<PAGE>

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

                                      FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997
                                          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: 0-11635

                                  LASER PHOTONICS, INC.
                     --------------------------------------------
               (Name of small business issuer specified in its charter)

                Delaware                                    59-2058100
     ---------------------------------                 -------------------
     (State or other jurisdiction                      (I.R.S. Employer
     of incorporation or organization)                 Identification No.)

              6865 Flanders Drive, Suite G, San Diego, California  92121
              ----------------------------------------------------------
             (Address of principal executive offices, including zip code)

                                     619-455-7030
                   -----------------------------------------------
                   (Issuer's telephone number, including area code)

                                12351 Research Parkway
                               Orlando, Florida  32826
                   -----------------------------------------------
                (Former name or address, if changed since last report)

            Securities registered under Section 12(b) of the Exchange Act:

                                             Name of each exchange
               Title Of Each Class           On Which Registered
               -------------------           ---------------------
                      None                             None

            Securities registered under Section 12(g) of the Exchange Act:

                        Common Stock, $0.01 par value per share
            --------------------------------------------------------------
                                   (Title of Class)



<PAGE>


Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.  Yes   X    No
                                               -----     -----

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

The number of shares outstanding of the issuer's Common Stock as of April 13,
1998 was 9,275,694 shares. The aggregate market value of the Common Stock
(8,194,933 shares) held by non-affiliates, based on the average of the bid and
asked prices ($2.94) of the Common Stock as of April 13, 1998 was $ 24,093,279.

     THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") MAY BE DEEMED TO CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT").  FORWARD-LOOKING STATEMENTS IN
THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE
COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR
RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS.  SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S
BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS.  THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH
HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE
ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.


                                          ii
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                                        PART I

ITEM 1.  BUSINESS.

BUSINESS OF THE COMPANY

     The following should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto, contained elsewhere in this
Annual Report on Form 10-K (the "Report").  This Report contains forward-looking
statements, which involve risks and uncertainties.  The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements.  Unless the context otherwise requires, the term "Company" refers to
Laser Photonics, Inc., a Delaware corporation ("Laser Photonics"), its
wholly-owned subsidiary, Laser Analytics, Inc., a Massachusetts corporation
("Laser Analytics"), and its 76%-owned subsidiary, AccuLase, Inc., a California
corporation ("AccuLase").

     The Company is engaged in the development of proprietary excimer laser and
fiberoptic equipment and techniques directed initially toward the treatment of
coronary heart disease and psoriasis, as well as other medical and non-medical
applications.  The Company also designs, develops, manufactures and markets
solid-state, diode and gas laser systems and accessories for use in both
"medical" and "scientific" applications.

     The Company filed a Petition for Reorganization (the "Bankruptcy
Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May 13, 1994
(Case No. 94-02608-611 - Federal Bankruptcy Court - Middle District, Florida).
An order was issued on May 22, 1995 confirming the Company's Third Amended Plan
of Reorganization (the "Bankruptcy Reorganization").

     In connection with the Bankruptcy Reorganization, Helionetics, Inc.
("Helionetics") of Van Nuys, California, transferred to the Company ownership of
approximately 76% of the issued and outstanding common stock of AccuLase.
AccuLase was founded in 1985 for the purpose of commercializing products that
utilize its proprietary excimer laser and fiberoptic technologies. AccuLase has
focused primarily on the development of medical products for the treatment of
coronary heart disease.

     The Company's strategy has changed in 1997 to focusing its efforts on the
Company's  excimer laser technology and expertise in order to develop a broad
base of laser and laser delivery products for both medical and non-medical
applications.

     The Company has entered into certain agreements with respect to the
manufacturing and marketing of its excimer lasers and delivery systems in 1997
with Baxter Healthcare Corporation ("Baxter") and Massachusetts General
Hospital.

     The Company's initial medical applications are intended to be used in the
treatment of cardiovascular disease and treatment of psoriasis. The current
cardiovascular and vascular applications are in an experimental procedure known
as Transmyocardial Revascularization ("TMR"), in which the Company's laser
system is currently in Phase I Human Clinical trials.   A proposed excimer laser
system to treat psoriasis is anticipated to commence during 1998 by going
through the first phase of Human Clinical trials to demonstrate the laser's
effectiveness as a replacement to current Ultraviolet Light Phototherapy being
used to control psoriasis.

     In the non-medical applications of the excimer laser technology, the
Company intends to  evaluate its technology as it applies as an illumination
source for use in the deep ultraviolet ("DUV") photolithography systems for the
semiconductor manufacturing industry. There can be no assurances that the
Company's excimer laser systems will be developed into marketable products.


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     The Company's strategy is to apply its extensive solid-state and excimer
laser expertise to develop a broad base of laser products focused on medical and
non-medical applications. The Company believes that its excimer laser technology
provides the basis for reliable cost-effective systems that will increasingly be
used in connection with a variety of medical and non-medical applications.

     To facilitate the Company's new focus on excimer laser technology, in
October, 1997, the Company's Board of Directors authorized management to pursue
the sale or closure of the Company's non-excimer laser businesses.

     On April 8, 1998, the Company entered into a letter of intent with an
unaffiliated third party to sell the operational assets of the Company's
business operations conducted in Massachusetts and Florida.  The purchaser has
also agreed to assume certain liabilities of such business operations.  The
Company will retain its excimer lasers and laser delivery systems related to the
business operations of AccuLase in San Diego, California.  There can be no
assurances that the transactions contemplated by this letter of intent will be
completed on these terms or at all.

     However, management's decision to sell the assets of the business
operations related to the Company's Massachusetts and Florida operations will
divest the Company of the business operations which have generated substantially
all sales revenues before December 31, 1997.

     Although the Company has developed strategic alliances with Baxter and
Massachusetts General Hospital related to the Company's excimer lasers, there
can be no assurances that the Company will ever develop significant revenues or
profitable operations with respect to this new business plan.

ALLIANCE WITH BAXTER HEALTHCARE CORPORATION

     On August 19, 1997, the Company executed a series of agreements with Baxter
Healthcare Corporation ("Baxter"). These agreements (collectively, the "Baxter
Agreement") provide, among other things, for the following:

     1.   The Company granted to Baxter an exclusive worldwide right and license
to manufacture and sell certain of the Company's laser technology relating to
the treatment of cardiovascular and vascular disease (the "AccuLase Laser") and
disposable products associated therewith.

     2.   Baxter agreed to pay the Company a royalty equal to 10% of the "End
User Price" for each disposable product sold, or if the laser equipment is sold
on a "per treatment" basis, the "imputed"  average sale price based on average
"non" per procedure sales.

     3.   Baxter agreed to purchase from the Company certain existing excimer
laser systems for cardiovascular and vascular disease.

     4.   Baxter agreed to fund the total cost of obtaining regulatory approvals
worldwide for the use of the AccuLase Laser and delivery system for the
treatment of cardiovascular and vascular disease.

     5.   Baxter agreed to fund all sales and marketing costs related to the
introduction and marketing of the AccuLase Laser and delivery system to treat
cardiovascular and vascular disease.

     6.   The Company agreed to manufacture the excimer laser system to
specifications for Baxter at certain agreed costs.

     7.   Baxter has paid the Company $1,550,000 in cash and the Company has 
delivered the first of two new commercial excimer lasers to Baxter under the 
Baxter Agreement.

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     8.   The Company has granted Baxter a security interest in all of its
patents to secure performance under the Baxter Agreement. The  Baxter Agreement
expires upon the expiration of the last to expire licensed patent. However,
Baxter may terminate the Baxter Agreement at any time.

     In  September, 1997 the Company, its investment banking firm, Pennsylvania
Merchant Group Ltd ("PMG"), and Baxter agreed to acquire a license from
Lasersight, Inc. for certain patents which relate to the use of excimer lasers
for the cardiovascular and vascular markets.  Baxter paid $4,000,000 for this
license, which amount the Company repaid to Baxter in December, 1997.

MASSACHUSETTS GENERAL HOSPITAL AGREEMENT

     On November 26, 1997, the Company entered into a license agreement (the
"Massachusetts General Hospital Agreement") with the General Hospital
Corporation, a not-for-profit corporation doing business as Massachusetts
General Hospital ("Massachusetts General Hospital") pursuant to which the
Company has obtained an exclusive, worldwide, royalty-bearing license from
Massachusetts General Hospital to commercially develop, manufacture, use and
sell products utilizing certain technology of Massachusetts General Hospital
related to the diagnosis and treatment of certain dermatological conditions and
diseases, including psoriasis.  The licensed technology is the subject of a
currently pending provisional patent application filed in the United States by
Massachusetts General Hospital.

     The Company has agreed to use its best efforts to develop and make
commercially available products with respect to the licensed technology within
certain time frames, or Massachusetts General Hospital may have the right to
cancel the exclusive license or convert any exclusive license to a non-exclusive
license.

     On March 17, 1998 the Company entered into a clinical trial agreement with
the Massachusetts General Hospital to test the effect of the Company's excimer
laser and laser delivery system for treatment of psoriasis as compared to the
current Ultraviolet "B" ("UVB") treatment being used to treat psoriasis.

     There can be no assurances that the Company will be able to develop any
products utilizing the licensed technology within the contractual time frame or
at all.

EXCIMER LASERS

     ACCULASE TRANSMYOCARDIAL REVASCULARIZATION SYSTEM. The Company has under
development an excimer laser and fiberoptic system  (the "AccuLase TMR System")
for the treatment of coronary heart disease in a procedure called
transmyocardial Revascularization ("TMR"), a procedure that creates new channels
for blood to flow to ischemic, or oxygen-starved, heart muscle.  Rather than
opening narrowed coronary arteries, the AccuLase TMR System is intended to treat
ischemic myocardium (oxygen-starved heart tissue) directly. This is accomplished
by lasing small channels through ischemic areas of the heart such that the
channels connect directly with the left ventricle, which is a reservoir of
oxygen-rich blood. Management believes that these channels provide new pathways
for blood flow into the heart muscle. However, there can be no assurances to
this effect.

     AccuLase's management met with representatives of the U.S. Food and Drug
Administration (FDA) in January, 1995 to discuss preclinical data submission
requirements necessary to initiate human trials of the AccuLase TMR System.
Animal testing of the AccuLase TMR System was then performed in collaboration
with several heart research institutions in the United States, culminating in a
study at The New York Hospital Cornell Medical Center, which serves as the
pre-clinical basis for an Investigative Device Exemption (IDE) that was granted
by the FDA in August, 1996.

     Under this IDE, Phase I human clinicals have begun at New York Hospital
Cornell Medical Center and at Good Samaritan Hospital in Los Angeles,
California.


                                          4
<PAGE>

     The IDE submission provides for the AccuLase TMR System to be used in
open-heart procedures. The Phase I study only includes patients that are
suffering from ischemia and angina, and who are not candidates for coronary
bypass grafts (CABG) or for balloon angioplasty.

     There are an estimated 120,000 people worldwide per year who qualify for
TMR under the conditions set forth above. Depending upon the outcomes of the
Phase I study, Baxter may petition for the Phase II studies to be expanded to a
multi-site study (more than 10 institutions) and expand the procedure to include
patients who are candidates for incomplete CABG revascularization.

     In the first quarter of 1998, the IDE was transferred to Baxter from the
Company by the FDA in connection with the Baxter Agreement.

     LASER ANGIOPLASTY SYSTEM.  The Company also has developed a laser
angioplasty system that is proposed to be used to treat atherosclerotic
blockages of the coronary arteries. The Company initially obtained clearance to
perform Phase 1 of a human clinical study for its intraoperative laser
angioplasty.  However, the related IDE was terminated by the FDA and the Company
has terminated research on this system in order to focus its resources on
expanding research on its TMR laser.

     EXCIMER LASER SYSTEM FOR THE TREATMENT OF PSORIASIS.  The Company's
subsidiary AccuLase has developed an excimer laser and laser delivery system for
the treatment of psoriasis.  Psoriasis is a chronic inflammatory skin disease
for which there is no known cure today.  However, there are several treatments
that achieve periods of clearance that restore function and maintain health.

     According to the National Psoriasis Foundation ("NPF"), there are three 
(3) approaches to treat psoriasis topical therapy (creams and lotions), 
phototherapy (ultraviolet light-UVA and UVB) and systemic medications.  The 
Company's excimer laser technology for the treatment of psoriasis, if 
successful, is intended to replace and/or augment all the current treatment 
modalities.  The Company's excimer laser generates ultraviolet (UV) light 
with a wavelength of 308nm.  The UVB light currently being used in 
phototherapy has a wavelength of 310nm and is the treatment modality that the 
Company and its medical adviser believe that the Company's excimer laser 
system will be effective in replacing and should become the preferred method 
to treat psoriasis.  There can be no assurances that the Company's excimer 
laser technology will be successful in treating psoriasis or result in a 
commercially viable product.

     ANTICIPATED MARKETS. Anticipated markets for the excimer laser and related
disposable products for the cardiovascular and vascular markets are hospitals in
the United States and around the world.

     The markets for the excimer laser system for treatment of psoriasis are
hospitals and dermatology clinics in the United States. and around the world.

     The NPF estimates that between 1% to 3% of the world's population is
affected by psoriasis.  In the United States, the NPF estimates that this
condition  affects more than six million Americans and that between 150,000 and
260,000 new cases occur each year.  Both genders are affected by the condition,
being slightly more prevalent among women.  About 10 to 15% of the people who
get psoriasis are under the age of 10.  The NPF further estimates that psoriasis
patients make about 2.4 million visits to dermatologists each year and that the
overall cost to treat psoriasis may exceed three billion dollars.

     In addition to the above costs, the NPF estimates that 56 million hours of
work are lost each year by psoriasis sufferers.


                                          5
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     The Company believes that its excimer laser system could replace and/or
augment the current phototherapy modalities.  The Company will first test its
excimer laser system, as it compares to the UVB therapy currently being
extensively used to control psoriasis.  In using UVB, the patient stands in a
light box lined with special UVB lamps and the whole body is radiated (other
than protected areas such as eyes and male genitals).  The patient will
generally be treated three times per week over 10 to 12 weeks.  The need for
long periods of treatment is due to the fact that the healthy skin as well as
the psoriasis affected skin is being treated in the current light boxes, so that
the dosage or radiation must be controlled or the patient will be severely
burned.  The Company's excimer laser, however, can be used to treat only the
skin area that is affected by psoriasis, and since it is believed that skin that
is affected by psoriasis is not as susceptible to UVB radiation, the Company and
its medical adviser believe that a high dose of UVB applied directly to the
affected area could significantly reduce the number of treatments and the time
needed to control psoriasis.  The Company has entered into clinical trial
agreement with Massachusetts General Hospital to study the affect of different
dosages on psoriasis.  This study, which is expected to start in the second
quarter of 1998, should lead to the Company's submission of a Form 510K to the
FDA, in the early part of 1999, requesting approval of the Company's excimer
laser system to be used to treat psoriasis.

     The Company expects that the number of treatments that will be needed to
control psoriasis using the Company's excimer laser system should decrease from
over 30 to less than 10.  The other benefits to the use of the Company's excimer
laser should be to reduce or eliminate the side effects of current treatment
modalities.  It is known that UVB treatments have the same long term effects as
chronic sun exposure, such as skin cancer and premature skin aging.  It is hoped
that by treating only the psoriasis affected skin with the Company's system that
these side effects could be reduced.

     Since the Company's laser system is still in the clinical trials stage with
its products, there is no assurance that the Company will be able to
successfully prove up their anticipated benefits, obtain required governmental
approvals for their use, and with its strategic association with Baxter for the
cardiovascular and vascular markets, reach anticipated markets ahead of
competing technologies and competitors.

     WORKING CAPITAL. Management believes that, based on the Company's current
business plan, the Company has sufficient operating capital to finance current
levels of operations for a period of at least thirteen (13) months following the
date of this Report.  Management believes that the Company will require working
capital over the thirteen (13) months following the date of this Report to
continue development of its products and meet its obligations under the Baxter
Agreement, estimated in the range of $1,500,000 to $2,500,000. The Company has
approximately $750,000 of cash as of April 8, 1998. Further, management believes
that approximately $1,200,000 of anticipated revenues will substantially be
generated from the sale of lasers to Baxter under the Baxter Agreement.
However, there can be no assurances to this effect.  Further, the sources of and
terms for the remainder of such capital, if needed, are uncertain as of the date
of this Report.  See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Liquidity and Capital Resources."

     SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company uses raw materials
that may be obtained from a number of different vendors. Therefore, the Company
believes that there are adequate sources and availability of all raw materials
required to commercialize its products.


                                          6
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OTHER LASERS

     The Company's other laser business applications and products are sold in
two markets, medical applications and scientific applications.  The Company has
entered into a letter of intent to sell the Company's assets related to these
laser technologies.

     MEDICAL LASER PRODUCTS.   Although  the Company has developed a number of
medical laser systems, such as Ruby Laser Systems, ND: YAG Laser Systems and
Alexandrite Laser Systems, only the Ruby Laser System has generated any
meaningful revenues since 1995.  Set forth below is a brief summary of the
Company's current medical laser systems:

          RUBY LASER SYSTEM. The use of solid-state laser systems has expanded
into new application areas such as dermatology for the  treatment of benign
pigmented lesions of the skin such as nevus of ota, moles, age spots and
tattoos. This new application represents an extension of the Company's
scientific ruby laser technology, a  technology that  was one of the earliest
laser systems developed for commercial use. Laser energy created by the ruby
laser is highly absorbed by pigmented lesions, but poorly absorbed by normal
skin. Using the laser system, therefore, allows the physician to treat
effectively the skin lesion without anesthesia and without causing normal
pigmented changes or scarring. The Company began manufacturing and shipping
these systems in August, 1991 on a private label basis. The
manufacturing/distribution agreement with the customer officially terminated in
1993.  In May, 1995, the Company resumed production of the ruby laser using a
distributor network for marketing the product. Research and development programs
have been geared toward modification to allow long pulse width operation for
other dermatological applications, including hair removal.  Ruby lasers have
shown the ability to remove hair without damage to the  surrounding tissue while
removing the hair for long periods of time. Repeated application may lead to
permanent hair removal. The Company is awaiting FDA approval for the long pulse
laser for dermatology.

          ND:YAG LASER SYSTEMS. During the 1980's, the CO2 gas laser  began to
be replaced as the "workhorse" of the industry by the Nd:YAG Laser System. Major
complaints with the CO2 were the cumbersome delivery mechanism (an articulating
arm) and its inability to coagulate tissue or to deliver energy through a fluid
medium. The Nd:YAG energy could be delivered through a small flexible optical
fiber, could be effectively used in a fluid medium, and was effective in
cutting, coagulating and vaporizing tissue.

     In 1990, the Company received FDA clearances to market  commercially 100,
60, and 45 watt Nd:YAG systems and accessories for use in general surgery. These
systems are used in traditional applications such as gynecology as well as in
endoscopic and laparoscopic procedures, such as laser laparoscopic
cholecystectomy (gallbladder removal). New endoscopic and laparoscopic
procedures have generated significant interest among general surgeons in the use
of lasers for surgery. Due to limited cash resources, the Company did not
actively market the Nd:YAG laser in 1997.

          ALEXANDRITE LASER SYSTEM. Laser induced shockwave lithotripsy
("LISL"), or the use of laser energy to break up kidney and biliary stones, also
represents a new application of medical lasers. The Company believes that LISL
offers a reliable cost-effective adjunct or alternative to surgery or
extracorporeal shockwave lithotripsy ("ESWL") for the treatment of kidney and
biliary stones. However, there can be no assurances to this effect. ESWL uses
externally generated shock waves that noninvasively pass through the skin and
fragment the stone, allowing it to be passed by the patient. ESWL equipment is
expensive to purchase and install and may not be usable in  treating certain
stones in the lower two-thirds of the ureter which are shielded by the pelvic
bone.


                                          7
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     LISL requires a minimally invasive endoscopic procedure or percutaneous
puncture to allow access to the stone. A small optical fiber is passed through
the endoscope or percutaneous catheter until it reaches the stone.  Laser energy
is transmitted through the optical fiber and causes the stone to fragment into
small particles, which can be expelled naturally. LISL can be used to fragment
stones in areas which are not easily treated by ESWL or following ESWL treatment
when fragments become lodged or are not small enough to be expelled naturally.

     In April, 1993, the Company received FDA clearance to market its
solid-state alexandrite lithotriptor for the treatment of kidney stones in the
renal and urinary tract. Clearance to market the lithotriptor was also received
in Japan in late 1995. Again, due to limited cash resources, the Company did not
actively promote the lithotriptor in 1997, choosing instead to focus on the
dermatology market.

     SCIENTIFIC LASER SYSTEMS.  The Company's scientific products are sold into
niche markets for use principally in applications such as spectroscopy,
calibration, alignment, and ultra-fast event measurement by universities,
government, and private industry research labs.

     The Company manufactures and markets scientific products based on a wide
range of technologies which include: nitrogen laser systems, nitrogen pumped dye
laser systems, solid state mid infrared laser systems,  as well as laser diodes
and laser diode spectrometers.

     Set forth below is a brief summary of the Company's current scientific
laser systems:

          DIODE LASER SYSTEMS. In February 1989, the Company acquired Laser
Analytics, Inc., a wholly owned subsidiary of Spectra Physics.  Since the
acquisition, the Company has funded continued development efforts focused
primarily on improvements in the production of tunable infrared laser diodes. In
1990, the Company signed a joint technology licensing agreement with the General
Motors Research Lab. This technology uses a spectrometer based on the Company's
tunable infrared laser diode to measure naturally occurring, non-radioactive
stable isotopes in exhaled breath. These measurements are useful in diagnosing
such medical problems as diabetes, lung and liver dysfunction, digestive tract
diseases, such as the detection of helicobactor pylori which has   been shown to
be a precursor to liver and stomach cancer. The Company is continuing research
and development efforts on this product but does not anticipate commercial sales
from this product in the next twelve months.

     The Company's tunable diode lasers are based on lead-salt semiconductor
technology for use in advanced research such as high  resolution molecular
spectroscopy, combustion diagnostic studies and atmospheric chemistry. These are
"high end" instruments designed for research, which requires a high level of
sophistication and performance.  These lasers are sold both as a standardized
unit, and as a customized unit. In addition, the Company has designed a system
using the tunable diode laser technology for pollution monitoring applications.

     In 1996, the Company received an order from its Japanese distributor for
complete systems for monitoring plasma reactions for advanced semiconductor
manufacturing. Five systems were initially installed in February, 1997. If beta
testing is successful, significant orders from this manufacturing consortium
could be realized in early 1998.


                                          8
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          NITROGEN LASER AND NITROGEN PUMPED DYE LASER SYSTEMS. The  Company's
nitrogen/dye laser uses an ultraviolet laser beam that when exposed to certain
dyes creates a visible wavelength that is tunable over a wide range of
frequencies. This feature makes them extremely useful to chemists who do
spectroscopic studies of materials that absorb or react to specific wavelengths
of light. The main features of this product line are tunability, reliability,
stability and ease of operation and low cost. The Company's sealed nitrogen
lasers are now being used in OEM commercial applications. In 1995, the Company
received two significant quantity orders from a foreign government for nitrogen
lasers to be used in the currency printing process. Machine vision systems and
mass spectrometer manufacturers are also using nitrogen lasers in quantity. The
Company is working with an OEM customer to develop a system for cervical cancer
detection. Multiple quantity orders are expected for this application in early
1998.

          SOLID STATE MID INFRARED LASER SYSTEMS. The Company's  solid-state
scientific product line consists of a broad range of laser system products
(Nd:YAG, Nd:GLASS, Ti:SAPPHIRE). Each product within this line has unique
wavelength and performance characteristics which are useful in laboratory
research in holography, plasma diagnostics, and bathimetry (ocean mapping).

     PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION.  The Company's marketing
strategy is to define specific target markets and to modify existing products or
design new products to meet perceived market demand.

     The Company markets its medical laser systems principally through
independent distributors and representatives to large hospitals, small community
hospitals, and freestanding outpatient surgery centers throughout the world. The
Company promotes its medical products through attendance at trade shows and
exhibits, advertising in medical journals and direct mail programs to the
medical community.

     The Company markets its scientific products through a direct sales force in
the United States and through a network of distributors outside of the United
States, principally to universities, governmental research labs and large
companies. The Company promotes its scientific products through attendance at
trade shows, advertising in scientific journals and industry magazines, and
direct mail programs to the scientific research community.

     SOURCES AND AVAILABILITY OF RAW MATERIALS.  Management believes that the
Company currently has good relationships with vendors of materials for medical
and scientific lasers.  As a result of the Bankruptcy Reorganization and the
Company's cash flow constraints, most vendors operate on a C.O.D. basis. This
has not significantly affected the willingness of vendors to work with the
Company on an ongoing basis. Most major components and raw materials, including
solid state laser rods, laser crystals, optics and electro-optic devices are
available from a variety of sources. The Company does not rely on sole source
vendors. Cash flow constraints are the main limiting factors in parts
availability.

RELATIONSHIP WITH ACCULASE SUBSIDIARY

     AccuLase is a 76% owned subsidiary of Laser Photonics, which was acquired
by Laser Photonics in May, 1995 in connection with the Bankruptcy
Reorganization.  AccuLase owns certain technologies related to the Company's
excimer lasers and delivery systems.  Due to AccuLase's inability to raise
financing to capitalize the development of its excimer lasers, Laser Photonics
engaged in significant financing activities in 1997 and provided incentives and
compensation to management of the Company and ongoing funding to develop and
commercialize the excimer laser technology.  Laser Photonics paid $4,000,000 to
Baxter to acquire certain licenses relating to the excimer lasers.


                                          9
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     Laser Photonics believes that these financings and the providing of
management assistance and product development funding to AccuLase has provided
significant benefit to AccuLase and that AccuLase could not have obtained any of
these benefits without the assistance of Laser Photonics.   Laser Photonics and
AccuLase have not reached agreement with respect to how AccuLase will compensate
the Company for this arrangement.

WORKING CAPITAL ITEMS

     The Company is required by the FDA under GMP guidelines to carry certain
inventories of its medical lasers for emergency medical service. Typically,
major service problems must be responded to within 24 hours. The Company
estimates that $250,000 of service inventory is on hand at any given time for
emergency response.

     The Company is not required by any regulatory body to keep inventories on
hand to meet service or delivery issues. Certain raw materials have lead times
of greater than sixteen (16) weeks. The Company keeps a safety stock of these
items when appropriate. The Company estimates that less than $100,000 of current
inventory is set aside for safety stock.

     The Company does not provide the right to return units. In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases, the Company has allowed returns when accompanied by
a substantial restocking fee.

     In April, 1996, the Company entered into a factoring relationship with
Commercial Factors of Atlanta. In June, 1997, the Company changed factors to
Altres Financial L.P. of Salt Lake City, Utah. The change was due primarily to
lower interest rates.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations  - Liquidity and Capital Resources."

     All customers are on 30 day payment terms with approved credit. Some
distributors have been granted 60 day terms on a case by case basis.

DEPENDENCE ON NEW CUSTOMERS

     The Company did not have sales to a single customer in excess of 10% of
total sales in 1997.

PRODUCT WARRANTIES

     The Company's standard warranty period on most products, except
consumables, which have a ninety (90) day warranty period, is one year for parts
and labor. Selected medical products have a 12 month parts only warranty. During
the warranty period, the Company pays shipping charges one way. The Company has
established a reserve for warranty costs based upon the estimated costs to be
incurred over the warranty period of the Company's products.

PRODUCT LIABILITY INSURANCE

     The Company maintains liability insurance with coverage limits of
$1,000,000 per occurrence and $2,000,000 in the annual aggregate amount.
Although the Company has never been subject to a product liability claim, there
can be no assurance that the coverage limits of the Company's insurance policies
will be adequate or that one or more successful claims brought against the
Company would not have a material adverse effect upon the Company's business,
financial condition and results of operations.


                                          10
<PAGE>

RESEARCH AND DEVELOPMENT

     The Company's research and development emphasis has shifted from pure
research to product modification and development to meet new market demands. The
Company's strategy is to utilize and modify its existing laser and component
base to develop new products and applications in targeted medical and scientific
markets. In addition to internal development, the Company may take advantage of
opportunities, if they arise, in the current laser market environment of
consolidation and market specialization by continuing to seek out and acquire
both products and technology at a cost the Company believes to be lower than
internal development. The Company does not have any present acquisition plans.
Because the Company products are focused in specific niche scientific and
medical markets, the Company does not believe the decline in research and
development expenditures will impact the Company's abilities to be competitive
in its markets.

     During 1997, the Company concentrated on development of its excimer lasers
and upgrading and modifying its ruby laser for dermatology.  The Company has
been working with an OEM customer to develop its scientific nitrogen laser
technology for cancer detection.  The Company's scientific research and
development focused on development of the diode laser systems for the
semiconductor manufacturing application and on development of OEM nitrogen
lasers for cancer detection and industrial applications.

ENVIRONMENTAL CONCERNS

     The Company's medical lasers are not believed to cause any environmental
concerns. All medical lasers are solid-state construction so no hazardous gases
or liquid dyes are used in their operation or manufacture. In winter months,
medical laser cooling systems are filled with an ethylene glycol and water
mixture to prevent freezing during shipment. This mixture must be removed and
discarded upon installation.

     The Company's excimer lasers utilize Xenon-Chloride gas as a lasing medium.
The chlorine component of this gas is extremely corrosive and must be handled
with care. Although only a small quantity of gas is present in each laser,
proper handling is essential for safe operation. Depleted gas is reacted prior
to disposal. Excimer lasers are common in hospitals and laboratories and the
disposal and handling of these gases is well known. The use of these gases is
not expected to impact the desirability of these lasers. Excimer lasers used in
PRK (photorefractive radial keratectomy) use similar gases. These lasers are
also in widespread use.

     The Company does not knowingly use any products known to harm the
environment. All solvents and cleaners are biodegradable. Cooling systems, where
applicable, use CFC free refrigerant.

     The Company's Analytics Division produces lead-salt diodes. The
manufacturing process used to produce the state-of-the-art lasers is a complex
process in which many different types of materials are used to produce
sophisticated lasers. Many of these materials must be processed in a laboratory
environment. The quantity of materials is small (the Analytics Division is
classified as a Very Small Quantity Generator). This division has chemical
management programs which are designed to provide a safe work environment for
all employees and to ensure compliance with all federal, state and local
regulations related to the use and disposal of chemicals in the work
environment.


                                          11
<PAGE>

GOVERNMENT REGULATION

     The Company is subject to the Radiation Control for Health and Safety Act
with laser radiation safety regulations administered by the Center for Devices
and Radiological Health ("CDRH") of the FDA. These regulations require laser
manufacturers to file new product and annual reports, to maintain quality
control, product testing and sales records, to incorporate certain design and
operating features in lasers sold to end users and to certify and label each
laser sold, except those sold to original equipment manufacturer ("OEM")
customers, as belonging to one of four classes, based on the level of radiation
from the laser that is accessible to users. Various warning labels must be
affixed and certain protective devices installed, depending on the class of the
product. CDRH is empowered to seek fines and other remedies for violations of
the regulatory requirements. To date, the Company has filed the documentation
with CDRH for its laser products requiring such filing, and has not experienced
any difficulties or incurred significant costs in complying with such
regulations.

     Medical devices incorporating lasers are subject to extensive FDA
regulations governing the use and marketing of such devices. FDA conducts
on-site inspections to insure compliance with good manufacturing practice. The
FDA conducted a no-notice compliance inspection in September, 1991, and the
Company received no written deficiencies in its Quality Assurance program.

COMPETITION

     The laser industry is very complex and fragmented because of the
specialized nature of laser products and the differing applications required by
purchasers of lasers and laser systems.  To the extent the Company's products
are incorporated into systems for medical and scientific applications, the
Company indirectly competes with hundreds of suppliers of devices employing
other technologies and also those which employ lasers as a principal component.

     The Company believes the primary competitive factors within the surgical
laser market are the level of customer support, training, price, product
reliability, and breadth of product line. The Company believes that it offers a
broad product line, flexible OEM capabilities, and provides through its
distributors and in-house capabilities a high level of customer service and
training. The Company believes that its medical products are competitively
priced compared to competing laser products and that its products based on
solid-state technology are very reliable. Although the Company has manufactured
surgical YAG laser systems and components on a private label basis for a number
of years, as an entrant into this market under the "Laser Photonics" label, the
Company must establish its reputation as a direct provider of products to the
medical community.

     The market for the Company's proposed products is extremely competitive.
The Company directly and indirectly competes with other businesses, including
businesses in the laser industry.  In many cases, these competitors are
substantially larger and more firmly established than the Company.  In addition,
many of such competitors have greater marketing and development budgets and
substantially greater capital resources than the Company. Accordingly, there can
be no assurance that the Company will be able to achieve and maintain a
competitive position in the Company's industry.  Further, in order to compete
effectively in the market for laser technology, the Company must develop and
introduce on a timely basis competitive products that embody new technology,
meet evolving industry standards, and achieve competitive levels of performance
at prices acceptable to the market.

     The Company's competitors include companies with substantially greater
resources in technology, finance, manufacturing, sales, marketing, distribution,
customer service and support, as well as greater experience and name
recognition, than the Company.  The Company expects substantial direct
competition, both from existing competitors and from new market entrants.


                                          12
<PAGE>

     Further, larger and more established competitors may seek to impede the
Company's ability to establish a market share for any products which may be
developed by the Company through competitive pricing activities.  Also,
prospective customers for the Company's products may be reluctant to disrupt
relationships with well-established distributors of products which may be
comparable in quality or pricing to any of the Company's products.

     Further, the Company's competitors spend substantial sums on research and
development and manufacturing facilities in order to maintain their respective
market positions.  The Company does not have comparable resources with which to
invest in research and development and advertising and is at a competitive
disadvantage with respect to its ability to develop products.  The Company may
also encounter difficulties in customer acceptance because it is likely to be
perceived as a new processor supplier whose identity is not yet well known and
whose reputation and commercial longevity are not yet established.  Substantial
marketing and promotional costs, possibly in excess of what the Company can
afford, may be required to overcome barriers to customer acceptance.  There can
be no assurance that the Company will be able to overcome such barriers.  The
failure to gain customer acceptance of the Company's laser technology would have
a material adverse effect on the Company.

PATENTS AND TRADEMARKS

     The Company holds several United States patents on various items of laser
equipment and components. The Company does not, however, consider the ownership
of patents essential to its operations.  The first patent, which was issued in
January, 1990, provides patent protection until 2007 and covers the Company's
base excimer laser design. The second patent, which was issued in May, 1990,
provides patent protection until 2007 and covers a liquid filled flexible laser
light guide. The third patent, which was issued in May, 1991, provides patent
protection until 2007, and covers a means of measuring optical fiber power
output. The fourth patent, which was issued in September, 1991, provides patent
protection until 2008 and relates to the laser to optical fiber coupling
apparatus used in the Company's excimer lasers. The Company also has one U.S.
patent application pending relating to a proprietary laser catheter design,
which application was initially denied and now is on appeal.

     The Company also received patents for its base excimer laser design in
Australia in November, 1991, Canada in December, 1992, and Israel in February,
1993. The Australian, Canadian, and Israeli patents provide protection until
August, 2004, December, 2009, and August, 2008, respectively. Patent
applications are pending in these countries and in Japan for a fiber optic laser
catheter design.

     The Company regards its technological processes and product designs as
proprietary and seeks to protect its rights in them through a combination of
patents, internal procedures and non-disclosure agreements.  The Company also
utilizes licenses from third parties for processes and designs used by the
Company which are proprietary to other parties.  The Company believes that its
success will depend in part on the protection of its proprietary information and
patents, and the licenses of technologies from third parties.

     There can be no assurances as to the range or degree of protection any
patent or registration which may be owned or licensed by the Company will
afford, that such patents or registrations will provide any competitive
advantages for the Company, or that others will not obtain patents or
registrations similar to any patents or registrations owned or licensed by the
Company.  There can be no assurances that any patents or registrations owned or
licensed by the Company will not be challenged by third parties, invalidated,
rendered unenforceable or designed around, or that the Company's competitors
will not independently develop technologies which are substantially equivalent
or superior to the technologies owned or licensed by the Company and which do
not infringe patents or proprietary rights of the Company.  Further, there can
be no assurances that any pending patent or registration applications or future
applications will result in the issuance of a patent or registration.  There can
be no assurances that the Company or any licensor to the Company will be
successful in protecting its proprietary rights.  No assurances can be given
that the technology owned or


                                          13
<PAGE>

licensed by the Company will not infringe on patents or proprietary rights of
others, or that the Company can obtain or renew licenses to use such proprietary
rights, if necessary.

     To the extent that the Company relies upon trade secrets and unpatented
know-how, and the development of new products and improvements of existing
products in establishing and maintaining a competitive advantage in the market
for the Company's products and services, there can be no assurances that such
proprietary technology will remain a trade secret or be available to the
Company, or that others will not develop substantially equivalent or superior
technologies to compete with the Company's products and services.

     Any asserted claims or litigation to determine the validity of any third
party infringement claims could result in significant expense to the Company or
any licensor of such technology and divert the efforts of the Company's
technical and management personnel, whether or not such litigation is resolved
in favor of the Company or any such licensor.  In the event of an adverse result
in any such litigation, the Company or any such licensor could be required to
expend significant time and resources to develop non-infringing technology or to
obtain licenses to the disputed technology from third parties.  There can be no
assurances that the Company or any such licensor would be successful in such
development or that any such licenses would be available to the Company on
commercially reasonably terms, if at all.

EMPLOYEES

     As of March 31, 1998, the Company had approximately 35 full-time employees,
including 16 employees in the Company's Florida offices, 7 in the Company's
Massachusetts offices and 12 in the Company's California corporate offices.
These employees include technical, administrative and clerical personnel.  The
Company intends to hire additional personnel as the development of the Company's
business makes such action appropriate.  The loss of the services of such key
employees as Chaim Markheim and Raymond A. Hartman could have a material adverse
effect on the Company's business.  Since there is intense competition for
qualified personnel knowledgeable of the Company's industry, no assurances can
be given that the Company will be successful in retaining and recruiting needed
personnel.  See "Management."

     The Company's employees are not represented by a labor union or covered by
a collective bargaining agreement, and the Company believes it has good
relations with its employees.  The Company provides its employees with certain
benefits, including health insurance.


                                          14
<PAGE>

                                     RISK FACTORS

     THIS REPORT MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE REFORM ACT.  FORWARD-LOOKING STATEMENTS IN THIS REPORT OR
HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE
COMMISSION, REPORTS TO THE COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE
STATEMENTS ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE
RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.  SUCH FUTURE RESULTS ARE BASED UPON
MANAGEMENT'S BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT
RESULTS OF OPERATIONS.  THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET
FORTH HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND
THE ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.

     THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK.  PERSONS
WHO MAY OWN OR INTEND TO PURCHASE SHARES OF COMMON STOCK IN ANY MARKET WHERE THE
COMMON STOCK MAY TRADE SHOULD CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH
OTHER INFORMATION CONTAINED ELSEWHERE IN THE COMPANY'S REPORTS, PROXY STATEMENTS
AND OTHER AVAILABLE PUBLIC INFORMATION, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, PRIOR TO PURCHASING SHARES OF THE COMMON STOCK:

FINANCIAL RISKS

     LACK OF PROFITABILITY AND HISTORY OF LOSSES; BANKRUPTCY PROCEEDING.  The
Company historically has incurred significant net losses from operations.  On
May 13, 1994, the Company filed a voluntary petition of reorganization (the
"Bankruptcy Proceeding") with the United States Bankruptcy Court for the Middle
District of Florida (the "Bankruptcy Court") pursuant to Chapter 11 of the
United States Bankruptcy Code.  During the pendency of the Bankruptcy
Proceeding, the Company conducted its business operations as a
debtor-in-possession, subject to the jurisdiction of the Bankruptcy Court.  On
May 22, 1995, the Bankruptcy Court confirmed the Bankruptcy  Reorganization.  As
of December 31, 1997, the Company had an accumulated deficit of $9,788,883.  The
Company expects to continue to incur significant operating losses over at least
the following two years as it continues to devote significant financial
resources to product development activities and as the Company expands its
operations.  In order to achieve profitability, the Company will have to
manufacture and market products which are accepted on a widespread commercial
basis.  There can be no assurances that the Company will manufacture or market
any products successfully, operate profitably in the future, or that Company
will not require significant additional financing in order to accomplish the
Company's current business plan.

     NEED FOR ADDITIONAL FINANCING.  The Company has historically financed its
operations  through working capital provided from operations, loans and the
private placement of equity and debt securities.  The Company has significant
debt obligations which will require additional financing in order to repay in
full. The Company continues to require such financing in order to accomplish the
Company's current business plan.  The Company believes that the Company has
sufficient capital and anticipated sources of revenues to finance the Company's
current level of operations and continued development of the Company's products
for a period of at least thirteen (13) months following the date of this Report,
based on the Company's current business plan.  However, the Company's ability to
expand business operations is currently dependent on financing from external
sources.  There can be no assurance that the Company will be able to generate
sufficient revenues prior to such date or at all, or that the Company will not
require additional financing at or prior to such date in order to continue
operations and product development.  There can be no assurances that any
additional sources of financing will be available on terms favorable to the
Company, or at all, or that the business of the Company will ever achieve
profitable operations.  Further, any additional financing may be senior to the
Company's Common Stock or result in significant dilution to the holders of the
Common Stock.  In the event the Company does not receive any such financing or
generate profitable operations, management may have


                                          15
<PAGE>

to suspend or discontinue its business activity or certain components thereof in
its present form or cease operations altogether.

SECURITIES RISKS

     DISCLOSURE RELATING TO LOW-PRICED STOCKS.   The Company's Common Stock is
currently listed for trading in the over-the-counter market (the
"Over-the-Counter Market") in the so-called "pink sheets" or the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc.  The
Company's securities are subject to the "penny stock rules" adopted pursuant to
Section 15 (g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").  The penny stock rules apply to non-NASDAQ companies whose Common stock
trades at less than $5.00 per share or which have tangible net worth of less
than $5,000,000 ($2,000,000 if the company has been operating for three or more
years).  Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances.  Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited.  Because the Company's
securities are subject to the "penny stock rules," there may develop an adverse
impact on the market for the Company's securities.

     CERTAIN REGISTRATION RIGHTS.  The Company has filed a currently pending
registration statement (the "Registration Statement") which covers an aggregate
of 3,879,500 shares of Common Stock, including 2,979,500 shares of Common Stock
and 900,000 shares underlying certain issued and outstanding warrants (the
"Warrants"), and intends to register an additional 28,601 shares pursuant to
such Registration Statement. The Registration Statement may have a material
adverse effect on the market price for the Company's Common Stock resulting from
the increased number of free trading shares of Common Stock in the market.
There can be no assurances that the enforcement of such registration rights will
not have a material adverse effect on the market price for the Common Stock.

     LACK OF DIVIDENDS ON COMMON STOCK.  The Company has paid no dividends on
its Common Stock to date and there are no plans for paying dividends in the
foreseeable future.  The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business.

     POTENTIAL ANTI-TAKEOVER EFFECT OF DELAWARE LAW.  The Company is subject to
certain provisions of the Delaware General Corporation Law which, in general,
restrict the ability of a publicly held Delaware corporation from engaging in
certain "business combinations," with certain exceptions, with "interested
stockholders" for a period of three (3) years after the date of transaction in
which the person became an "interested stockholder."  The effect of such
"anti-takeover" provisions may delay, deter or prevent a takeover of the Company
which the stockholders may consider to be in their best interests, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of their securities at above-market prices, or
limit the ability of stockholders to remove incumbent directors as readily as
the stockholders may consider to be in their best interests.

     SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES.  Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock.  There are
currently 105,000 restricted shares and 9,170,694 shares of Common Stock which
are freely tradeable, eligible to have the restrictive legend removed pursuant
to Rule 144(k) promulgated under the Securities Act of 1933, as amended ("the
"Securities Act") or are the subject of the Registration Statement or other
registration statements.  Further, the Company has granted options to purchase
up to an additional 1,337,899 shares of Common Stock, 1,225,399 of which are
currently exercisable, and Warrants  to purchase up to 900,000 shares of Common
Stock.  Sales of substantial amounts of Common Stock in the public market,


                                          16
<PAGE>

or the perception that such sales may occur, could have a material adverse
effect on the market price of the Common Stock.  Pursuant to its Certificate of
Incorporation, the Company has the authority to issue additional shares of
Common Stock.  The issuance of such shares could result in the dilution of the
voting power of Common Stock.

     LIMITATIONS ON DIRECTOR LIABILITY.  The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions.  These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director.  In addition, the Company's Certificate of Incorporation and Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law.

     CONSENT DECREE.  In 1996, the Company entered into a Consent Decree with
the Commission where it neither admitted nor denied alleged securities law
violations in 1992 and early 1993 under prior management, but consented to the
issuance of an injunction against any future violation. The alleged events
occurred prior to the Company's Bankruptcy Reorganization and involve events,
which occurred prior to the change in the Company's management and directors.
There can be no assurance that the Consent Decree will not have an adverse
effect on the Company's ability to conduct financing in the future.

GENERAL BUSINESS OPERATIONS RISKS

     PENDING SALE OF REVENUE GENERATING ASPECTS OF BUSINESS OPERATIONS.    On
April 8, 1998, the Company entered into a letter of intent with an unaffiliated
third party to sell the operational assets of the Company's business operations
conducted in Massachusetts and Florida.  The purchaser has also agreed to assume
certain liabilities of such business operations.  The Company will retain its
excimer lasers and laser delivery systems related to the business operations of
AccuLase in San Diego, California.  There can be no assurances that the
transactions contemplated by this letter of intent will be completed on these
terms or at all.  However, management's decision to sell the assets of the
business operations related to the Company's Massachusetts and Florida
operations will divest the Company of the business operations which have
generated substantially all sales revenues before December 31, 1997.  Although
the Company has developed strategic alliances with Baxter and Massachusetts
General Hospital related to the Company's excimer lasers, there can be no
assurances that the Company will ever develop significant revenues or profitable
operations with respect to this new business plan.

     TECHNOLOGICAL UNCERTAINTY; NO ASSURANCE OF REGULATORY APPROVALS. Certain of
the Company's laser products will require significant clinical testing and
regulatory clearances prior to the Company's ability to market such products for
medical use. The proposed development of these products is subject to the risks
of failure in the development of devices and procedures based on innovative
technologies.  These risks include the possibilities that the Company's lasers
and/or delivery system or the medical treatments they embody, will be found to
be ineffective, or otherwise fail to receive necessary regulatory clearances, or
uneconomical to market.  Accordingly, management is unable to predict whether
its development activities will result in any commercially viable products or
applications. There can be no assurance that proposed products will prove to be
safe or effective or receive regulatory approvals that are required for
commercial sale.


                                          17
<PAGE>


     NEED TO DEVELOP AND POTENTIAL OBSOLESCENCE OF NEW PRODUCTS. The Company is
engaged in the business of developing new products and technologies for the
laser industry.  Certain of the Company's lasers are marketable for non-medical
uses and certain lasers need to complete clinical testing and obtain regulatory
approval for medical uses.  No assurance can be given that the Company will be
able to complete such testing or obtain such approvals.  The markets for the
Company's products are characterized by rapidly changing technology, frequent
new product introductions and price erosion.  Accordingly, the Company believes
its future prospects depend on its ability not only to enhance and successfully
market its products, but also to develop and introduce new products in a timely
fashion that achieve market acceptance.  There can be no assurance that the
Company will be able to identify, design, develop, market or support such
products successfully or that the Company will be able to respond effectively to
technological changes or product announcements by competitors.  Delays in new
product introductions or product enhancements, or the introduction of
unsuccessful products, could have a material adverse effect on the Company.  No
assurance can be given that technologies developed by others will not render any
product developed by the Company obsolete, or otherwise significantly diminish
the value of the Company's products, or that there will still be a market for
such product by the time such product is ready for commercialization.  If the
Company does not develop a market for the Company's products at a time when a
market window for such a product is still open, there would be a material
adverse effect on the Company's financial position.

     RISK OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS.   The Company's growth
will depend on the Company's ability to identify, develop and successfully
market its products.  The laser industry is populated by many companies of
various sizes and types and is characterized by constant and rapid technological
and other change, innovation and new discoveries, which make conducting such a
business more difficult.  The identification of specific market needs is seldom
made by any one company alone, and no assurance can be given that there are not
many other laser companies actively engaged in developing products designed to
solve the needs identified by the Company or that one or more such companies
could not develop a product which has the effect of capturing the market which
has been targeted by management of the Company for its products or making
obsolete a product or technology developed by the Company.  There can be no
assurance that any products, which may be developed by the Company, if at all,
will meet any specific needs then existing in the market or that such products
will obtain commercial acceptance in the market.

     DIFFICULTY OF MARKETING THE COMPANY'S PRODUCTS.  The Company faces a number
of obstacles to the successful marketing of certain of its products which are
ready for marketing, but which have not been successfully marketed as of the
date of this Report.  No assurance can be given that the markets currently
projected by the Company for such products will exist, or if it does, that the
products using the Company's technologies will achieve acceptance in the market.
Even in the event that the Company's products find a level of market acceptance,
there can be no assurance that the sale of such products will generate
significant revenue for or result in profitability to the Company.  The Company
may face a formidable task in marketing such products in the face of efforts by
other companies to market their own products, even if such companies' products
do not, in the opinion of management of the Company, perform as effectively or
efficiently as the Company's products.  Further, no assurance can be given that
any market share, which may be achieved by the Company, will not be overtaken by
products manufactured by other companies possessing far greater technical and
financial resources.


                                          18
<PAGE>


     DEPENDENCE ON THIRD PARTIES FOR RESEARCH, DEVELOPMENT, MANUFACTURE AND
MARKETING OF PRODUCTS AND RISKS OF ACCESS TO ALTERNATIVE SOURCES AND DELAYS. The
Company does not have sufficient financial resources, by itself, to conduct
human clinical trials and the other research and development necessary to
commercialize the application of the laser and delivery system to cardiovascular
and vascular applications for medical use.  The Company has entered into an
agreement (the "Baxter Agreement") with one manufacturer, Baxter, pursuant to
which Baxter has agreed to provide certain limited commitments to fund research,
development and marketing of the Company's laser technology for cardiovascular
and vascular applications.  However, Baxter may terminate any such commitment
pursuant to the Baxter Agreement and cease further funding at any time, and
likely will do so if research and clinical results make the Company's laser and
delivery system look less attractive. In the event that Baxter terminates the
Baxter Agreement, the Company may rely on other outside parties for the
research, development and marketing of its products.  There can be no assurance
that these third parties will be willing or able to meet the Company's product
needs in a satisfactory and timely manner.  Although the Company believes that
these third parties would have an economic incentive to provide such assistance
for the Company, the amount and timing of resources to be devoted to these
activities are not within the control of the Company, and there can be no
assurance that manufacturing and marketing problems will not occur in the
future.

     Production of the Company's lasers requires specific component parts used
in the assembly of lasers from certain suppliers.  In the event that such
suppliers cannot meet the Company's needs, the Company believes that alternative
suppliers could be found.  However, a change in suppliers or any significant
delay in the Company's ability to have access to such resources would have a
material adverse effect on the Company's delivery schedules, business, operating
results and financial condition.

     There can be no assurance that the Company will be able to enter into
agreements with additional third parties to develop or market the Company's
products, or that, if it is able to enter into such agreements, that those
agreements will be on terms favorable to the Company.  Different specifications
of such third parties for marketing products may require the Company to generate
a new  design for each such third party and may cause additional delays and may
cause the Company to incur substantial additional costs.  Product positioning
and market acceptance may be adversely affected by such delays, particularly if
competitors introduce improved or superior products during such period.

     The Company maintains limited manufacturing facilities and will need to
expand such facilities to effectively manufacture its products on a profitable
basis.  Although certain members of the Company's management have manufacturing
experience, the expansion of the Company's manufacturing facilities and
capabilities will subject the Company to numerous risks, including unanticipated
technological problems or delays.  Such expansion will also require additional
sources of capital, which may not be available on commercially reasonable terms,
if at all.  In the event that the Company is unable to expand its manufacturing
facilities and capabilities, the Company may be required to enter into
arrangements with others for the manufacture and packaging of its proposed
products.  There can be no assurance that the Company will be able to enter into
any such arrangements on commercially reasonable terms, or at all, or that the
Company will ever be able to establish the capability to manufacture its
products on a commercial basis, in which case the Company's business, results of
operations and financial condition would be materially adversely affected.

     In addition, there can be no assurance that either the Company, Baxter or
any future prospective corporate partners, will be able to successfully
introduce the laser and delivery system so that it will achieve acceptance by
patients, health care providers and insurance companies, or that it can be
manufactured and marketed at prices that would permit the Company to operate
profitably.


                                          19
<PAGE>

     DEPENDENCE ON THE BAXTER AGREEMENT.  The Company has entered into a
contract with Baxter  which has the potential for generating revenue from the
sale or license of the Company's excimer laser products for certain uses.  If
the Company is unable to meet its obligations under the Baxter Agreement, or if
the Baxter Agreement is terminated for any reason, there could be a material
adverse effect on the Company's financial condition, and the Company may be
compelled to curtail or cease business operations altogether.

     DEPENDENCE ON EFFECTIVE PRODUCT DEVELOPMENT.  In  order to compete
successfully in the future, the Company will continuously need to develop higher
performance versions of lasers, and will also need to develop future generations
of products.  Certain of the Company's future products will require significant
additional research and development prior to their commercialization.  The
nature of the Company's research and development activities is inherently
complex, precluding definitive statements as to the time required and costs
involved in reaching certain objectives.  Consequently, actual research and
development costs and estimated time frames may require extension.  Any delays
or additional research costs could require the raising of funds and, therefore,
could  have a material adverse effect on the Company's business and results of
operations.  There can be no assurance that any potential products will be
capable of being produced in commercial quantities on a timely basis at
acceptable costs or be successfully marketed, or that the Company will be able
to obtain such additional financing on terms favorable to the Company, or at
all.

     UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT.  In the United States,
health care providers, including hospitals and physicians, that purchase devices
with medical applications for treatment of their patients, generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or a part of the costs and fees
associated with the procedures performed using these devices.  The Company's
ultimate success will be dependent upon, among other things, the ability of
health care providers to obtain satisfactory reimbursement from third-party
payors for medical procedures in which the laser and delivery system products
are used.  Third-party payors may deny reimbursement if they determine that a
prescribed device has not received appropriate regulatory clearances or
approvals, is not used in accordance with cost-effective treatment methods as
determined by the payor, or is experimental, unnecessary or inappropriate.  If
FDA clearance or approval is received, third-party reimbursement would also
depend upon decisions by Health Care Financing Administration ("HCFA") for
Medicare, as well as by individual health maintenance organizations, private
insurers and other payors.

     Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis.  Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures.  In most markets, there are private insurance systems as
well as government managed systems.  There can be no assurance that
reimbursement for the Company's products will be available in the United States
or in international markets under either government or private reimbursement
systems, or that physicians will support and advocate reimbursement for
procedures using the Company's products.  Failure by hospitals and other users
of the Company's products to obtain reimbursement from third-party payors, or
changes in government and private third-party payors' policies toward
reimbursement for procedures employing the Company's products, would have a
material adverse effect on the Company's ultimate business prospects.  Moreover,
management is unable to predict what additional legislation or regulation, if
any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future, or what effect such legislation or
regulation would have.


                                          20
<PAGE>


     UNCERTAINTY RELATED TO HEALTH CARE REFORM.  Political, economic and
regulatory influences are subjecting the health care industry in the United
States to a fundamental change.  Management anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative health care delivery and payment systems.  Potential approaches that
have been considered include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups, price controls and other fundamental changes to the
health care delivery system.  Legislative debate is expected to continue in the
future, and market forces are expected to demand reduced costs.  Management
cannot predict what impact the adoption of any federal or state health care
reform measures, future private sector reform or market forces may have on its
business.

     PRODUCT DEFECTS; LIMITS OF PRODUCT LIABILITY INSURANCE. One or more of the
Company's products may be found to be defective after the Company has already
shipped in volume, requiring a product replacement, which might cure such
defect.  Product returns and the potential need to remedy defects or provide
replacement products or parts could impose substantial costs to the Company and
have a material adverse effect on the Company. The clinical testing,
manufacturing and marketing of the Company's devices and procedures may expose
the Company to product liability claims.  The Company maintains liability
insurance with coverage limits of $1,000,000 per occurrence and $2,000,000 in
the annual aggregate amount.  Although the Company has never been subject to a
product liability claim, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate or that one or more successful
claims brought against the Company would not have a material adverse effect upon
the Company's business, financial condition and results of operations.

     LARGER AND MORE ESTABLISHED COMPETITION.  The market for the Company's
products is extremely competitive.  The Company directly and indirectly competes
with other businesses, including businesses in the laser industries.  In most
cases, these competitors are substantially larger and more firmly established,
have greater marketing and development budgets and substantially greater capital
resources than the Company.  Accordingly, there can be no assurance that the
Company will be able to achieve and maintain a competitive position in the
Company's industry.  Further, in order to compete effectively in the market for
the Company's lasers, the Company must develop and introduce on a timely basis
competitive products that embody new technology, meet evolving industry
standards, and achieve increased levels of performance at prices acceptable to
the market.  In particular, the market for laser products has been and continues
to be characterized by intense and increasing price competition.

     Many companies, research institutes and universities are working in a
number of disciplines to develop therapeutic devices and procedures aimed at
vascular and cardiovascular disease.  Most of these companies, research
institutes and universities have substantially greater financial, technical,
manufacturing marketing, distribution and/or other resources than the Company.
In addition, many of such companies have experience in underlying human clinical
trials of new or improved therapeutic devices and procedures and obtaining U.S.
Food and Drug Administration ("FDA") and other regulatory clearances of devices
and procedures for use in human health care.  The Company has limited experience
in conducting and managing clinical testing and in preparing applications
necessary to gain regulatory clearances.  Accordingly, other companies may
succeed in developing devices and procedures that are safer or more effective
than those proposed to be developed by the Company and in obtaining FDA
clearances for such devices and procedures more rapidly than the Company.
Further, it is expected that competition in this field will intensify over the
next few years.

     The Company's competitors spend substantial sums on research and
development for laser products in order to maintain their respective market
positions.  The Company does not have comparable resources with which to invest
in research and development and is at a competitive disadvantage with respect to
its ability to develop products.  The Company may also encounter difficulties in
customer acceptance because it is likely to be perceived as a new laser supplier
whose identity is not yet well known and whose reputation and


                                          21
<PAGE>

commercial longevity are not yet established.  Substantial marketing and
promotional costs, possibly in excess of what the Company can afford, may be
required to overcome these barriers.  There can be no assurance that the Company
will be able to overcome such barriers.  The failure to gain customer acceptance
of the Company's lasers and related technology would have a material adverse
effect on the Company.

     NO MARKETING STUDIES.  No independent studies with regard to feasibility of
the Company's proposed business plan have been conducted at the expense of the
Company or by any independent third parties with respect to the Company's
present and future business prospects and capital requirements.  In addition,
there can be no assurances that the Company's products will find sufficient
commercial acceptance in the marketplace to enable the Company to fulfill its
long and short term goals, even if adequate financing is available and products
are ready for market, of which there can be no assurance.

     DEPENDENCE ON KEY PERSONNEL.  The Company is dependent upon the skills of
its management and technical team.  There is strong competition for qualified
personnel in the laser industry, and the loss of key personnel or an inability
to continue to attract, retain and motivate key personnel could adversely affect
the Company's business.  There can be no assurances that the Company will be
able to retain its existing key personnel or to attract additional qualified
personnel.  The Company does not have key-person life insurance on any of its
employees.

     RELIANCE ON PATENT PROTECTION AND PROPRIETARY TECHNOLOGY.  The Company's
business could be adversely affected if it is unable to protect its intellectual
property, including patented and other proprietary technology, certain of which
is licensed by the Company and certain of which is owned by the Company.  To the
extent the Company or the owners of the patented technology are unsuccessful in
protecting proprietary rights to such technology or such technology may infringe
on proprietary rights of third parties, that portion of the Company's business
could suffer.  The Company's more significant proprietary technology is based on
unpatented trade secrets and know-how.  To the extent that the Company relies
upon unpatented trade secrets and know-how and the development of new products
and improvements thereon in establishing and maintaining a competitive advantage
in the market for the Company's products, there can be no assurances that such
proprietary technology will remain a trade secret or that others will not
develop substantially equivalent or superior technologies to compete with the
Company's products.  In addition, there can be no assurances that others will
not independently develop similar or superior technologies, which will enable
them to provide superior products or services.  Further, there can be no
assurances that patentable improvements on such technology will be developed or
that existing or improved technology will have competitive advantages or not be
challenged by third parties.  Further, the laser industry has been marked by
costly and time-consuming litigation with respect to intellectual property
rights between competitors.  There can be no assurances that third parties will
not claim that some or all of the Company's technology infringes on proprietary
rights of others.  Such litigation may be used to seek damages or to enjoin
alleged infringement of proprietary rights of others.  Further, the defense of
any such litigation, whether or not meritorious, may divert financial and other
resources of the Company, which may otherwise be devoted to development of the
Company's business plan, and therefore, may have a material adverse effect on
the financial condition of the Company.  An adverse decision to the Company in
any such litigation may result in a significant damages award payable by the
Company or enjoin the Company from marketing its then existing products, and
therefore, would have an adverse effect on the Company's ability to continue in
business.  In the event of an adverse result in such litigation, the Company
would be required to expend significant resources to develop non-infringing
technology or to obtain licenses to the disputed technology from third parties.
There can be no assurances that the Company will have the resources to develop
or license such technology, or if so, that the Company would be successful in
such development or that any such licenses would be available on commercially
reasonably terms.


                                          22
<PAGE>

     Further, the Company may be required to commence litigation against third
parties to protect any proprietary rights of the Company.  There can be no
assurances that the Company will be able to afford to prosecute such litigation,
or if so, that such litigation will be successful.

ITEM 2.   PROPERTIES.

     AccuLase presently leases approximately 5,400 square feet of office and
laboratory space in San Diego, California on a month to month basis, at a
monthly rental of $4,719.

     The Company currently occupies approximately 12,000 square feet of office
and light manufacturing space at its headquarters in Orlando, Florida, at a
monthly rent of $11,000 per month, on a month to month basis.  At December 31,
1997, the Company was delinquent in payment of approximately $469,000 of rental
obligations on such lease.

     The Company's Laser Analytics subsidiary occupies a 13,000 square foot
office and light manufacturing facility in Wilmington, Massachusetts, which
commenced in December, 1996, for a five-year period at $5,600 per month.

ITEM 3.   LEGAL PROCEEDINGS.

     The Company filed a Petition for Reorganization (the "Bankruptcy
Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May 13, 1994
(Case No. 94-02608-611 - Federal Bankruptcy Court - Middle District, Florida).
An order was issued on May 22, 1995 confirming the Company's Third Amended Plan
of Reorganization (the "Bankruptcy Reorganization").

     In connection with the Bankruptcy Reorganization, Helionetics, Inc.
("Helionetics") of Van Nuys, California, transferred to the Company ownership of
approximately 76% of the issued and outstanding common stock of AccuLase.
AccuLase was founded in 1985 for the purpose of commercializing products that
utilize its proprietary excimer laser and fiberoptic technologies. AccuLase has
focused primarily on the development of medical products for the treatment of
coronary heart disease.

     During the pendency of the Bankruptcy Proceeding, Helionetics contributed
$1,000,000 in cash to the Company, which funds were utilized for cash payments
under the Bankruptcy Reorganization.  Helionetics further loaned to the Company
$300,000 to fund the cost of research and development of the Company's excimer
lasers.  In connection with the Bankruptcy Reorganization: (i) Helionetics
received 3,750,000 shares of Common Stock of the Company,  which represented 75%
of the then total issued and outstanding shares of Common Stock, (ii) certain of
the Company's unsecured creditors received 1,000,000 shares of Common Stock,
which represented 20% of the then total issued and outstanding shares of Common
Stock, and (iii) the shares of Common Stock of the Company's prior existing
stockholders were cancelled and reissued into 250,000 shares of Common Stock,
which represented 5% of the then total issued and outstanding shares of Common
Stock.  As of the date of this Report, Helionetics does not own any shares of
the Company's Common Stock.

     In 1996, the Company entered into a consent decree with the Commission
where it neither admitted nor denied alleged securities law violations in 1992
and early 1993 under prior management, but consented to the issuance of an
injunction against any future violation. The alleged events occurred prior to
the Bankruptcy Reorganization and involve events, which occurred prior to the
change in the Company's management and directors. The current management and
directors have no connection with this proceeding. No monetary damages were
sought.


                                          23
<PAGE>


     In June, 1997, the Company was served with a complaint as defendant by
Riverboat Landing, Inc., plaintiff, in the County Court of the Eighteenth
Judicial Circuit, Seminole County, Florida regarding failed lease negotiations
for a facility in Sanford, Florida. The Company has filed a response and is
anticipating settlement out of court. The Company had placed a $10,000 deposit
on this facility which has been written off in 1996.

     Except as set forth above, the Company knows of no material legal actions,
pending or threatened, or judgment entered against the Company or any executive
officer or director of the Company in his capacity as such.


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

     As of February 4, 1998, the Company's stockholders adopted a resolution by
the written consent of 4,764,241 shares, or 51.36% of the issued and outstanding
Common Stock, for the purpose of increasing the authorized number of shares of
Common Stock of the Company from 10,000,000 shares to 15,000,000 shares.


                                       PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


     As of the date of this Report, the Company had 9,275,694 shares of Common
Stock issued and outstanding.  Further, the Company has issued and outstanding
options to purchase an additional 1,575,399 shares of Common Stock and Warrants
to purchase up to 900,000 shares of Common Stock.

     The Company's Common Stock is listed for trading in the Over-the-Counter
Market under the symbol "LSPT."  The Company's Common Stock, subsequent to the
confirmation of the Bankruptcy Reorganization  on May 22, 1995, has been quoted
on the Electronic Bulletin Board since approximately January 22, 1996 under the
stock symbol "LSPT".  The Company's "old" Common Stock, prior to the
confirmation of the Bankruptcy Reorganization, was also quoted on the Electronic
Bulletin Board in 1993, and during the period from May 13, 1994 to May 22, 1995,
during the pendency of the related Bankruptcy Proceeding, in the "pink sheets"
under the stock symbol "LAPHQ."


                                          24
<PAGE>


     The following table sets forth quotations for the bid and asked prices for
the Common Stock for the periods indicated below, based upon quotations between
dealers, without adjustments for stock splits, dividends, retail mark-ups,
mark-downs or commissions, and therefore, may not represent actual transactions:

<TABLE>
<CAPTION>


                                        BID PRICES                    ASKED PRICES
                                        ----------                    ------------

                                   HIGH           LOW                  HIGH           LOW
                                   ----           ---                  ----           ---
<S>                                <C>            <C>                 <C>            <C>
YEAR ENDED DECEMBER 31, 1996

 1st Quarter                       7 3/4          4 1/2               8 1/4          5 3/4
 2nd Quarter                       8 1/4          3 3/4               8 1/2          4 1/4
 3rd Quarter                       5 3/8          3 5/8               5 5/8          4
 4th Quarter                       3 11/16        11/16               4 1/8          13/16


YEAR ENDED DECEMBER 31, 1997

 1st Quarter                       2 9/32         5/16                2 5/16            3/8
 2nd Quarter                       1 5/16         5/16                1 7/16          13/32
 3rd Quarter                       4 3/8          7/8                 4 9/16          1 1/16
 4th Quarter                       6 1/8          2 31/32             6 3/8           3 1/8


YEAR ENDING DECEMBER 31, 1998

1st Quarter                        4 1/8          2 1/2               4 3/8          2 11/16
</TABLE>


     On April 13, 1998, the closing market price for the  Company's  Common
Stock in the Over-the-Counter Market was approximately $ 2.94 share.  As of
April 8, 1998, without giving effect to the number of stockholders whose shares
are held in "street name," the Company had approximately 1,063 stockholders of
record.

     No dividend has been declared or paid by the Company since inception on the
Company's Common Stock.  The Company does not anticipate that any dividends will
be declared or paid in the future on the Company's Common Stock.

     The transfer agent for the Common Stock is American Stock Transfer & Trust
Co., New York, New York.

RECENT SALES OF UNREGISTERED SECURITIES

     During 1997, the Company issued a total of 105,000 shares of Common Stock
to an outside consultant to the Company for legal services rendered. In
addition, the Company issued options to acquire 250,000 shares of Common Stock
at an exercise price of $0.50 per share and having a five year term, contingent
upon certain performance contingencies in the future, to Raymond A. Hartman.


                                          25
<PAGE>

     On July 1, 1997, the Company granted a total of 108,500 options at an
exercise price of $1.00 per share to certain employees and consultants.  On
October 21, 1997, the Company issued options to purchase up to 20,000 shares of
Common Stock at an exercise price of $1.00 per share to a former director of the
Company.  In October, 1997, in satisfaction of all compensation owed by the
Company to K.B. Equities, Inc. ("KB Equities"), an affiliate of Bernard Katz, a
former director and officer of the Company, and his wife, Susan Barnes, for
consulting services rendered to the Company in 1997, the Board of Directors
granted options to acquire 100,000 shares of  Common Stock to K.B. Equities at
an exercise price of $0.75 per share, and with a term of seven years.  Mr. Katz
resigned from the Board of Directors of the Company on October 9, 1997.

     In August, 1997, the Company issued options to purchase up to 211,899
shares of Common Stock to the following persons, who are currently officers and
directors of the Company, at an exercise price of $1.25 per share with a term of
five (5) years: (i) Chaim Markheim (20,250 options), (ii) Raymond A. Hartman
(20,250 options), (iii) Alan R. Novak (71,399 options), and (iv) John J. McAtee,
Jr. (100,000 Options).

     In April, 1998, the Company issued options to Chaim Markheim to purchase up
to 250,000 shares of common Stock at an exercise price of $2.875 per share with
a five (5) year term.

     In September and October, 1997, the Company privately sold a total of
679,500 restricted shares of Common Stock in a private placement to certain
accredited investors at a price of $1.25 per share. The Company sold an
additional 28,601 shares at a price of $1.25 per share in the first quarter of
1998.  These funds were used in part to pay outstanding accounts payable and to
make a partial payment on delinquent Federal and State taxes outstanding.

     In September, 1997, Pennsylvania Merchant Group, Ltd. ("PMG"), purchased
from Helionetics, with approval of the Federal Bankruptcy Court in the pending
Helionetics Chapter 11 Bankruptcy proceeding, all  debt owed by AccuLase to
Helionetics, for a purchase price of $1,000,000.  In October, 1997, the Company
purchased the debt owing by AccuLase, in the amount of $2,159,708 from PMG in
consideration of 800,000 shares of Common Stock.

     In November, 1997, the Company issued 1,500,000 shares of Common Stock and
750,000 Warrants, with an exercise price of $4.00 per share and a term of five
(5) years, in a private placement to certain accredited investors resulting in
gross proceeds of $6,000,000 to the Company.  The Company also issued 150,000
Warrants and paid a commission of $480,000 to PMG as a placement agent fee.

     The 3,008,101 shares and the 900,000 Warrants issued from September through
November, 1997 are, and the 28,601 shares  issued in 1998 are intended to be,
the subject of a currently pending Registration Statement filed with the
Commission.

     Except as otherwise provided above, the Company believes each of the
foregoing issuances of securities was made to accredited investors in
transactions exempt from registration under Section 4(2) of the Securities Act.

CERTAIN BUSINESS COMBINATIONS

     Delaware law contains a statutory provision, which is intended to curb
abusive takeovers of Delaware corporations.  The effect of such "anti-takeover"
provisions may delay, deter or prevent a takeover of the Company which the
stockholders may consider to be in their best interests, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of their securities at above-market prices, or limit the
ability of stockholders to remove incumbent directors as readily as the
stockholders may consider to be in their best interests.


                                          26
<PAGE>

     Section 203 of the Delaware General Corporation Law addresses the problem
by preventing certain business combinations of the corporation with interested
stockholders within three years after such stockholders become interested.
Section 203 provides, with certain exceptions, that a Delaware corporation may
not engage in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three (3) years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66-2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.  Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
or (ii) an affiliate or associate of the corporation and who was the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
at any time within the three (3) year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder.


                                          27
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

     The selected consolidated financial data for 1993 through 1997 set forth
below are derived from the audited and unaudited Consolidated Financial
Statements of the Company and Notes thereto.  The audited Consolidated Financial
Statements at December 31, 1997 and 1996 for the years ended December 31, 1997
and 1996, and the periods from January 1, 1995 to May 22, 1995 and May 23, 1995
to December 31, 1995, appear elsewhere in this Report.  The selected
consolidated financial data are qualified in their entirety by reference to, and
should be read in conjunction with, the Consolidated Financial Statements and
related notes and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" included elsewhere in this Report.

<TABLE>
<CAPTION>


                                                             The Periods From
                                                             ----------------
                        Year Ended                 May 23, 1995            January 1, 1995     Year Ended
                        December 31,               to Dec. 31,             to May 22,          December 31,
                    1997           1996               1995                 1995                1994                1993*
                    ----           ----               ----                 ----                ----                -----
<S>                <C>            <C>                 <C>                  <C>                <C>                 <C>
Revenues            $3,815,330     $2,901,454          $1,408,459          $1,241,814          $5,714,619          $6,090,159
Net income         ($2,307,101)   ($5,357,968)        ($2,123,814)         $4,839,456 (1)     ($2,233,829)        ($3,717,909)
  (loss)
Basic and          ($ 0.35)       ($ 0.95)            ($ 0.42)             (2)                (2)                 (2)
 diluted loss
 per share

At period end:

Total assets        $7,808,304     $3,195,082          $5,796,468          $1,714,844          $2,143,821          $4,511,304

Long-term           $  282,559     $  282,559          $  866,516            $      -           $       -          $3,872,200
 debt

Liabilities          $       -       $      -            $      -          $7,564,469          $7,929,852            $      -
 subject to
 compromise

Stockholders'       $4,929,152    ($2,089,928)         $  686,214         ($7,404,460)        ($6,643,063)        ($4,409,234)
 equity (deficit)
</TABLE>



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

*Derived from unaudited financial statements

(1) Includes extraordinary gain of $5,768,405.
(2) Not comparable due to the Bankruptcy Reorganization.


                                          28
<PAGE>

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

     THIS REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.  THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.  FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THIS REPORT, WHICH READERS OF THIS REPORT SHOULD
CONSIDER CAREFULLY.

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related Notes included elsewhere in
this Report.

OVERVIEW OF BUSINESS OPERATIONS

     The Company is engaged in the development of proprietary excimer laser and
fiberoptic equipment and techniques directed initially toward the treatment of
coronary heart disease and psoriasis, as well as other medical and non-medical
applications.  The Company also designs, develops, manufactures and markets
solid-state, diode and gas laser systems and accessories for use in both
"medical" and "scientific" applications.

     The Company filed a Petition for Reorganization (the "Bankruptcy
Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May 13, 1994
(Case No. 94-02608-611 - Federal Bankruptcy Court - Middle District, Florida).
An order was issued on May 22, 1995 confirming the Company's Third Amended Plan
of Reorganization (the "Bankruptcy Reorganization").

     In connection with the Bankruptcy Reorganization, Helionetics transferred
to the Company ownership of approximately 76% of the issued and outstanding
common stock of AccuLase. AccuLase was founded in 1985 for the purpose of
commercializing products that utilize its proprietary excimer laser and
fiberoptic technologies. AccuLase has focused primarily on the development of
medical products for the treatment of coronary heart disease.

     During the pendency of the Bankruptcy Proceeding, Helionetics contributed
$1,000,000 dollars in cash to the Company, which funds were utilized for cash
payments under the Bankruptcy Reorganization. Helionetics further loaned to the
Company $300,000 to fund the cost of research and development of the Company's
excimer lasers.   In connection with the Bankruptcy Reorganization: (i)
Helionetics received 3,750,000 shares of Common Stock of the Company,  which
represented 75% of the then total issued and outstanding shares of Common Stock,
(ii) certain of the Company's unsecured creditors received 1,000,000 shares of
Common Stock, which represented 20% of the then total issued and outstanding
shares of Common Stock, and (iii) the shares of Common Stock of the Company's
prior existing stockholders were cancelled and reissued into 250,000 shares of
Common Stock, which represented 5% of the then total issued and outstanding
shares of Common Stock.  As of the date of this Report, Helionetics does not own
any shares of the Company's Common Stock.

     The Company's strategy has changed in 1997 to focusing its efforts on the
Company's  excimer laser technology and expertise in order to develop a broad
base of laser and laser delivery products for both medical and non-medical
applications.

     The Company has entered into certain agreements with respect to the
manufacturing and marketing of its excimer lasers and delivery systems in 1997
with Baxter Healthcare Corporation and Massachusetts General Hospital.


                                          29
<PAGE>

     The Company's initial medical applications are intended to be used in the
treatment of cardiovascular disease and treatment of psoriasis. The current
cardiovascular and vascular applications are in an experimental procedure known
as Transmyocardial Revascularization ("TMR"), in which the Company's laser
system is currently in Phase I Human Clinical trials.   A proposed excimer laser
system to treat psoriasis is anticipated to commence during 1998 by going
through the first phase of Human Clinical trials to demonstrate the laser's
effectiveness as a replacement to current Ultraviolet Light Phototherapy being
used to control psoriasis.

     In the non-medical applications of the excimer laser technology, the
Company intends to  evaluate its technology as it applies as an illumination
source for use in the deep ultraviolet ("DUV") photolithography systems for the
semiconductor manufacturing industry. There can be no assurances that the
Company's excimer laser systems will be developed into marketable products.

     The Company's strategy is to apply its extensive solid-state and excimer
laser expertise to develop a broad base of laser products focused on medical and
non-medical applications. The Company believes that its excimer laser technology
provides the basis for reliable cost-effective systems that will increasingly be
used in connection with a variety of medical and non-medical applications.

     To facilitate the Company's new focus on excimer laser technology, in
October, 1997, the Company's Board of Directors authorized management to pursue
the sale or closure of the Company's non-excimer laser businesses.

     On April 8, 1998, the Company entered into a letter of intent with an
unaffiliated third party to sell the operational assets of the Company's
business operations conducted in Massachusetts and Florida.  The purchaser has
also agreed to assume certain liabilities of such business operations.  The
Company will retain its excimer lasers and laser delivery systems related to the
business operations of AccuLase in San Diego, California.  There can be no
assurances that the transactions contemplated by this letter of intent will be
completed on these terms or at all.

BASIS FOR PREPARATION OF FINANCIAL STATEMENTS.

     The consolidated financial statements filed elsewhere herein have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business, and, where
applicable, in conformity with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," issued in November,
1990, by the American Institute of Certified Public Accountants ("SOP 90-7").

     Under the provisions of SOP 90-7 and in connection with the confirmation of
the Bankruptcy Reorganization on May 22, 1995, the Company was required to adopt
fresh start reporting as of May 23, 1995 since the reorganization value
(approximate fair value at the date of reorganization) was less than the total
of all postpetition liabilities and allowed claims, and holders of existing
voting shares before May 23, 1995 received less than 50% of the voting shares of
the emerging entity.  Accordingly, the consolidated statements of operations for
the period from January 1, 1995 to May 22, 1995 reflects the effects of the
forgiveness of debt resulting from the confirmation of the Bankruptcy
Reorganization and the adjustments to restate assets and liabilities to reflect
the reorganization value.

     In adopting fresh start reporting, the Company was required to determine
its reorganization value, which represented the fair value of the Company before
considering liabilities and the approximate amount a willing buyer would pay for
the assets of the Company immediately after the Bankruptcy Reorganization.  The
reorganization value was based upon the consideration given by Helionetics to
acquire a 75% interest in the Company.  The purchase price of $1,894,122 was
determined based upon cash paid and the carrying value of the 76.1% interest in
AccuLase previously owned by Helionetics, which was transferred to the Company
in connection with the Bankruptcy Reorganization.


                                          30
<PAGE>

     All assets and liabilities were restated to reflect their reorganization
value in accordance with procedures specified in Accounting Principles Board
Opinion 16 "Business Combinations," as required by SOP 90-7.  The portion of the
reorganization value that could not be attributed to specific tangible or
identified intangible assets was classified as reorganization value in excess of
amounts allocable to identifiable assets ("Reorganization Goodwill") and was
being amortized over five years.  Because of the magnitude of the Company's
losses since emerging from the Bankruptcy Reorganization, the balance of the
Reorganization Goodwill was written off as of December 31, 1996.

     In addition, the accumulated deficit of the Company was eliminated and its
capital structure was recast in conformity with the Bankruptcy Reorganization.
As such, the consolidated balance sheets of the Company as of December 31, 1997
and 1996 and the consolidated statements of operations for the period from May
23, 1995 to December 31, 1995, and for the two (2) years ended  December 31,
1996 and 1997,  reflect  in effect a new entity for financial reporting
purposes, as of May 23, 1995, with assets, liabilities, and a capital structure
having carrying values not comparable with prior periods.  The consolidated
statements of operations for the period from January 1, 1995 to May 22, 1995
reflect that of the Company prior to May 23, 1995.

     Further, the Company's consolidated income statements for the years ended
December 31, 1997, 1996 and 1995, which form a part of the Company's
consolidated financial statements for such years, reflect the results of
operations of Laser Photonics and  Laser Analytics for the period from January
1, 1995 to May 22, 1995 and the consolidated results of operations of Laser
Photonics, Laser Analytics and AccuLase for the period from May 23, 1995 to
December 31, 1995 and the years ended December 31, 1996 and 1997.

     For purposes of the following discussion and analysis, the results of
operations for the years ended December 31, 1997 and 1996, presented herein,
reflect the consolidated results of operations of Laser Photonics, Laser
Analytics and AccuLase for the respective periods.  Further, for purposes of the
following discussion and analysis, the results of operations of Laser Photonics
and Laser Analytics for the period from January 1, 1995 to May 22, 1995 and the
consolidated results of operations of Laser Photonics, Laser Analytics and
AccuLase for the period from May 23, 1995 and December 31, 1995 have been
combined as one fiscal year and presented in comparison to the consolidated
results of operations of Laser Photonics, Laser Analytics and AccuLase for the
year ended December 31, 1996.  This method of presentation was set forth herein
to permit useful comparison with respect to the consolidated results of
operations of the Company between the one year periods ended December 31, 1997,
1996 and 1995, with certain matters affecting the Company's consolidated
statements of operations in such years arising from the Bankruptcy
Reorganization described below.


                                          31
<PAGE>

RESULTS OF OPERATIONS

     The following table presents selected consolidated financial information
stated as a percentage of revenues for the years ended December 31, 1997, 1996
and 1995:

<TABLE>
<CAPTION>

                                         YEAR ENDED DECEMBER 31,

                                   1997           1996           1995(1)
                                   ----           ----           -------
<S>                                <C>            <C>            <C>
Revenues                           100%            100%           100%
Cost of sales                       55              80             94
                                    --              --             --
Gross profit                        45              20              6
                                    --              --             --

Selling, general and
  administrative expenses           57              40             48
Research and development            18              30             35
Bad debt expense related to
  related party receivable           1              23             --
Writeoff of reorganization
  goodwill                          --              51             --
Depreciation and amortization       19              42             28
                                    --              --             --

Loss from operations               (50)           (166)          (105)
Other income (expense)             (10)            (19)           (10)
                                   ----            ----           ----
Loss before extraordinary item     (60)           (185)          (115)
Extraordinary item-gain
  from reorganization              --               --            218
Income tax expense                 --               --             --

                                   -----          ------          ----
Net income (loss)                  (60)%          (185)%          103%
                                   -----          ------          ----
                                   -----          ------          ----
</TABLE>


     RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER
31, 1996.  Total revenues for the year ended December 31, 1997 increased
approximately 32% to $3,815,330 from $2,901,454 for the year ended December 31,
1996.  Total revenues  for the years ended December 31, 1997 and 1996 primarily
consisted of sales of $2,960,330 and $2,901,454, in the respective years, of the
Company scientific and medical lasers from the operations of the Company's
Florida and Massachusetts facilities.  However, the Company generated revenues
in 1997 of $855,000 relating to the sale of its excimer lasers to Baxter and the
recognition of certain payments made by Baxter to commercialize the Company's
excimer lasers in connection with the Baxter Agreement, which did not occur in
1996, and which primarily resulted in the increased revenues for 1997 as
compared to 1996.

     Total costs and expenses during the year ended December 31, 1997 decreased
25% to $5,746,170 from $7,703,607 during the year ended December 31, 1996.
Total costs and  expenses include: (i) cost of sales, (ii) selling, general and
administrative expenses, (iii) research and development, (iv) depreciation and
amortization, and (v) certain bad debt expenses, as follows:



                                          32
<PAGE>

     Cost of sales during the year ended December 31, 1997 decreased
approximately 10% to $2,090,276 from $2,329,299 during the year ended December
31, 1996.  This decrease primarily resulted from increased efficiency in the
Company's focusing on the marketing of laser products with lower margins and the
purchasing of materials at  volume discounts due to improved relations with
vendors as part of the restructuring of cost controls instituted by new
management following the Bankruptcy Reorganization.

     As a result, cost of sales as a percentage of sales decreased to
approximately 55% in 1997 from 80% in 1996.

     Selling, general and administrative expenses during the year ended December
31, 1997 increased approximately 88% to $2,181,304 from $1,158,841 during the
year ended December 31, 1996.  This increase primarily resulted from: (i)
compensation of $671,323 recognized upon issuance of stock options and $95,625
of Common Stock issued as payment for professional services in 1997, as compared
to $326,250 of Common Stock issued as payment of a litigation settlement (and
recorded as rental expense) and employee compensation in 1996,  (ii) payment of
$71,000 in federal tax penalties in 1997 which did not occur in 1996, and (iii)
the increased focus of the Company's excimer laser business operations to
marketing in 1997 from research and development in 1996 in connection with the
execution of the Baxter Agreement in August, 1997.  The Company believes that
the issuance of securities as related to compensation and rental expenses and
the cash payment of tax penalties will be nonrecurring expenses in the future.

     Research and development during the year ended December 31, 1997 decreased
to $685,109 from $850,993 during the year ended December 31, 1996.  This
decrease primarily related to the Company's increased focus of the Company's
excimer laser business operations to marketing in 1997 from research and
development in 1996 in connection with the execution of the Baxter Agreement in
August, 1997.

     Bad debt expense related to related party receivables during the year ended
December 31, 1997 decreased to $48,000 from $662,775 during the year ended
December 31, 1996.  The Company incurred a bad debt expense of $662,775 in 1996
related to the write-off of a receivable from Helionetics and of $48,000 in 1997
related to the write-off of a receivable from a subsidiary of Helionetics.
These items will be nonrecurring expenses in the future.

     The Company incurred an expense of the write-off of Reorganization Goodwill
initially recognized in connection with the Bankruptcy Reorganization of
$1,486,823 during the year ended December 31, 1996, which did not occur during
the year ended December 31, 1997.  The Reorganization Goodwill recognized in
connection with the Bankruptcy Reorganization represented the portion of the
reorganization value that could not be attributed to specific tangible or
identified assets, which were being amortized over five (5) years.  The
Reorganization Goodwill was written-off as of December 31, 1996 because of the
magnitude of the Company's losses following the Bankruptcy Reorganization.

     Depreciation and amortization during the year ended December 31, 1997
decreased to $741,481 from $1,214,876 during the year ended December 31, 1996.
This decrease related to the reduction of $1,486,823 of Reorganization Goodwill
on the Company balance sheet as of December 31, 1996.

     Other expenses decreased during the year ended December 31, 1997 to
$372,361 from $558,815  during the year ended December 31, 1996.  This decrease
in other expenses between the respective years resulted primarily from increased
interest income of $52,280 in 1997 from none in 1996.

     As a result of the foregoing, the Company experienced a net loss of
$2,307,101 during the year ended December 31, 1997, as compared to a net loss of
$5,357,968 during the year ended December 31, 1996.  The Company also
experienced a net loss from operations of $1,930,840 during the year ended
December 31, 1997, as compared to a net loss  from operations of $4,802,153
during the year ended December 31, 1996.  See "Liquidity and Capital Resources."


                                          33
<PAGE>

     RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER
31, 1995.  Total revenues for the year ended December 31, 1996 increased
approximately 10% to $2,901,454 from $2,650,273 for the year ended December 31,
1995, which consisted of sales, in the respective years, of the Company
scientific and medical lasers from the operations of the Company's Florida and
Massachusetts facilities.  The Company did not generate any revenues in 1996 or
1995 relating to the sale of its excimer lasers in connection with the
operations of AccuLase.

     Total costs and expenses during the year ended December 31, 1996 increased
42% to $7,703,607 from $5,432,726 during the year ended December 31, 1995.
Total costs and  expenses include: (i) cost of sales, (ii) selling, general and
administrative expenses, (iii) research and development, (iv) depreciation and
amortization, and (v) certain bad debt expenses, as follows:

     Cost of sales during the year ended December 31, 1996 decreased
approximately 6% to $2,329,299 from $2,488,714 during the year ended December
31, 1995.  This decrease primarily resulted from increased efficiency in the
Company's focusing on the marketing of laser products with lower margins
instituted by new management following the Bankruptcy Reorganization.  Severe
cash flow restrictions in 1996 and 1995 limited the Company's ability to
purchase materials at volume discounts from vendors and to advertise and market
the Company's products.

     As a result, cost of sales as a percentage of sales decreased to
approximately 80% in 1996 from 94% in 1995.

     Selling, general and administrative expenses during the year ended December
31, 1996 decreased approximately 8% to $1,158,841 from $1,262,870 during the
year ended December 31, 1995.  This decrease primarily resulted from policies
instituted by new management of the Company following the Bankruptcy
Reorganization in May, 1995 to reduce selling, general and administrative
expenses, including reducing staff, budgeting and corporate planning.

     Research and development during the year ended December 31, 1996 decreased
to $850,993 from $942,232 during the year ended December 31, 1995.  Research and
development in each of 1996 and 1995 primarily related to the excimer laser
systems acquired through AccuLase following the Bankruptcy Reorganization in
May, 1995.  Research and development expenses incurred in connection with
product lines existing prior to the Bankruptcy Reorganization were focused on
reducing costs of existing products and product improvement.  Due to cash flow
limitations, management did not expend significant funds on new product
development, although several new versions of existing products were developed
for OEM application.

     Bad debt expense related to related party receivables during the year ended
December 31, 1996 increased to $662,775 from none during the year ended December
31, 1995.  The Company incurred a bad debt expense of $662,775 in 1996 related
to the write-off of a receivable from Helionetics.

     The Company incurred an expense of the write-off of Reorganization Goodwill
initially recognized in connection with the Bankruptcy Reorganization of
$1,486,823 during the year ended December 31, 1996, which  did not occur during
the year ended December 31, 1995.  The Reorganization Goodwill recognized in
connection with the Bankruptcy Reorganization represented the portion of the
reorganization value that could not be attributed to specific tangible or
identified assets, which were being amortized over five (5) years.  The
Reorganization Goodwill was written-off as of December 31, 1996 because of the
magnitude of the Company's losses following the Bankruptcy Reorganization.


                                          34
<PAGE>

     Depreciation and amortization during the year ended December 31, 1996
increased to $1,214,876 from $738,910 during the year ended December 31, 1995.
This increase principally related to the recognition of $205,000 of additional
amortization of Reorganization Goodwill on the Company's balance sheet following
the Bankruptcy Reorganization and $217,000 of additional amortization of
goodwill related to the acquisition of AccuLase.

     Other expenses increased during the year ended December 31, 1996 to
$558,815 from $270,310  during the year ended December 31, 1995.  This increase
in other expenses between the respective years resulted primarily from increased
interest expense of $392,000 in 1996 from $325,786 in 1995.

     As a result of the foregoing, the Company experienced a net loss of
$5,357,968 during the year ended December 31, 1996, as compared to net income of
$2,715,642 during the year ended December 31, 1995, after giving effect to a
gain of $5,768,405 arising from debt forgiveness in connection with the
Bankruptcy Reorganization in 1995.  The Company also experienced a net loss from
operations of $4,802,153 during the year ended December 31, 1996, as compared to
a net loss  from operations of $2,782,453 during the year ended December 31,
1995.  See "Liquidity and Capital Resources."

     LIQUIDITY AND CAPITAL RESOURCES.  At December 31, 1997, the ratio of
current assets to current liabilities was 1.01 to 1.00 compared to 0.42 to 1.00
at December 31, 1996.

     The Company has historically financed its operations through the use of
working capital provided from operations, loans and equity and debt financing to
the Company.  The Company's cash flow needs for the year ended December 31, 1997
were primarily provided from operations, loans and equity financing.

     The Company experienced severe cash flow problems during the first three
(3) quarters of 1997 and throughout 1996 and 1995.  These cash flow problems
limited the Company's ability to purchase materials and parts incorporated in
the Company's laser products, and further restricted the Company's ability to
purchase such materials at volume discounts, thereby reducing revenues from
potential sales and gross profits form concluded sales.  New management
instituted policies of cost controls, improved product selection, staff
reduction, budgeting and corporate planning in 1997, which have increased the
Company's business efficiencies, including decreases in cost of sales as a
percentage of sales, reduction in net losses and losses from operations and the
focusing on a business plan aimed at excimer laser products which management
believes has greater potential of success than the Company's laser products
preceding the Bankruptcy Reorganization.

     However, management's decision to sell the assets of the business
operations related to the Company's Massachusetts and Florida operations will
divest the Company of the business operations which have generated substantially
all sales revenues before December 31, 1997.

     Although the Company has developed strategic alliances with Baxter and
Massachusetts General Hospital related to the Company's excimer lasers, there
can be no assurances that the Company will ever develop significant revenues or
profitable operations with respect to this new business plan.

     The Company entered into a secured accounts receivable factoring agreement
(the "Factoring Agreement") in June, 1997 with Altres Financial L.P. ("Altres")
to  factor up to $600,000 in accounts receivable, with a minimum purchase volume
of $150,000 per month.  The base commission on amounts factored is 1.5% of the
face amount of each account for the first thirty (30) day period, plus an
additional 1.375% on the face amount of each account for every thirty (30) day
period or part thereof until payment of the account is received by Altres.  The
daily funds rate is the prime rate plus 3% divided by 360.  Altres may withhold
a reserve against the face value of accounts outstanding at its discretion.  The
obligation under the Factoring Agreement is the subject of a personal guarantee,
under certain circumstances, by Steven A. Qualls, a director and officer of the
Company, so long as Mr. Qualls remains an officer of the Company.  As of
December 31, 1997, the face amount of receivables sold was $160,235.


                                          35
<PAGE>

     In September and November, 1997, the Company privately sold a total of
679,500 shares of its Common Stock in a private placement at a price of $1.25
per share through the Company's investment banker, PMG.   The Company issued an
additional 28,601 shares in the first quarter of 1998 at a price of $1.25 per
share.  These funds were used in part to pay outstanding accounts payable and
delinquent federal and state taxes outstanding.

     During October, 1997, the Company purchased from a third party a note
payable of its subsidiary, AccuLase in the amount of $2,159,708 for 800,000
shares of Common Stock. The effect on the Company's financial statements reduced
long-term debt with a corresponding increase in stockholders' equity in the
amount of $2,159,708.

     In November, 1997, the Company issued 1,500,000 shares of Common Stock and
750,000 Warrants in connection with a private financing of $6,000,000 to the
Company through PMG.  The Company used $4,000,000 of these proceeds to acquire a
license from Baxter related to the Company's excimer lasers in connection with
the Baxter Agreement.

     Cash and cash equivalents were $1,225,932 as of December 31, 1997, as
compared to none as of December 31, 1996.  This increase was primarily
attributable to the series of equity financing by PMG and cash generated from
the Baxter Agreement in 1997.

     As of December 31, 1997, the Company had long-term borrowing in the
aggregate amount of $892,563, the current portion of which was $610,004.   As of
December 31, 1996, the Company had long-term borrowings of $979,012, the current
portion of which was $696,453 as of such date.  The decrease in long-term
borrowings relates to payments of scheduled obligations.

     Management believes that, based on the Company's current business plan, the
Company has sufficient operating capital to finance current levels of operations
for a period of at least thirteen (13) months following the date of this Report.
Management believes that the Company will require  working capital of
approximately $1,500,000 to $2,500,000 over at least the thirteen (13) months
following the date of this Report to continue to finance costs of current levels
of operations, including continued development of its products and meeting the
Company's obligations under the Baxter Agreement.  The Company has approximately
$750,000 of cash as of April 8, 1998.  Further,  management believes that
approximately $1,200,000 of anticipated revenues will  be generated from the
sale of lasers to Baxter under the Baxter Agreement.  However, there can be no
assurance to this effect.  Further, the sources and terms for the remainder of
such capital, if needed, are uncertain as of the date of this Report.

      The Company's ability to expand business operations is currently dependent
on financing from external sources. There can be no assurance that changes in
the Company's research and development plans or other changes affecting the
Company's operating expenses and business strategy will not result in the
expenditure of such resources before such time or that the Company will be able
to develop profitable operations prior to such date, or at all, or that the
Company will not require additional financing at or prior to such time in order
to continue operations and product development.  There can be no assurance that
additional capital will be available on terms favorable to the Company, if at
all.  To the extent that additional capital is raised through the sale of
additional equity or convertible debt securities, the issuance of such
securities could result in additional dilution to the Company's stockholders.
Moreover, the Company's cash requirements may vary materially from those now
planned because of results of research and development, product testing, changes
in the focus and direction of the Company's research and development programs,
competitive and technological advances, the level of working capital required to
sustain the Company's planned growth, litigation, operating results, including
the extent and duration of operating losses, and other factors.  In the event
that the Company experiences the need for additional capital, and is not able to
generate capital from financing sources or from future operations, management
may be required to modify, suspend or discontinue the business plan of the
Company.  See "Risk Factors."


                                          36
<PAGE>

SEASONAL FACTORS

     Seasonality is not a significant factor in medical laser sales. Budgetary
cycles and funding are spread out in various hospitals, chains and
organizations,  so that funding is not as cyclical as in the scientific laser
market.

     The scientific laser market is affected mainly by the government budget
cycle. A majority of the Company's scientific laser sales are funded by
government agencies, such as the National Science Foundation, the National
Institutes of Health, Department of Energy and Department of Defense. The second
and third quarters are typically the heaviest for booking orders. Approved
funding is usually allocated late in the first quarter or early in the second
quarter each year. The Company typically sees an increase in bookings at this
time. The government fiscal year ends on September 30 of each year. Bookings
typically increase at this time as researchers scramble to spend funding before
it is cut off.

IMPACT OF INFLATION

     The Company has not operated in a highly inflationary period and its
management does not believe that inflation has had a material effect on sales or
expenses.

YEAR 2000

     The Company has developed plans to address issues related to the impact on
its computer systems of the year 2000.  Financial and operational systems have
been assessed and plans have been developed to address systems modification
requirements.  The financial impact of making the required systems changes is
not expected to be material to the Company's consolidated financial position
liquidity and results of operations.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Consolidated balance sheets of Laser Photonics, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 and 1996, and the periods from May 23, 1995 through December 31, 1995, and
January 1, 1995 through May 22, 1995.

     The following Financial Statement Schedule is submitted herewith:  Schedule
II - Valuation and Qualifying Accounts.

     The financial statements and schedules required by this Item 8 are included
elsewhere in this Report and incorporated herein by this reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

     Not applicable.


                                          37
<PAGE>


                                       PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this item is incorporated by reference to the
information set forth under the caption "Proposal 1 - Election of Directors" and
"Executive Officers of the Company" of the registrant's Proxy Statement to be
used in connection with its 1998 Annual Meeting of Stockholders, to be filed
with the Securities and Exchange Commission on or prior to April 30, 1998.

ITEM 11.  EXECUTIVE COMPENSATION.

     The information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" of the
registrant's Proxy Statement to be used in connection with its 1998 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
on or prior to April 30, 1998.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

          The information required by this item is incorporated by reference to
the information set forth under the caption "Principal Securityholders" of the
registrant's Proxy Statement to be used in connection with its 1998 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
on or prior to April 30, 1998.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          The information required by this item is incorporated by reference to
the information set forth under the caption "Certain Transactions" of the
registrant's Proxy Statement to be used in connection with its 1998 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
on or prior to April 30, 1998.


                                          38
<PAGE>

                                       PART IV

ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K.

A.   FINANCIAL STATEMENTS

          1. Consolidated balance sheets of Laser Photonics, Inc. and
     subsidiaries as of December 31, 1997 and 1996, and the consolidated
     statements of operations, stockholders' equity (deficit) and cash flows
     for the years ended December 31, 1997 and 1996, and the periods from
     May 23, 1995 through December 31, 1995, and January 1, 1995 through
     May 22, 1995.

          2. Schedule II--Valuation and Qualifying Accounts.

B.   REPORTS ON FORM 8-K

     The Company did not file any reports on Form 8-K during the quarter ended
     December 31, 1997.

C.   OTHER EXHIBITS

     10.1      Agreements between the Company and Baxter Healthcare Corp.(1)
     27        Financial Data Schedules

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

(1). Filed as part of the Company's Annual Report on Form 10-K for the year
     ended December 31, 1996, and subject to a currently pending request for
     Confidential Treatment with the Commission.

                         DOCUMENTS INCORPORATED BY REFERENCE

     The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission.  Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549; at its New York
Regional Office, Suite 1300, 7 World Trade Center, New York, New York, 10048;
and at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such materials can be obtained from the
Public Reference Section of the Commission at its principal office in
Washington, D.C., at prescribed rates.  In addition, such materials may be
accessed electronically at the Commission's site on the World Wide Web, located
at http://www.sec.gov.  The Company intends to furnish its stockholders with
annual reports containing audited financial statements and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.

     Certain documents listed above, as exhibits to this Report on Form 10-K,
are incorporated by reference from other documents previously filed by the
Company with the Commission as follows:

<TABLE>
<CAPTION>

           PREVIOUS FILING                   EXHIBIT NUMBER
       INCORPORATED BY REFERENCE             IN FORM 10-K
       -------------------------             ------------
     <S>                                     <C>
     Form 10-K for the year ended                10.1
        December 31, 1996
</TABLE>


                                          39
<PAGE>


                                      SIGNATURES

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


                              LASER PHOTONICS, INC.


  Dated:  April 14, 1998    By:  /s/ Raymond A. Hartman
                                 --------------------------------------
                                 Raymond A. Hartman
                                 President, Chief Executive Officer and Director

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


                              LASER PHOTONICS, INC.


  Dated: April 14, 1998      By: /s/ Raymond A. Hartman
                                 --------------------------------------
                                 Raymond A. Hartman
                                 President, Chief Executive Officer and Director
                                 (Principal Executive Officer



  Dated: April 14, 1998      By: /s/ Chaim Markheim
                                 --------------------------------------
                                 Chaim Markheim
                                 Director, Chief Operating Officer and
                                 Chief Financial Officer (Principal Financial
                                 Officer and Principal Accounting Officer)



  Dated: April 14, 1998      By: /s/ Steven A. Qualls
                                 --------------------------------------
                                 Steven A. Qualls
                                 Director and Executive Vice President



  Dated: April 14, 1998      By: /s/ Alan R. Novak
                                 --------------------------------------
                                 Alan R. Novak
                                 Director



  Dated: April 14, 1998      By: /s/ John J. McAtee, Jr.
                                 --------------------------------------
                                 John J. McAtee, Jr.
                                 Director


                                          40

<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES


                          CONSOLIDATED FINANCIAL STATEMENTS
                                 FOR THE YEARS ENDED
                           DECEMBER 31, 1997, 1996 AND 1995

<PAGE>

                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





                                                                            PAGE

INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . F-2

CONSOLIDATED BALANCE SHEETS - December 31, 1997 and 1996 . . . . . . . . . . F-3

CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years ended
          December 31, 1997 and 1996, the Period from May 23, 1995
          through December 31, 1995, and the Period from January 1,
          1995 through May 22, 1995. . . . . . . . . . . . . . . . . . . . . F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - For the
          Years ended December 31, 1997 and 1996, and the Period from
          May 23, 1995 through December 31, 1995, and the Period from
          January 1, 1995 through May 22, 1995 . . . . . . . . . . . . . . . F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years ended
          December 31, 1997 and 1996, and the Period from May 23, 1995
          through December 31, 1995, and the Period from January 1, 1995
          through May 22, 1995 . . . . . . . . . . . . . . . . . . . . . . . F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-8


                                         F-1
<PAGE>

                             INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors
Laser Photonics, Inc. and Subsidiaries
San Diego, CA


We have audited the accompanying consolidated balance sheets of Laser Photonics,
Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended December 31, 1997 and 1996, and the periods
from May 23, 1995 through December 31, 1995, and January 1, 1995 through May 22,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Laser Photonics, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996,
and the periods from May 23, 1995 through December 31, 1995, and January 1, 1995
through May 22, 1995, in conformity with generally accepted accounting
principles.

As discussed in Note 1, on May 22, 1995, the U.S. Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization. Accordingly, the
accompanying consolidated financial statements have been prepared in conformity
with AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods.

Our audits referred to above include audits of the financial statement schedule
listed under Item 14(a)(2) of Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.




HEIN + ASSOCIATES LLP
Certified Public Accountants

Orange, California
February 18, 1998, except as to Note 13
       which is as of April 8, 1998


                                         F-2
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                        ------------------------
                                                            1997        1996
                                                        ----------- ------------
                                     ASSETS
CURRENT ASSETS:
<S>                                                     <C>         <C>
  Cash and cash equivalents                             $ 1,225,932 $     -
  Accounts receivable, net of allowance for doubtful
    accounts of $75,000 and $100,000 in 1997 and
    1996, respectively                                      343,465     383,435
  Inventories                                               951,209     891,011
  Prepaid expenses and other assets                          91,463       7,722
                                                        ----------- -----------
          Total current assets                            2,612,069   1,282,168

PROPERTY AND EQUIPMENT, net                                 141,432     294,842

PATENT COSTS, net of accumulated amortization of
  $23,965 and $15,612 in 1997 and 1996, respectively         60,833      67,260

PREPAID LICENSE FEE, net of accumulated amortization
  of $41,667                                              3,958,333       -

EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANY,
  net of accumulated amortization of $1,342,614 and
  $822,830 in 1997 and 1996, respectively                   995,955   1,515,739

OTHER ASSETS                                                 39,682      35,073
                                                        ----------- -----------

TOTAL ASSET                                             $ 7,808,304 $ 3,195,082
                                                        ----------- -----------
                                                        ----------- -----------

<CAPTION>
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
<S>                                                     <C>          <C>
  Notes payable - current portion                       $   610,004 $   696,453
  Accounts payable                                          859,559     698,286
  Accrued payroll and related expenses                      400,222     670,481
  Other accrued liabilities                                 631,808     945,791
  Deferred revenue                                           95,000       -
                                                        ----------- -----------

          Total current liabilities                       2,596,593   3,011,011

NOTES PAYABLE, less current portion                         282,559     282,559

DUE TO RELATED PARTY                                          -       1,991,440
                                                        ----------- -----------

          Total liabilities                               2,879,152   5,285,010
                                                        ----------- -----------

COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 12)             -           -

STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, $.01 par value; 15,000,000 shares
    authorized, 9,247,083 and 6,162,583 shares
    outstanding in 1997 and 1996, respectively               92,471      61,626
  Additional paid-in capital                             14,625,564   5,330,228
  Accumulated deficit                                    (9,788,883) (7,481,782)
                                                        ----------- -----------
          Total stockholders' equity (deficit)            4,929,152  (2,089,928)
                                                        ----------- -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    $ 7,808,304 $ 3,195,082
                                                        ----------- -----------
                                                        ----------- -----------
</TABLE>

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                          CONSOLIDATED FINANCIAL STATEMENTS.

                                         F-3
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         PERIOD FROM     PERIOD FROM
                                                                         MAY 23,1995      JANUARY 1,
                                            YEAR ENDED     YEAR ENDED         TO           1995 TO
                                           DECEMBER 31,   DECEMBER 31,   DECEMBER 31,      MAY 22,
                                               1997           1996           1995           1995
                                           ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>
REVENUES:
   Sales                                   $  2,960,330   $  2,901,454   $  1,408,459   $  1,241,814
   Other                                        855,000           -              -              -   
                                           ------------   ------------   ------------   ------------
                                              3,815,330      2,901,454      1,408,459      1,241,814
                                           ------------   ------------   ------------   ------------
COSTS AND EXPENSES:
   Cost of sales                              2,090,276      2,329,299      1,282,155      1,206,559
   Selling, general and
     administrative                           2,181,304      1,158,841        566,805        696,065
   Research and development                     685,109        850,993        806,021        136,211
   Bad debt expense related to
     related party receivable                    48,000        662,775           -              -   
   Write off of reorganization
     goodwill                                      -         1,486,823           -              -   
   Depreciation and amortization                741,481      1,214,876        695,900         43,010
                                           ------------   ------------   ------------   ------------
                                              5,746,170      7,703,607      3,350,881      2,081,845
                                           ------------   ------------   ------------   ------------

LOSS FROM OPERATIONS                         (1,930,840)    (4,802,153)    (1,942,422)      (840,031)
                                           ------------   ------------   ------------   ------------

OTHER INCOME (EXPENSE):
   Interest expense                            (386,069)      (392,000)      (150,109)      (175,677)
   Interest income                               52,280           -              -              -
   Other, net                                   (38,572)      (163,815)       (31,283)        86,759
                                           ------------   ------------   ------------   ------------

LOSS BEFORE INCOME TAX AND
   EXTRAORDINARY ITEM                        (2,303,201)    (5,357,968)    (2,123,814)      (928,949)

INCOME TAX EXPENSE                               (3,900)          -              -              -   
                                           ------------   ------------   ------------   ------------

LOSS BEFORE EXTRAORDINARY
   ITEM                                      (2,307,201)    (5,357,968)    (2,123,814)      (928,949)

   Extraordinary item - gain from
     reorganization                                -              -              -         5,768,405
                                           ------------   ------------   ------------   ------------

NET INCOME (LOSS)                          $ (2,307,101)  $ (5,357,968)  $ (2,123,814)  $  4,839,456
                                           ------------   ------------   ------------   ------------
                                           ------------   ------------   ------------   ------------

BASIC AND DILUTED LOSS PER
   SHARE                                   $      (0.35)  $      (0.95)  $      (0.42)
                                           ------------   ------------   ------------ 
                                           ------------   ------------   ------------ 

WEIGHTED AVERAGE SHARES                       6,531,190      5,619,668      5,000,000
                                           ------------   ------------   ------------
                                           ------------   ------------   ------------ 
</TABLE>

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                          CONSOLIDATED FINANCIAL STATEMENTS.


                                         F-4
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
            FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                  COMMON STOCK           ADDITIONAL
                                                            -------------------------     PAID-IN      ACCUMULATED
                                                              SHARES        AMOUNT        CAPITAL        DEFICIT         TOTAL
                                                            ----------  -------------  -------------  -------------  -------------
<S>                                                         <C>         <C>            <C>            <C>            <C>
BALANCES, January 1, 1995                                    6,312,112  $      63,121  $  11,318,259  $ (18,024,443)  $ (6,643,063)
   Net income                                                     -              -              -         4,839,456      4,839,456
   Elimination of old stockholders' interest and
      accumulated deficit                                   (6,312,112)       (63,121)   (11,318,259)    13,184,987      1,803,607
   Issuance of new shares                                    5,000,000         50,000      2,760,028           -         2,810,028
                                                            ----------  -------------  -------------  -------------  -------------

BALANCES, May 22, 1995                                       5,000,000         50,000      2,760,028           -         2,810,028
   Net loss                                                       -              -              -        (2,123,814)    (2,123,814)
                                                            ----------  -------------  -------------  -------------  -------------

BALANCES, December 31, 1995                                  5,000,000         50,000      2,760,028     (2,123,814)       686,214
   Conversion of convertible debentures
      and related accrued interest                             538,583          5,386        519,896           -           525,282
   Exercise of stock options                                   268,000          2,680        700,820           -           703,500
   Stock issued for prior year services                        148,500          1,485        171,640           -           173,125
   Stock issued for rent                                        30,000            300         59,700           -            60,000
   Stock issued as compensation                                177,500          1,775        264,475           -           266,250
   Capital contribution from Helionetics                          -              -           853,669            -          853,669
   Net loss                                                       -              -              -        (5,357,968)    (5,357,968)
                                                            ----------  -------------  -------------  -------------  -------------

BALANCES, December 31, 1996                                  6,162,583         61,626      5,330,228     (7,481,782)    (2,089,928)
   Sale of stock and warrants, net of expenses               2,179,500         21,795      6,237,282           -         6,259,077
   Stock issued for services                                   105,000          1,050         94,575           -            95,625
   Stock issued to purchase debt and
      accrued interest                                         800,000          8,000      2,151,708           -         2,159,708
   Capital contributions from Helionetics                         -              -           140,448           -           140,448
   Compensation recognized upon issuance
      of stock options                                            -              -           671,323           -           671,323
   Net loss                                                       -              -              -        (2,307,101)    (2,307,101)
                                                            ----------  -------------  -------------  -------------  -------------
BALANCES, December 31, 1997                                  9,247,083  $      92,471  $  14,625,564  $  (9,788,883) $   4,929,152
                                                            ----------  -------------  -------------  -------------  -------------
                                                            ----------  -------------  -------------  -------------  -------------
</TABLE>

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                          CONSOLIDATED FINANCIAL STATEMENTS.


                                     (continued)


                                         F-5
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                          PERIOD
                                                                                          Period           FROM
                                                                                           From         JANUARY 1,
                                                                                        May 23,1995        1995
                                                           YEAR ENDED     Year Ended      Through         THROUGH
                                                          DECEMBER 31,   December 31,   December 31,      MAY 22,
                                                              1997           1996           1995           1995
                                                          ------------   ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                      $ (2,307,101)  $ (5,357,968)  $ (2,123,814)  $  4,839,456
   Adjustments to reconcile net income (loss)
      to net cash used in operating activities:
      Depreciation and amortization                            741,581      1,214,876        695,900         43,010
      Write off of reorganization
         goodwill                                                 -         1,486,823           -              -   
      Bad debt expense related to
         related party receivable                               48,000        662,775           -              -   
      Allowance for doubtful accounts                          (25,000)          -          (141,200)        23,604
      Stock issued to pay interest                             168,268         25,282           -              -  
      Stock issued for services                                 95,625           -              -              -   
      Stock issued for rent                                       -            60,000           -              -   
      Stock issued as compensation                                -           266,250           -              -   
      Compensation recognized upon
         issuance of stock options                             671,323           -              -              -   
      Gain on sale of marketable
         securities                                               -              -           (86,759)          -   
      Gain on reorganization                                      -              -              -        (5,768,405)
      Changes in operating assets and
         liabilities:
            Accounts receivable                                 64,970       (127,066)       296,348         70,808
            Inventories                                        (60,198)       (35,147)       312,874        (31,422)
            Prepaid expenses and
               other assets                                    (88,350)        16,838         37,838        (10,552)
            Accounts payable                                   161,273         17,830        382,733         89,779
            Accrued payroll and
               related expenses                               (270,259)       317,923        167,940         33,928
            Other accrued liabilities                         (313,983)       440,995       (899,812)       693,704
            Deferred revenue                                    95,000           -              -              -   
            Due to parent company                                 -              -          (199,189)          -   
                                                          ------------   ------------   ------------   ------------
      Net cash used in operating activities                 (1,018,851)    (1,010,589)    (1,557,141)       (16,090)
                                                          ------------   ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisitions of property and equipment                      (37,541)       (16,024)        (4,702)       (17,286)
   Proceeds from disposal of property and
      equipment                                                 19,174           -              -              -   
   Proceeds from sale of marketable
      securities                                                  -              -           150,701           -   
   Acquisition of patents and licenses                      (4,001,926)          -           (11,845)          -   
   Advances to related parties                                 (48,000)      (292,900)          -              -   
                                                          ------------   ------------   ------------   ------------
      Net cash provided by (used in)
         investing activities                               (4,068,293)      (308,924)       134,154        (17,286)
                                                          ------------   ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of stock and warrants                  6,259,077           -              -         1,000,000
   Proceeds from notes payable                                  71,094         92,952        500,000           -   
   Payments on notes payable                                  (157,543)       (67,647)       (31,888)          -   
   Capital contributions from Parent Company                   140,448        529,622           -              -   
   Proceeds from exercise of stock options                        -           703,500           -              -   
                                                          ------------   ------------   ------------   ------------
      Net cash provided by financing
         activities                                          6,313,076      1,258,427        468,112      1,000,000
                                                          ------------   ------------   ------------   ------------
NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                          1,225,932        (61,086)      (954,875)       966,624


 CASH AND CASH EQUIVALENTS, beginning
   of period                                                      -            61,086      1,015,961         49,337
                                                          ------------   ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, end of
   period                                                 $  1,225,932   $       -      $     61,086   $  1,015,961
                                                          ------------   ------------   ------------   ------------
                                                          ------------   ------------   ------------   ------------
</TABLE>


                                     (CONTINUED)


                                         F-6
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF CASH FLOW
                                     (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                     PERIOD
                                                                                      Period          FROM
                                                                                       From         JANUARY 1,
                                                                                   May 23, 1995       1995
                                                       YEAR ENDED     Year Ended      Through        THROUGH
                                                      DECEMBER 31,   December 31,   December 31,     MAY 22,
                                                         1997           1996           1995           1995
                                                      -----------    -----------    -----------    -----------
<S>                                                   <C>            <C>           <C>             <C>
SUPPLEMENTAL DISCLOSURES OF CASH
   FLOW  INFORMATION:
   Cash paid during the year for:
      Interest                                        $   158,939    $   189,021    $   204,260    $   169,125
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
      Income taxes                                    $      -       $      -       $      -       $      -   
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
   Reorganization items:
      Elimination of old equity                       $      -       $      -       $      -       $ 8,500,961
      Record fixed assets at fair value                      -              -              -          (425,834)
      Contribution of AccuLase assets and
         liabilities                                         -              -              -           892,882
      Reorganization goodwill                                -              -              -         2,136,829
      Elimination of debt                                    -              -              -         6,343,613
      Other                                                  -              -              -           487,567
   Non-cash financing transactions:
      Conversion of convertible debentures
         to common stock                              $      -       $   500,000    $      -       $      -   
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
      Stock issued for accrued prior year
         services                                     $      -       $   173,125    $      -       $      -   
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
      Reclassification of Helionetics
         advances to Additional Paid-in
         capital                                      $      -       $   324,047    $      -       $      -   
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
      Stock issued to purchase debt and
         accrued interest                             $ 2,159,708    $      -       $      -       $      -   
                                                      -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------
</TABLE>

                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                          CONSOLIDATED FINANCIAL STATEMENTS.


                                         F-7
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND NATURE OF OPERATIONS:

     NATURE OF OPERATIONS - Laser Photonics, Inc. and subsidiaries (the Company)
     is principally engaged in the development, manufacture and marketing of
     laser systems and accessories for medical and scientific applications and,
     through its approximately 76% owned subsidiary, AccuLase, Inc., is
     developing excimer laser and fiber optic equipment and techniques directed
     toward the treatment of coronary heart disease.  

     As of December 31, 1995 and 1996, the Company was an approximately 75% and
     61% owned subsidiary of Helionetics, Inc. (Helionetics), respectively.
     During 1997, Helionetics sold 2,000,000 shares of the Company's common
     stock and the Company issued 3,084,500 new shares of common stock, thereby
     reducing Helionetics ownership to approximately 19% as of December 31,
     1997.

     BANKRUPTCY FILING AND PLAN OF REORGANIZATION - On May 13, 1994, the Company
     filed a voluntary petition of reorganization with the U.S. Bankruptcy Court
     in the Middle District of Florida for protection under Chapter 11 of
     Title 11 of the U.S. Bankruptcy Code.  The Company was subsequently
     authorized to conduct its business operations as a debtor-in-possession
     subject to the jurisdiction of the Bankruptcy Court.

     On May 22, 1995, the Company's Plan of Reorganization (the Plan) was
     confirmed by the Bankruptcy Court. The implementation of the terms of the
     Plan resulted in the Company's adoption of "fresh start" accounting as
     described in Statement of Position 90-7, "FINANCIAL REPORTING BY ENTITIES
     IN REORGANIZATION UNDER THE BANKRUPTCY CODE." The Plan included, among
     other things, the following provision:

          (a)  Helionetics paid the Company $1,000,000 in cash, $215,000 in
               expenses, and transferred to the Company all of Helionetics'
               rights and interest in and to 76.1% of the common stock of
               AccuLase, Inc. In addition, Helionetics committed to fund the
               cost of research and development of AccuLase's excimer laser
               technology for a minimum of two years from the effective date. In
               exchange for the foregoing consideration, the Company issued to
               Helionetics shares of the Company's new common stock such that,
               following the issuance of all stock to be issued under the Plan,
               Helionetics owned 75% of new common stock of the Company.

          (b)  In exchange for the forgiveness of certain unsecured debt, the
               Company issued to unsecured creditors shares of the Company's new
               stock such that, following the issuance of all new stock to be
               issued under the Plan, the unsecured creditors owned 20% of new
               common stock of the Company.

          (c)  The existing shareholders of the Company had their shares
               canceled in exchange for the issuance of shares of the Company's
               new common stock equal to 5% of the new common stock of the
               Company.


                                         F-8
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The acquisition of AccuLase has been accounted for as a purchase and the
     results of operations of AccuLase have been included in these consolidated
     financial statements since May 23, 1995.

     FRESH START REPORTING - Under the provisions of SOP 90-7, the Company is
     required to adopt fresh start reporting as of May 22, 1995 since the
     reorganization value (approximate fair value at the date of reorganization)
     was less than the total of all postpetition liabilities and allowed
     prepetition claims, and holders of existing voting shares before the
     effective date received less than 50% of the voting shares of the emerging
     entity. Accordingly, the statement of operations for the period ended May
     22, 1995 reflects the effects of the forgiveness of debt resulting from
     confirmation of the plan of reorganization and the effects of the
     confirmation of the Plan and the effects of the adjustments to restate
     assets and liabilities to reflect the reorganization value of reorganized
     Laser Photonics, Inc.

     In adopting fresh start reporting, the Company was required to determine
     its reorganization value, which represented the fair value of the entity
     before considering liabilities and approximated the amount a willing buyer
     would pay for the assets of the Company immediately after its emergence
     from Chapter 11 status.  The reorganization value was based upon the
     consideration given by Helionetics to acquire a 75% interest in the
     Company. The purchase price of $1,894,122 was determined based upon cash
     paid and the carrying value of the 76.1% interest in AccuLase owned by
     Helionetics.

     All assets and liabilities were restated to reflect their reorganization
     value in accordance with procedures specified in Accounting Principles
     Board Opinion 16 "Business Combinations" (APB 16) as required by SOP 90-7.
     The portion of the reorganization value that could not be attributed to
     specific tangible or identified intangible assets was classified as
     reorganization value in excess of amounts allocable to identifiable assets
     ("Reorganization Goodwill") and was being amortized over five years.
     Because of the magnitude of the Company's losses since emerging from
     bankruptcy the balance was written off as of December 31, 1996.

     In addition, the accumulated deficit of the Company was eliminated and its
     capital structure was recast in conformity with the approved plan. As such,
     the consolidated financial statements of the Company as of December 31,
     1995 and for the seven and one half months then ended represent that of the
     Successor Company which, in effect, is a new entity with assets,
     liabilities and a capital structure having carrying values not comparable
     with prior periods. The accompanying consolidated financial statements for
     the five and one half months ended May 22, 1995 represent that of the
     Predecessor Company.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
     statements include the accounts of the Company and its subsidiaries, Laser
     Analytics, Inc., and AccuLase, Inc. All significant intercompany balances
     and transactions have been eliminated in consolidation. 

     STATEMENT OF CASH FLOWS - For purposes of the statements of cash flows, the
     Company considers all highly liquid debt instruments purchased with an
     original maturity of three months or less to be cash equivalents.


                                         F-9
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     IMPAIRMENT OF LONG-LIVED ASSETS - In the event that facts and circumstances
     indicate that the cost of long-lived assets may be impaired, an evaluation
     of recoverability would be performed. If an evaluation is required, the
     estimated future undiscounted cash flows associated with the asset would be
     compared to the asset's carrying amount to determine if a write-down to
     market value or discounted cash flow value is required.

     STOCK BASED COMPENSATION - The Company has elected to follow Accounting
     Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
     (APB25) and related interpretations in accounting for its employee stock
     options. In accordance with FASB Statement No. 123 "Accounting for
     Stock-Based Compensation" (FASB123), the Company will disclose the impact
     of adopting the fair value accounting of employee stock options.
     Transactions in equity instruments with non-employees for goods or services
     have been accounted for using the fair value method as prescribed by
     FASB123.

     REVENUE RECOGNITION - Revenues are recognized upon shipment of products to
     customers. Deferred revenue relates to payments received under the Baxter
     Agreement (See Note 12) and is being recognized as research and development
     costs are incurred. 

     INVENTORIES - Inventories are stated at the lower of cost or market,
     determined by the first-in, first-out method. 

     PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
     Depreciation of property and equipment is calculated using the
     straight-line method over the estimated useful lives (ranging from 3 to 7
     years) of the respective assets. The cost of normal maintenance and repairs
     is charged to operating expenses as incurred. Material expenditures which
     increase the life of an asset are capitalized and depreciated over the
     estimated remaining useful life of the asset. The cost of properties sold,
     or otherwise disposed of, and the related accumulated depreciation or
     amortization are removed from the accounts, and any gains or losses are
     reflected in current operations.

     INTANGIBLE ASSETS - Patents and license fees are carried at cost less
     accumulated amortization which is calculated on a straight-line basis over
     the estimated useful lives of the assets, which range from eight to twelve
     years. Reorganization goodwill represents the portion of the reorganization
     value that could not be attributed to specific tangible or identified
     intangible assets. The balance was being amortized over 5 years. Because of
     the magnitude of the Company's losses since emerging from bankruptcy, the
     balance of $1,486,823 was written off as of December 31, 1996.

     Excess of cost over net assets of acquired company represents the goodwill
     recorded by Helionetics for the purchase of AccuLase that has been "pushed
     down" to the Company. The balance is being amortized using a straight-line
     basis over 5 years.

     ACCRUED WARRANTY COSTS - Estimated warranty costs are provided for at the
     time of sale of the warranted product. The Company extends warranty
     coverage for one year from the time of sale.

     USE OF ESTIMATES - The preparation of the Company's consolidated financial
     statements in conformity with generally accepted accounting principles
     requires the Company's management to make estimates


                                         F-10
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     and assumptions that affect the amounts reported in these financial
     statements and accompanying notes.  Actual results could differ from those
     estimates. 

     The Company's financial statements are based upon a number of significant
     estimates, including the allowance for doubtful accounts, obsolescence of
     inventories, the estimated useful lives selected for property and equipment
     and intangible assets, realizability of deferred tax assets, estimated
     future warranty costs, penalties and interest for delinquent payroll taxes
     and penalties for ERISA violations. Due to the uncertainties inherent in
     the estimation process, it is at least reasonably possible that these
     estimates will be further revised in the near term and such revisions could
     be material.

     RESEARCH AND DEVELOPMENT - Research and development costs are charged to
     operations in the period incurred.

     CONCENTRATIONS OF CREDIT RISK - Credit risk represents the accounting loss
     that would be recognized at the reporting date if counterparties failed
     completely to perform as contracted. Concentrations of credit risk (whether
     on or off balance sheet) that arise from financial instruments exist for
     groups of customers or counterparties when they have similar economic
     characteristics that would cause their ability to meet contractual
     obligations to be similarly effected by changes in economic or other
     conditions described below. In accordance with FASB Statement No. 105,
     DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
     OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
     CREDIT RISK, the credit risk amounts shown do not take into account the
     value of any collateral or security.  

     The Company operates primarily in one industry segment and a geographic
     concentration exists because the Company's customers are generally located
     in the United States. Financial instruments that subject the Company to
     credit risk consist principally of accounts receivable.

     As of December 31, 1997, the Company maintained cash in banks that was
     approximately $1,046,000 in excess of the federally insured limit.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values for
     financial instruments under FAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF
     FINANCIAL INSTRUMENTS, are determined at discrete points in time based on
     relevant market information. These estimates involve uncertainties and
     cannot be determined with precision. The estimated fair values of the
     Company's financial instruments, which includes all cash, accounts
     receivables, accounts payable, long-term debt, and other debt, approximates
     the carrying value in the financial statements at December 31, 1997.

     INCOME TAXES - The Company accounts for income taxes in accordance with
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes."  Under the asset and liability method of Statement 109, deferred
     tax assets and liabilities are recognized for the future tax consequences
     attributable to differences between the financial statement carrying
     amounts of existing assets and liabilities and their respective tax bases.
     Deferred tax assets and liabilities are measured using enacted tax rates
     expected to apply to taxable income in the years in which those temporary
     differences are expected to be recovered or settled. Under Statement 109,
     the effect on deferred tax assets and liabilities of a change in tax rates
     is recognized in income in the period that includes the enactment date.


                                         F-11
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     LOSS PER COMMON AND COMMON EQUIVALENT SHARES - In February 1997, the
     Financial Accounting Standards Board issued a new statement titled
     "Earnings per Share" ("FASB128"). The new statement is effective for both
     interim and annual periods ending after December 15, 1997. FASB128 replaces
     the presentation of primary and fully diluted earnings per share with the
     presentation of basic and diluted earnings per share. Basic earnings per
     share excludes dilution and is calculated by dividing income available to
     common stockholders by the weighted-average number of common shares
     outstanding for the period. Diluted earnings per share reflects the
     potential dilution that could occur if securities or other contracts to
     issue common stock were exercised or converted into common stock or
     resulted in the issuance of common stock that then shared in the earnings
     of the entity. Common stock equivalents as of December 31, 1997, 1996 and
     1995 were anti-dilutive and excluded in the earnings per share computation.
     The earnings (loss) per share prior to reorganization is not presented as
     the results are not meaningful due to debt discharge, the issuance of new
     common stock and fresh start reporting.

     IMPACT OF RECENTLY ISSUED STANDARDS - The Financial Accounting Standards
     Board has issued Statement of Financial Accounting Standards 130,
     "Reporting Comprehensive Income" and Statement of Financial Accounting
     Standards 131 "Disclosures About Segments of an Enterprise and Related
     Information." Statement 130 establishes standards for reporting and display
     of comprehensive income, its components and accumulated balances.
     Comprehensive income is defined to include all changes in equity except
     those resulting from investments by owners and distributions to owners.
     Among other disclosures, Statement 130 requires that all components of
     comprehensive income shall be classified based on their nature and shall be
     reported in the financial statements in the period in which they are
     recognized. A total amount for comprehensive income shall be displayed in
     the financial statements where the components of other comprehensive income
     are reported. Statement 131 supersedes Statement of Financial Accounting
     Standards 14 "Financial Reporting for Segments of a Business Enterprise."
     Statement 131 establishes standards on the way that public companies report
     financial information about operating segments in annual financial
     statements issued to the public. It also establishes standards for
     disclosures regarding products and services, geographic areas and major
     customers. Statement 131 defines operating segments as components of a
     company about which separate financial information is available that is
     evaluated regularly by the chief operating decision maker in deciding how
     to allocate resources and in assessing performance.

     Statements 130 and 131 are effective for financial statements for periods
     beginning after December 15, 1997 and require comparative information for
     earlier years to be restated. Because of the recent issuance of these
     standards, management has been unable to fully evaluate the impact, if any,
     the standards may have on the future financial statement disclosures.
     Results of operations and financial position, however, will be unaffected
     by implementation of these standards.


                                         F-12
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   BASIS OF PRESENTATION:

     As shown in the accompanying financial statements, the Company has reported
     significant net losses for the periods ended December 31, 1997, 1996 and
     1995 resulting in an accumulated deficit of $9,788,883 as of December 31,
     1997.

     During 1997, the Company took steps to mitigate the losses and enhance its
     future viability, as follows: AccuLase entered into a Master Technology
     Agreement with Baxter Healthcare Corporation (see Note 12) under which
     AccuLase has received $950,000 and will receive an additional $600,000 plus
     purchase commitments and future royalty payments. Also during 1997, the
     Company sold 2,179,500 shares of common stock for net proceeds of
     $6,294,077 and issued 800,000 shares of common stock to purchase debt of a
     subsidiary in the amount of $2,159,708. Finally, the Company's Board of
     Directors  authorized management to pursue the sale of the assets of Laser
     Photonics, Inc. and Laser Analytics, Inc. or consider the closure of their
     operations. Management believes that these actions will allow the Company
     to continue as a going concern.


4.   INVENTORIES:

     Inventories are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                     --------------------------
                                                         1997          1996
                                                     -----------   ------------
          <S>                                        <C>           <C>
          Raw materials                              $ 1,255,107   $  1,306,420
          Work-in-process                                435,854        456,330
          Finished goods                                  79,772        124,560
                                                     -----------   ------------
                                                       1,770,733      1,887,310
          Allowance for obsolescence                                           
                                                        (819,524)      (996,299)
                                                     -----------   ------------
                                                     $   951,209   $    891,011
                                                     -----------   ------------
                                                     -----------   ------------
</TABLE>

5.   PROPERTY AND EQUIPMENT:

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                     --------------------------
                                                         1997           1996
                                                     -----------   ------------
          <S>                                        <C>           <C>
          Machinery and equipment                    $   248,439   $    651,471
          Furniture and fixtures                          53,708         32,753
                                                     -----------   ------------
                                                         302,147        684,224
          Less accumulated depreciation                 (160,715)      (389,382)
                                                     -----------   ------------
                                                     $   141,432   $    294,842
                                                     -----------   ------------
                                                     -----------   ------------

</TABLE>


                                         F-13
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   OTHER ACCRUED LIABILITIES:

     Other accrued liabilities consists of the following:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                  ----------------------------
                                                      1997            1996
                                                  ------------    ------------
           <S>                                    <C>             <C>
           Customer deposits                      $     76,588    $    308,408
           Accrued professional fees                      -            127,842
           Accrued property taxes                      111,962         113,721
           Other accrued liabilities                   443,258         395,820
                                                  ------------    ------------
                                                  $    631,808    $    945,791
                                                  ------------    ------------
                                                  ------------    ------------
</TABLE>

7.   NOTES PAYABLE, LONG-TERM DEBT, AND CONVERTIBLE DEBENTURES:

     Notes payable and long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                       ------------------------
                                                           1997         1996
                                                       ------------  ----------
     <S>                                               <C>           <C>
     Notes payable - unsecured creditors, interest at
     prime rate, quarterly interest only payments
     beginning October 1, 1995, principal due 
     October 1, 1999, unsecured.                       $    282,559  $  282,559

     Notes payable - unsecured creditors, interest at
     prime rate, quarterly interest only payments
     beginning October 1, 1995, principal due 
     October 1, 1999, unsecured.  Payments past due.        165,298     165,298

     Note payable - creditor, interest at 10%, 
     monthly interest only payments through 
     May 5, 1997, thereafter monthly interest and
     principal payments of $6,384 through May 1999,
     unsecured.  Payments past due.                         127,860     138,368

     Note payable - U.S. Treasury, interest at 9%,
     payable in monthly principal and interest
     installments of $5,000 through December 1999,
     unsecured.  Payments past due.                         131,094     158,387

     Notes payable - various creditors, interest at 9%,
     payable in various monthly principal and interest
     installments through July 2000, unsecured.  
     Payments past due.                                     100,726      69,234

     Note payable - creditor, interest at 9%, payable 
     in monthly principal and interest installments of
     $1,258 through January 2001, collateralized by
     personal property of the Company.  Payments past
     due.                                                    48,804      50,583

</TABLE>


                                         F-14
<PAGE>
                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                       ------------------------
                                                           1997         1996
                                                       ------------  ----------
<S>                                                    <C>           <C>
     Note payable - bank, interest at 9.75%, payable 
     in monthly principal and interest installments 
     of $636 through February 1999, unsecured.  
     Payments past due.                                       -          21,641

     Note payable - factor, interest at 36.5%, due on
     demand, secured by all assets of the Company
     (Note 12).                                               -          76,150

     Note payable - other, no interest, due on 
     demand, unsecured.                                      36,222      16,792
                                                       ------------  ----------
                                                            892,563     979,012
     Less current maturities                               (610,004)   (696,453)
                                                       ------------  ----------
                                                       $    282,559  $  282,559
                                                       ------------  ----------
                                                       ------------  ----------
</TABLE>

     As a result of the past due payments on some of the notes listed above, the
     notes are callable at the option of the holder. Therefore, these notes have
     been classified as current. Aggregate maturities required on long-term debt
     at December 31, 1997 are due in future years as follows:

<TABLE>
               <S>                                     <C>
               1999                                    $    282,559
                                                       ------------

                                                       $    282,559
                                                       ------------
                                                       ------------
</TABLE>

     In July and November 1995, the Company sold an aggregate of $500,000 in six
     month convertible, secured notes in a private transaction to four offshore
     corporations. Of the resulting proceeds, $300,000 was retained by the
     Company, $100,000 was paid to Helionetics in compensation for its corporate
     guarantee and pledge of collateral, and $100,000 was paid to Helionetics
     toward the accruing Helionetics debt owed by the Company to Helionetics.
     The notes bear interest at 12% per annum, with principal and interest all
     due and payable on maturity. The notes were collateralized by the corporate
     guarantee of Helionetics, the Company's parent, coupled with a pledge of
     300,000 shares of Tri-lite, Inc. (a subsidiary of Helionetics) stock and
     500,000 shares of the Company's common stock held by Helionetics.The notes
     provide that the holders may convert into an aggregate of 512,500 shares of
     the common stock of the Company, at a conversion price of $0.96 per share.
     In January and April 1996, the notes were converted to shares of common
     stock of the Company.


8.   DUE TO/FROM PARENT COMPANY:

     The amounts financed by Helionetics are due on demand with interest at the
     prime rate plus 2%. Helionetics is a defendant in class action litigation
     seeking substantial damages allegedly resulting from the purported
     violation of Federal securities laws. In the opinion of management of
     Helionetics, the ultimate outcome of these actions will not have a material
     impact on the Company's financial statements.

     During April 1997, Helionetics filed a voluntary petition of reorganization
     with the U.S. Bankruptcy Court in the Central District of California for
     protection under Chapter 11 of Title 11 of the U.S.


                                         F-15
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Bankruptcy Code. As a result, the Company wrote off its $662,775 receivable
     from Helionetics as of December 31, 1996.

     On September 30, 1997, an investment banker purchased from the Helionetics
     bankruptcy estate the note payable from Acculase to Helionetics in the
     amount of $2,159,708 including accrued interest. During October 1997, the
     investment banker sold such note to the Company for 800,000 shares of the
     Company's common stock.


9.   STOCKHOLDERS' EQUITY:

     In conjunction with the issuance of convertible notes payable in 1995, the
     Company granted to the note holders a transferable one year option to
     purchase 375,000 additional shares of the Company's common stock,
     exercisable 134,000 shares at $2.25 per share, 134,000 shares at $3.00 per
     share, and 107,000 shares at $3.75 per share. Shares deliverable upon
     option exercise are to be provided either by the Company as new issuance
     shares, or by Helionetics out of the block of shares it holds for
     investment, at the sole option of Helionetics. During July and August of
     1996, 268,000 of these options were exercised. New shares were issued for
     proceeds of $703,500. The remaining 107,000 options expired during 1996.

     On January 2, 1996, the Company adopted the 1995 Non-Qualified Option Plan
     for key employees, officers, directors, and consultants, and provided for
     up to 500,000 options to be issued thereunder. The option exercise price
     shall not be less than 100% of market value on the date granted, 40% of
     granted options vest immediately and may be exercised immediately; 30% vest
     and may be exercised beginning 12 months after grant; and the remaining 30%
     vest and may be exercised beginning 24 months from grant. 

     No options may be exercised more than 10 years after grant, options are not
     transferable (other than at death), and in the event of complete
     termination "for cause" (other than death or disability) or "voluntary"
     termination, all "unvested" options automatically terminate. 

     In January 1996, the Board approved the grant of options to certain key
     employees and consultants, to purchase 335,000 shares of common stock under
     the 1995 Non-Qualified Option Plan. On the date of grant, 110,000 options
     were vested and the balance will vest over two years. The options were
     granted with an exercise price of $1.50 per share and are exercisable
     through January 2006.

     In February 1996, the Board approved the issuance of 50,000 shares of
     common stock to the Company's chairman for consulting services rendered,
     and 98,500 shares of common stock and options to purchase 62,500 shares of
     common stock to consultants for services rendered. The options were granted
     with an exercise price of $2.50 per share, are fully vested and are
     exercisable through February 2001. The accompanying financial statements
     include expense of $173,125 as of December 31, 1995, representing the
     agreed-upon value of the services rendered.

     In October 1996, the Board approved the issuance of 125,000 shares of
     common stock to the Company's chairman for consulting services rendered and
     52,500 shares of common stock to employees and


                                         F-16
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     consultants for services rendered. The Company has recognized $266,250 in
     compensation expense related to these services for the year ended December
     31, 1996.

     During May 1997, the Board granted options to purchase 250,000 shares of
     common stock at $0.50 per share to the Company's president. The options
     vest immediately and expire in May 2002. The Company has recognized $62,500
     in compensation expense related to these options for the year ended
     December 31, 1997.

     On July 1, 1997, the Board approved the grant of options to certain
     employees and consultants to purchase 108,500 shares of common stock at an
     exercise price of $1.00 per share. The options vest immediately and expire
     in July 2007. The Company has recognized $56,030 in compensation expense
     related to these options for the year ended December 31, 1997.

     During August 1997, the Board granted options to purchase 211,899 shares of
     common stock at $1.25 per share to certain officers and directors of the
     Company. The options vest immediately and expire in August 2002. The
     Company has recognized $172,168 in compensation expense related to these
     options for the year ended December 31, 1997.

     In August 1997, the Company's board of directors authorized the sale of
     750,000 shares of common stock at $1.25 per share through an investment
     banker ("the investment banker") pursuant to Regulation D under the
     Securities Act of 1933. As of December 31, 1997, the Company has sold
     679,500 shares of common stock for $849,375.

     In October 1997, the Company's board of directors authorized the sale of
     1,500,000 shares of common stock at $4.00 per share through an investment
     banker ("the investment banker") pursuant to Regulation D under the
     Securities Act of 1933. Each share issued had attached a share purchase
     warrant to purchase a share of common stock for each two shares purchased
     in the offering for a period of five years at $4.00 per share. As of
     December 31, 1997, the Company has sold 1,500,000 shares of common stock
     for $6,000,000. In connection with this sale, the Company granted the
     investment banker warrants to purchase 150,000 and up to an additional
     75,000 shares of common stock at $4.00 per share for a period of five
     years.

     On October 10, 1997, the Board granted options to a former director to
     purchase 100,000 shares of common stock at an exercise price of $0.75. On
     October 31, 1997, the Board granted options to a former director to
     purchase 20,000 shares of common stock at an exercise price of $1.00. These
     options vest immediately and expire in October 2004. The Company has
     recognized $380,625 as compensation expense related to these options for
     the year ended December 31, 1997.


                                         F-17
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     A summary of option transactions during 1995, 1996 and 1997 follows:

<TABLE>
<CAPTION>
                                                                   WEIGHTED
                                               NUMBER OF       AVERAGE EXERCISE
                                                SHARES               PRICE
                                             -------------     ----------------
     <S>                                     <C>               <C>
     Outstanding at January 1, 1995                 -          $          -
          Granted                                 375,000                 3.00
          Expired/canceled                          -                     -
                                             ------------      ---------------

     Outstanding at December 31, 1995             375,000                 3.00
          Granted                                 397,500                 1.66
          Exercised                              (268,000)                2.63
          Expired/canceled                       (107,000)                3.75
                                             ------------      ---------------

     Outstanding at December 31, 1996             397,500                 1.66
          Granted                                 690,399                 0.86
          Expired/canceled                          -                     -  
                                             ------------      ---------------


     Outstanding at December 31, 1997           1,087,899      $          1.00
                                             ------------      ---------------
                                             ------------      ---------------
</TABLE>

     At December 31, 1997, options to purchase 975,399 shares were exercisable
     at prices ranging from $0.50 to $2.50 per share. The remaining 112,500
     options outstanding become exercisable in 1998 at $1.50 per share.

     As stated in Note 2, the Company has not adopted the fair value accounting
     prescribed by FASB123 for employees. Had compensation cost for stock
     options issued to employees been determined based on the fair value at
     grant date for awards in 1997 and 1996 consistent with the provisions of
     FASB123, the Company's net loss and net loss per share would have increased
     to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                         --------------------------------------
                                                1997                 1996
                                         -----------------    -----------------
     <S>                                 <C>                  <C>
     Net loss                            $     (2,965,259)    $     (5,502,273)
                                         -----------------    -----------------
                                         -----------------    -----------------
     Net loss per share                  $          (0.45)    $          (0.98)
                                         -----------------    -----------------
                                         -----------------    -----------------
</TABLE>

     The fair value of each option is estimated on the date of grant using the
     present value of the exercise price and is pro-rated based on the percent
     of time from the grant date to the end of the vesting period. The weighted
     average fair value of the options granted during 1997 and 1996 was $1.75
     and $1.08, respectively. The following assumptions were used for grants in
     1997: risk-free interest rate equal to the yield on government bonds and
     notes with a maturity equal to the expected life for the month the options
     were granted; expected lives of two years; dividend yield of 0%; and
     expected volatility of 134%. The following assumptions were used for grants
     in 1996: risk-free interest rate of 4.9%; expected lives of two years;
     dividend yield of 0%; and expected volatility of 148%.


                                         F-18
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     AccuLase has reserved 800,000 shares of its common stock for issuance under
     a noncompensatory employee stock option plan. Options are exercisable over
     a period of up to ten years from the date of grant. During 1993 and 1992,
     5,000 and 28,500 options were granted at an exercise price of $.10 and
     $2.80 per share, respectively. At December 31, 1997, all outstanding
     options are exercisable.

     On February 4, 1998, the majority of the stockholders of the Company voted
     to increase the authorized number of common shares to 15,000,000.


10.  INCOME TAXES:

     Income tax expense (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                                       PERIOD FROM   PERIOD FROM
                                                       MAY 23,1995    JANUARY 1,
                            YEAR ENDED    YEAR ENDED       TO          1995 TO
                           DECEMBER 31,  DECEMBER 31,  DECEMBER 31,    MAY 22,
                               1997         1996          1995          1995
                            ----------   -----------   -----------   -----------
     <S>                   <C>           <C>           <C>           <C>
     Current
          Federal           $     -      $      -      $      -      $      -
          State                  3,900          -             -             -
                            ----------   -----------   -----------   -----------
                                 3,900          -             -             -
                            ----------   -----------   -----------   -----------
     Deferred
          Federal                 -             -             -             -
          State                   -             -             -             -
                            ----------   -----------   -----------   -----------
                                  -             -             -             -
                            ----------   -----------   -----------   -----------
     Income tax expense     $    3,900   $      -      $      -      $      -
                            ----------   -----------   -----------   -----------
                            ----------   -----------   -----------   -----------
</TABLE>


                                         F-19
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The tax effect of temporary differences that give rise to significant
     portions of the deferred tax assets and liabilities are presented below:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                       -----------------------
                                                          1997         1996
                                                       -----------  ----------
<S>                                                    <C>          <C>
Deferred tax assets (liabilities):
   Accounts receivable, principally due to allowances
       for doubtful accounts                           $    29,000  $   37,000
   Tax credit carryforwards                                329,000     283,000
   Compensated absences, principally due to accrual 
       for financial reporting purposes                      8,000       2,000
   Warranty reserve, principally due to accrual for
       financial reporting purposes                         39,000      34,000
   Net operating loss carryforwards                      5,301,000   4,848,000
   Inventory obsolescence reserve                          316,000     372,000
   Depreciation and amortization                            21,000      29,000
   Capitalized research and development costs              323,000     309,000
   Stock option compensation                               260,000        -
   Accrued expenses                                         35,000        -
   Deferred revenue                                         39,000        -   
                                                       -----------  ----------
       Total gross deferred tax assets                   6,700,000   5,914,000
   Less valuation allowance                             (6,700,000) (5,914,000)
                                                       -----------  ----------
       Net deferred tax assets                         $      -     $     -   
                                                       -----------  ----------
                                                       -----------  ----------
</TABLE>

     At December 31, 1997, Laser Photonics and AccuLase had net operating loss
     carryforwards of approximately $5,608,000 and $11,817,000, which expire in
     various years through 2012. These net operating losses are subject to
     annual limitations imposed by the Internal Revenue Code due to change in
     control of the Companies.

     Total income tax expense differed from the amounts computed by applying the
     U.S. federal statutory tax rates to pre-tax income as follows:

<TABLE>
<CAPTION>

                                                                               PERIOD FROM  PERIOD FROM
                                                                               MAY 23, 1995  JANUARY 1,
                                                    YEAR ENDED   YEAR ENDED        TO         1995 TO
                                                    DECEMBER 31  DECEMBER 31,  DECEMBER 31,   MAY 22,
                                                       1997         1996          1995         1995
                                                   ------------  -----------  ------------- -----------
<S>                                                <C>           <C>          <C>           <C>
Total expense (benefit)
   computed by applying the   
   U.S. statutory rate                               (34.0%)      (34.0%)      (34.0%)      (34.0%)
Permanent differences                                 25.7         47.8         10.8          -
State income taxes                                      .2           -           -            -
Effect of valuation allowance                          8.3        (13.8)        23.2         34.0

                                                   ------------  -----------  ------------- -----------
                                                       0.2%          - %         - %          - %
                                                   ------------  -----------  ------------- -----------

</TABLE>


                                         F-20

<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  RELATED PARTY TRANSACTIONS:

     The Company advanced $48,000 to an affiliated company which was
     subsequently written off during 1997.


12.  COMMITMENTS AND CONTINGENCIES:

     LEASES - The Company leases its main facility under a month-to-month
     operating lease which requires monthly payments of $11,000. Acculase leases
     its facility under a month-to-month operating lease which requires minimum
     monthly payments of $4,900. The Company's other subsidiary leases its
     facility under a non-cancelable operating lease which expires during fiscal
     2001.  Rental expense for these leases amounted to $346,260, $376,147 and
     $302,800 for the years ended December 31, 1997, 1996 and 1995,
     respectively. The future annual minimum payments under the non-cancelable
     lease are as follows:

<TABLE>
<CAPTION>

              YEAR ENDED DECEMBER 31,
              ------------------------
              <S>                             <C>
                       1998                     67,000
                       1999                     67,000
                       2000                     73,000
                       2001                     73,000
                       2002                        -
                                              --------
              Minimum lease payments          $280,000
                                              --------
                                              --------

</TABLE>

     FACTOR AGREEMENT - In June 1997, the Company entered into an agreement to
     factor up to $600,000 in accounts receivable, $150,000 minimum per month.
     The Company is entitled to a rebate on the discount less base commission
     and total daily funds charge. The base commission is 1.5% plus 1.375% for
     each 30 day period or part thereof the account is outstanding. The daily
     funds rate is prime plus 3% divided by 360. The factor may withhold reserve
     against the face value of accounts outstanding at its discretion.

     As of December 31, 1997, the face amount of receivables sold was $160,235.

     ERISA VIOLATIONS - The Company is in violation of several provisions of the
     Employee Retirement Income Security Act of 1974 (ERISA) primarily because
     employee contributions to the Company's 401(k) plan have not been remitted
     to the plan's trust. As of December 31, 1997, the Company has accrued
     approximately $90,000 for employee contributions, lost plan investment
     earnings and penalties which may be assessed by the U.S. Department of
     Labor. Subsequent to year end, the Company paid $91,385 to the plan for
     employee contributions and lost plan investment earnings.

     DELINQUENT FEDERAL AND STATE PAYROLL TAXES - The Company is delinquent in
     remitting Federal and state payroll taxes. As of December 31, 1997, the
     Company has accrued approximately $60,000 for payroll taxes which includes
     interest and penalties related to the delinquent payments. Subsequent to
     year end the Company has paid $48,069 in principal and interest related to
     delinquent payroll taxes.


                                         F-21

<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     BAXTER AGREEMENT - On August 19, 1997, AccuLase executed a series of
     Agreements with Baxter Healthcare Corporation ("Baxter"). These Agreements
     provided among other things for the following:

     1.   AccuLase granted to Baxter an exclusive world-wide right and license
          to manufacture and sell the AccuLase Laser and disposable products
          associated therewith, for the purposes of treatment of cardiovascular
          and vascular diseases.

     2.   In exchange Baxter agreed to:

          a.   Pay AccuLase $700,000 in cash at closing, agreed to pay AccuLase
               an additional $250,000 in cash three months after closing, and
               agreed to pay an additional $600,000 upon delivery of the first
               two commercial excimer lasers.

          b.   To pay AccuLase a royalty equal to 10% of the "End User Price"
               for each disposable product sold, or if the laser equipment is
               sold on a per treatment basis, the "imputed" average sale price
               based on "non" per procedure sales.

          c.   To purchase from AccuLase excimer laser systems for
               cardiovascular and vascular disease.

          d.   To fund the total cost of obtaining regulatory approvals
               world-wide for the use of the AccuLase laser and delivery systems
               for the treatment of cardiovascular and vascular disease.

          e.   To fund all sales and marketing costs related to the
               cardiovascular and vascular business.

     3.   AccuLase agreed to manufacture the excimer laser system to
          specifications for Baxter. Baxter agreed to pay a fixed price per
          laser for the first 8 lasers to be manufactured by AccuLase, and
          thereafter to pay unit prices on a reducing scale of from $75,000 to
          $45,000 per laser, based upon the annual number of lasers sold to
          Baxter.

     4.   AccuLase agreed for a period of five years not to engage in any
          business competitive with the laser products for cardiovascular and
          vascular applications licensed to Baxter.

     5.   AccuLase has granted Baxter a security interest in all of its patents
          to secure performance under the Baxter Agreement. The agreement
          expires upon the expiration of the last to expire license patent,
          however, Baxter may terminate the agreement at any time.


     LICENSE AGREEMENT WITH BAXTER AND LASER SIGHT - On September 23, 1997,
     Baxter purchased certain patent rights to related patents from a third
     party for $4,000,000. In December 1997, the Company acquired a license to
     the acquired patent rights from Baxter. An agreement between the Company
     and AccuLase to determine how costs will be allocated has not yet been
     entered into.

     LICENSE AGREEMENT WITH GENERAL HOSPITAL - On November 26, 1997, the Company
     entered into a license agreement with The General Hospital Corporation
     ("General") whereby General grants the Company an exclusive, worldwide,
     royalty-bearing license. In consideration for the use of the license, the
     Company 


                                         F-22

<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     has agreed to pay General $12,500 for costs incurred prior to the effective
     date of the agreement, $25,000 upon execution of the agreement, $50,000
     upon issuance by the US Patent and Trademark Office of any Patent right,
     and $50,000 upon approval by the U.S. Food and Drug Administration of the
     First NDA, 510(k), PMA or PMA Supplement. The  Company has agreed to pay
     royalties of 4% of the net sales price on products that are covered by a
     valid  claim of any patent right licensed exclusively to the Company, 2% of
     net sales price on products covered by a valid claim of any patent right
     licensed non-exclusively to the Company, 1% of net sales of products on
     which no royalty is payable for the next ten years following the first
     commercial sale and 25% of all non-royalty income.


13.  SUBSEQUENT EVENTS:

     On April 8, 1998, the Company entered into a letter of intent to sell
     certain assets, subject to the assumption of certain liabilities, to a
     third party. The completion of the transaction is subject to numerous
     items, including but not limited to, the final identification of specific
     assets and liabilities to be transferred and the execution of a final
     written agreement. The proposed sales price is $1,300,000 which would
     result in an approximate gain of $300,000 to the Company.


                                     F-23
<PAGE>

                        LASER PHOTONICS, INC. AND SUBSIDIARIES

                          VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II
<TABLE>
<CAPTION>

                                                                       ADDITIONS     
                                                    BALANCE AT         CHARGED TO                     BALANCE AT
                                                    BEGINNING          COSTS AND                        END OF
    CLASSIFICATION                                  OF PERIOD           EXPENSES         DEDUCTIONS     PERIOD
------------------------------------              ------------        ------------     -------------  ----------
<S>                                               <C>                <C>              <C>             <C>
For the year ended
  December 31, 1997:

  Accumulated
     amortization - Patent costs                  $   15,612         $     8,353      $     -         $    23,965
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Accumulated
     amortization - Excess of 
     cost over net assets of 
     acquired companies                           $  822,830         $   519,784      $     -         $ 1,342,614
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------

  Allowance for
     doubtful accounts                            $  100,000         $       -        $  25,000       $    75,000
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Allowance for
     obsolescence                                 $  996,299         $       -        $ 176,775       $   819,524
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------

For the year ended
  December 31, 1996:                                        

  Accumulated
     amortization -  Patent 
     costs                                        $    7,259         $     8,353      $     -         $    15,612
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Accumulated
     amortization - Excess of 
     cost over net assets of 
     acquired companies                           $  303,148         $   519,682      $     -         $   822,830
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------

  Accumulated 
     amortization -  
     Reorganization 
     goodwill                                     $  222,600         $ 1,914,425      $     -         $ 2,137,025
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Allowance for
     doubtful accounts                            $  100,000         $       -        $     -         $   100,000
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Allowance for
     obsolescence                                 $1,477,000         $       -        $ 480,701       $   996,299
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------

For the year ended
  December 31, 1995:                                        

  Accumulated
     amortization -  Patent 
     costs                                        $      -           $     7,259      $     -         $     7,259
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Accumulated
     amortization - Excess of 
     cost over net assets of 
     acquired companies                           $      -           $   303,148      $     -         $   303,148
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Accumulated 
     amortization -  
     Reorganization 
     goodwill                                     $      -           $   222,600      $     -         $   222,600
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Allowance for
     doubtful accounts                            $  217,591         $    23,609      $ 141,200       $   100,000
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------
  Allowance for
     obsolescence                                 $      -           $ 1,477,000      $     -         $ 1,477,000
                                                  ----------         -----------      ---------       -----------
                                                  ----------         -----------      ---------       -----------

</TABLE>


                                         S-1