001 relative to the same periods in 2000. While unit sales actually increased 3% and 2% respectively for the three and six-month periods ended June 30, 2001 relative to the same periods in 2000, average selling prices decreased. This decrease in dollar terms is due to a change in the mix of laser types sold. In 2001, we sold more lower-priced aesthetic lasers than in 2000. This is partly due to our distribution arrangement with McKesson/HBOC which we implemented during the first quarter of 2001. In addition, we sold fewer higher-priced surgical lasers in 2001 than in 2000. The Company expects that its revenue mix trend in all geographic markets will continue to shift toward lower-priced office-based aesthetic lasers through at least the end of 2001.

Revenues from the sales of instrumentation and disposable supplies increased during the three and six months ended June 30, 2001 compared to the corresponding periods in 2000. The increases during the quarter and year-to-date are due to increased shipments of scanning devices sold as accessories to Laserscope’s office laser systems partially offset by lower shipments of disposable supplies.

The 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.

Laserscope’s service revenues increased during the three and six-month periods ended June 30, 2001 compared to the same periods in 2000.

8

Increased service revenues were experienced in all geographic regions as a result of an increase in the number of service contracts. 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 during the quarter and six months ended June 30, 2001 increased relative to the corresponding periods of 2000. This is due primarily to a shift towards Laserscope’s higher margin Lyra product as well a shift towards the United States and away from lower margin international distributors during the quarter ended June 30, 2001. Laserscope expects that gross margin as a percentage of revenues for the remainder of 2001 may vary from quarter to quarter as product and distribution mix varies.

Research and development expenses are the result of activities related to the development of new laser, instrumentation and disposable products and the enhancement of Laserscope’s existing products. These expenses increased during the three month and six month periods ended June 30, 2001 compared to the same periods in 2000. The increase was driven by product development activity in the United States on a new laser for treatment of benign prostate hyperplasia. Since development of this laser is nearly complete, the Company expects that amounts spent in research and development will decline in the remainder of the year relative to the prior quarter’s level.

Selling, general and administrative expenses increased during the quarter and six month periods ended June 30, 2001, compared to the corresponding periods in 2000. This was driven by start-up expenses such as workshops and marketing material to support the McKesson distribution agreement. Laserscope expects amounts spent in selling, general and administrative expenses to increase during the remainder of 2001 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 June 30, 2000 and for the six months then ended (in thousands):

	June 30,		December 31,
	2001		2000
Cash and cash equivalents	$	3,002	$	2,698
Total assets	$	24,794	$	24,087
Total liabilities		11,373		9,973
Net working capital	$	13,928	$	14,793

The increase in cash and cash equivalents was due principally to cash generated by operating and financing activities partially offset by cash used in investing activities.

9

Cash provided by operating activities totaled $1.2 million. This was the combined result of the following sources: depreciation and amortization — $0.6 million; increase in deferred service contract revenue — $0.6 million; increase in accounts payable and accrued payroll — $0.5 million; and a decrease in warranty liability — $0.2 million. These sources were partially offset by the following uses: net loss — $0.3 million; increase in inventory — $0.3 million; and an increase in accounts receivable — $0.1 million.

Cash used by investing activities consisted of capital expenditures of $0.5 million and a translation loss of $0.4 million.

Cash provided by financing activities consisted of increased short-term bank borrowings, $0.2 million, offset by payments on obligations under capital leases of $0.2 million.

Laserscope has in place an asset-based line of credit that provides up to $6.0 million and expires in September 2001. Credit is extended based on eligible accounts receivable and inventory. At June 30, 2001, we had approximately $3.0 million in borrowing base available against the $0.9 million outstanding and the $1.1 million in letter of credit reserve requirements. As of June 30, 2001 we complied with all covenants.

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

     Our ability to effectively manage non-cash assets such as inventory and accounts receivable;

     Our ability to anticipate and adapt to the changes in our industry such as new and alternative medical procedures;

     Our level of profitability;

     Our determination to acquire or invest in products and businesses complementary to ours.

     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.

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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.

Technological Change; Uncertain 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.

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.

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.

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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.

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.

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 Laserscope’s financial position or results of operations.

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;

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competitive pricing pressures;

material costs;

revenue and expenses related to new products and enhancements to existing products;

delays in customer purchases in anticipation of new products or product enhancements by Laserscope or its competitors.

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;

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 July 31, 2001, we had 16,008,560 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 ultimately have a material adverse effect on Laserscope’s financial position or results of operations.

Interest Rate Risk.

(See Item 7A. — 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

13

call basis. We also have a “99.0% Uptime Guarantee” on our laser systems. Under provisions of this guarantee, we extend the term of the related warranty or service contract if specified system uptime levels are not maintained. Although most systems covered by this guarantee have achieved a 99.0% uptime rate to date, we cannot assure that we can maintain such uptime rates in the future.

No Dividends.

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

“Penny Stock” Rules.

Our common stock is traded on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) National Market System, which requires that a company have, 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 U.S. 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.

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Interest Rate Risk

Laserscope’s exposure to market rate risk for changes in interest rates relates primarily to our investment and debt portfolios. We have not used derivative financial instruments in our investment or debt portfolios. We invest our excess cash in money market funds and commercial paper. 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 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 29% and 34% of total revenues in the quarter and six months ended June 30, 2001, respectively compared to 28% and 34% during the comparable periods in 2000. 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. The effect of foreign exchange rate fluctuations on the Company in the three and six month periods ended June 30, 2001 and 2000 was not material, and we do not engage in hedging transactions for speculative or trading purposes.

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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 ultimately have a material adverse effect on our financial position or results of operations.

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

(a)	The annual meeting of shareholders was held on June 22, 2001.
(b)	The first matter voted upon at the meeting was the election of directors and the results of that vote were as follows:

							Present but
	For		Withheld		Abstained		Not Voting
James R. Baumgardt		13,675,038		253,700		0		0
Ruediger Naumann-Etienne, Ph.d		13,674,838		253,900		0		0
Rodney Perkins, M.D.		13,674,838		253,900		0		0
Robert J. Pressley, Ph.d		13,675,038		253,700		0		0
Eric M. Reuter		13,674,670		254,068		0		0

(c) The second matter voted upon at the meeting and the results of that vote were as follows:

							Present but
	For		Opposed		Abstained		Not Voting
To authorize an		12,686,065		1,177,097		65,576		0
amendment to the Company’s 1994 Stock Option Plan to increase the number of shares for issuance thereunder by 200,000 shares to an aggregate of 3,250,000 shares

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(d) The third matter voted upon at the meeting and the results of that vote were as follows:

							Present but
	For		Opposed		Abstained		Not Voting
To authorize an		13,023,930		857,377		47,431		0
amendment to the Company’s 1999 Employee Stock Purchase Plan to increase the number of shares for issuance thereunder by 150,000 shares to an aggregate of 500,000

(e) The fourth matter voted upon at the meeting and the results of that vote were as follows:

							Present but
	For		Opposed		Abstained		Not Voting
To authorize an		11,855,363		2,019,210		54,165		0
amendment to the Company’s 1999 Directors’ Stock Option Plan to increase the number of shares for issuance thereunder by 120,000 shares to an aggregate of 540,000

(f) The fifth matter voted upon at the meeting and the results of that vote were as follows:

							Present but
	For		Opposed		Abstained		Not Voting
To ratify the appointment		13,598,165		217,071		113,502		0
of Ernst & Young LLP as the independent auditors for the Company for the fiscal year ending December 31, 2001

Item 5. Other Items

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

Not applicable

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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 of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: August 14, 2001

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