<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549
                                  ___________
                                  FORM 10-KSB
                                        
               Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998       Commission file number 0-18515
                                                                                

                             THERAPY LASERS, INC.
              (Exact name of Company as specified in its charter)

<TABLE> 
<CAPTION> 
<S>                       <C>                                                   <C> 
                           NEVADA                                                93-0960302
--------------------------------------------------------------        ------------------------------------
(State or other jurisdiction of incorporation or organization)        (IRS Employer Identification Number)
</TABLE>

                    10450 WESTOFFICE, HOUSTON, TEXAS  77042
                   ----------------------------------------
                   (Address of Principal Executive Offices)

       Company's telephone number, including area code:   (713) 339-2722
   
          10450 RICHMOND AVE., SUITE 216; HOUSTON, TEXAS 77042
   -------------------------------------------------------------------------
   (Former name and address of Company, if changed from last annual report.)

                                 _____________

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                     None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                        ($0.001) Par Value Common Stock


Indicate by check mark whether the Company: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Company was required to
file such reports); and (2) has been subject to such filing requirements for the
past ninety (90) days.

                               Yes [X]    No [_]

   The issuer's revenues for the year ended February 28, 1997 were $62,170.
 
As of June 8, 1998, 10,662,627 shares of ($0.001) par value Common Stock (the
Company's only class of voting stock) were outstanding.  The aggregate market
value of the common shares of the Company on June 8, 1998 (based upon the mean
of the closing bid and asked price) held by nonaffiliates of the Company, was
approximately $83,758.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None

                                       1
<PAGE>
 
                                  FORM 10-KSB
                                        
                             THERAPY LASERS, INC.
                                        


                               TABLE OF CONTENTS
 
 
                                                                            PAGE
                                                                            ----
PART I
  Item  1. Description of Business                                            3
  Item  2. Description of Property                                            8
  Item  3. Legal Proceedings                                                  8
  Item  4. Submission of Matters to a Vote of Security Holders                8
 
 
PART II
  Item  5. Market for Common Equity and Related Stockholder Matters           8
  Item  6. Management's Discussion and Analysis or Plan of Operations         9
  Item  7. Financial Statements                                               9
  Item  8. Changes in and Disagreements with Accountants on Accounting 
           and Financial Disclosure                                           9
 
 
PART III
  Item  9. Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                 10

  Item 10. Executive Compensation                                            11

  Item 11. Security Ownership of Certain Beneficial Owners and Management    12

  Item 12. Certain Relationships and Related Transactions                    13

  Item 13. Exhibits and Reports on Form 8-K                                  13
                                                                              
SIGNATURES                                                                   14

                                       2
<PAGE>
 
                                    PART I
                                        

ITEM 1.   BUSINESS

(a)  BUSINESS DEVELOPMENT

Therapy Lasers, Inc. (the "Company"), was organized with the name Medeci
Corporation under the laws of the State of Nevada on September 21, 1987 to
commercialize laser and related technologies.  Since that time and until
November 1996, the Company was engaged primarily in developing the laser
technology while developing a strategy to obtain approval from the Food and Drug
Administration ("FDA") to market the low level therapeutic lasers in the United
States.

On February 27, 1995, the former executive officers and major stockholders of
the Company resigned and disassociated themselves from the Company.  During
1994, the operations of the Company's Wellness, Inc. subsidiary had deteriorated
significantly due to the lack of working capital.  As a result, the Company
determined effective February 28, 1995 (the "measurement date") that it would
discontinue the Wellness business.  The sale of the net assets of Wellness to
American Medical Corporation, an unrelated company, was completed on June 21,
1995 in exchange for cash of $5,400, assumption of Wellness indebtedness by the
Company, forgiveness of Wellness debt owed to the Company and other
consideration totaling approximately $82,000.  Simultaneously, certain former
officers and affiliates returned 1,752,460 shares of Company stock for
cancellation in exchange for an agreement not to initiate litigation against the
former CEO for matters arising out of this transaction, and in exchange for a
release to the spouse of the former CEO from personal liability as a guarantor
on certain Company indebtedness.  In addition, stock options held by the
retiring parties were canceled.

On February 27, 1995, the Company changed its name from Medeci Corporation to
Therapy Lasers, Inc.

At the Annual Meeting of the Company's shareholders on February 28, 1997, the
shareholders elected the following officers and directors of the Company:

     Lucien H. Cullen                 Chairman and Secretary-Treasurer
     Leon D. Hogg                     President and Chief Executive Officer
     Robert C. Meador, Jr.            Vice President


On March 12, 1996, the Company acquired 100% of the stock of LaserCare, Inc. in
exchange for 5,750,776 shares of its common stock.  A summary balance sheet of
LaserCare, a development stage enterprise, at February 29, 1996 follows:

ASSETS
  Cash                                                $ 12,807
  Advances receivable, Therapy Lasers, Inc.              6,000
                                                      --------
    Total assets                                      $ 18,807
                                                      ========
 
LIABILITIES
  Account payable, affiliated company                 $    290
                                                      --------
 
STOCKHOLDERS' EQUITY
  Common stock                                           1,000
  Capital in excess of par value                        21,000
  Deficit accumulated during the development stage      (3,483)
    Total stockholders' equity                          18,517
                                                      --------
    Total liabilities and stockholders' equity        $ 18,807
                                                      ========

                                       3
<PAGE>
 
The above summary balance sheet is based on financial statements on which the
auditors disclaimed an opinion due to uncertainty as to the collectibility of
advances to Therapy Lasers, Inc. and its ability to continue as a going concern.

As a result of this transaction, one individual controls approximately 50.27% of
Therapy Lasers, Inc.'s outstanding common stock.  The transaction was accounted
for as a purchase, and was recorded at the net underlying assets of LaserCare.

LaserCare developed a small handheld laser that the Company sought to market in
Mexico, Canada, Central America and South America, and eventually in Europe and
the Orient.  During the current fiscal year, negotiations were undertaken with
one of Mexico's largest distributors of pharmaceuticals and medical devices to
market the devices in Mexico.  As of the date of this Annual Report, no
distribution agreements have been signed.  Due to these reasons, and a lack of
sufficient operating capital, the Company has been unable to devote any
substantial efforts to the laser business since late 1996.  In order to pursue
this direction, the Company must raise sufficient capital to fund the
manufacture of the unit.  The Company is moving in other business directions in
order to help raise the necessary funds.  The Company also investigated several
sources of supply for the contract manufacture of the items.

In November, 1996, the Company commenced activities in the wholesale electrical
components business, serving as a non-stocking sales representative for an
affiliated company.  In that connection, the Company sells primarily to another
affiliated company.  The Company's plan is to utilize the profits earned in the
wholesale electrical components business to exploit its laser business.
However, there is no assurance the Company will be successful in generating
profits in the wholesale electrical components business.  Moreover, the Company
suspended its wholesale electrical components business subsequent to February
28, 1998.

At year end, the Company was investigating other opportunities in related
fields.

The Company is deemed to have been in the development stage since March 1, 1995.
Prior to that time, it was in the operating stage.  In its current development
stage, management anticipates incurring substantial additional losses as it
pursues its wholesale electrical components business and laser business, and as
it investigates other business opportunities.

(b)  DESCRIPTION OF THE COMPANY'S BUSINESS

LASER BUSINESS.

Since 1987, the Company had been engaged in testing and developing laser
technology and seeking approval from the FDA to market its MLT-129 He-Ne Laser,
which had been placed in selected clinics and teaching hospitals for clinical
trial.  The Company has not been able to secure FDA approval for unrestricted
commercial use of the laser even though the FDA itself classifies this low level
laser type ("LLLT") as a non significant risk device.

European markets are considered more favorable than the United States ("U.S.")
in laser use and technology, inasmuch as the various European governments have
not deterred the use of the LLLT.  Reports from European doctors and hospitals
at the 1995 Annual Meeting of the American Society for Laser Medicine and
Surgery were critical of studies done in the U.S. for using the low-powered (5
to 10 milliwatt) lasers.  The Europeans have 

                                       4
<PAGE>
 
reported achieving much improved results by using higher powered Gallium
Arsenide ("GaAs") and Gallium Aluminum Arsenide ("GaAlAs") Lasers.

Though the MLT-129 He-Ne Laser which the Company has marketed in the past is the
oldest and best documented of all the biostimulatory lasers, it is not practical
to build one with 100 milliwatt strength because it would be too big and
cumbersome to use efficiently.  Also, inasmuch as the Helium-Neon gases are of
necessity encased in a long glass sealed tube, the units are easily broken and
expensive to replace.

After April of 1995, the Company's efforts were directed toward securing an up-
to-date state-of-the-art GaAs or GaAlAs Laser offering average power from 0 to
110 milliwatts and peak power up to 55 watts to achieve higher therapeutic
effects.  Although a prototype of such a laser was developed by the Company,
none have been sold.

Due to the lack of adequate capital, the Company has been unable to devote any
substantial efforts toward the development of its laser business since late
1996.

WHOLESALE ELECTRICAL COMPONENTS BUSINESS

In November, 1996, the Company began activities in the wholesale electrical
components business, serving as a non-stocking sales representative for an
affiliated company.  This business is conducted under the assumed name of Bob's
Wholesale Lighting.  Bob's Wholesale Lighting purchases electrical components
from Builder Source (formerly A C Global Corp.), and resells them to Gulf Coast
Fan & Light, Inc., both of which are controlled by the Company's controlling
shareholder.  Gulf Coast Fan & Light, Inc., includes the electrical components
with other appliances and resells them to the ultimate customer, primarily
construction companies, for use and home and commercial construction projects.
As noted above, the Company suspended its wholesale electrical components
business subsequent to February 28, 1998.

(c)  DESCRIPTION OF TECHNOLOGY

LASER BUSINESS.

All biological reactions of laser light with live tissue depend upon the
interaction of that tissue, in some way, with the effects of the laser light.
There are many kinds of laser light (each with a different wave length) and each
has the potential to produce very different results.  For example, the argon
laser (green light about 488 nanometers in length) causes clotting of small
blood vessels in the retina, and is therefore useful in treating certain eye
conditions.  Carbon dioxide lasers cause immediate cutting and welding of
tissue, but are invisible to the human eye.  Carbon dioxide lasers have largely
replaced scalpels for use in surgery.  Both argon and carbon dioxide lasers work
in the following way:  A pulsed light source flows through a medium (different
for each type of laser) and non-scattered single wave length of light is passed
out of the opposite end of the laser.

He-Ne Lasers use a laser medium of Helium-Neon gas; GaAs Lasers utilize a diode
of Gallium Arsenide and GaAlAs Lasers utilize a laser of Gallium-Aluminum
Arsenide.  All three of the latter named lasers are useful in treating pain,
carpal tunnel syndrome, migraine headaches, trauma, and sports related injuries.
A comparison of the above lasers is as follows:

     Type          Wave Length        Mode         Output Power     Medical Use
     ----          -----------        ----         ------------     -----------
GAS LASERS
    He-Ne            632.8 mm      continuous         1-20 mW     Biostimulation
SEMI-CONDUCTOR LASERS
    GaAs               904 mm          pulsed         1-110 W     Biostimulation
    GaAlAs         660-860 mm      continuous         1-110 W     Biostimulation

                                       5
<PAGE>
 
All biomedical laser applications are based upon the interaction of the laser
light with biological substrate.  In the simplest sense, low intensity laser
light is absorbed, reflected or re-radiated by the substance so that no change
occurs within it.  On the other hand, ultraviolet invisible radiation can be
absorbed, and excite electronic states in many biological molecules, leading to
photo-biological transformation at a molecular level.  Therefore, the use of
laser light enhances the speed at which molecules are excited, making it
possible to prove photochemical reactions at a pica second time scale, and
further excite higher electronic states in target molecules through multiphoton
processes.  Biostimulation of metabolic tissue reactions by lasers at a lower
energy level has been demonstrated both in the laboratory utilizing LLLT in
neuronal tissue culture, fibroblast and wound healing processes in vivo,
stimulated healing in animal models in hairless mice, and treatment in human
patients in Russia for ulcers, open wounds and skin healing.

WHOLESALE ELECTRICAL COMPONENTS BUSINESS

The electrical components sold by Therapy, dba Bob's Wholesale Lighting, are
commonly available through various domestic and foreign manufacturers.
Substantially all of the electrical components marketed by Bob's are
manufactured overseas, due to lower labor costs, resulting in lower wholesale
purchase prices.  There are no significant technological advantages held by one
supplier over another; sales are primarily driven by price, appearance, and
currently popular styles.

(d)  FEDERAL REGULATION

LASER BUSINESS

All laser medical devices are regulated by the FDA under two laws:  The
Radiation Control for Health and Safety Act of 1968, and an Amendment to the
Public Health Services Act in the Medical Device Amendments of 1976 to the Food,
Drug and Cosmetic Act. In general, the FDA regulates laser medical devices at
three different stages:  (1) the manufacturing stage, (2) the distribution,
repacking and relabeling stage, and (3) the medical application stage.  Only the
second stage is directly related to Therapy Laser's business because the Company
is not engaged in the manufacture of laser medical devices.  The Company (in the
past) purchased the approved medical devices from an FDA approved manufacturer,
then re-labeled and repackaged the laser medical devices and sold the devices to
licensed physicians for use by them under FDA and state regulation in the
medical treatment of patients.  FDA regulation controls what the Company can or
cannot do with its laser.

All lasers marketed in the U.S. must conform to the Safety Regulations 21 CFR
1040 as established by the Center for Devices and Radiological Health ("CDRH")
of the FDA.  Each laser manufactured must meet the FDA Safety Standards set
forth by the CDRH.  FDA acceptance must in turn be obtained by the licensed
physician or other healthcare providers in order to use the Company's laser in
the medical field.  In order to be registered as a FDA regulated
relabeler/repackager, the Company must simply relabel/repackage only FDA
manufacturer's approved laser medical devices.  Compliance with Federal Safety
Regulations under FDA control are a requirement.  The Company found it easier to
buy from am approved manufacturer than to go through the approval sequence in
order to manufacture the medical laser device itself.

Therapy Lasers, Inc. has been registered with the FDA as a relabeler/repackager
and as a specification developer.  A specification developer has the authority
to tell the FDA approved manufacturer which particular specifications as to
power output it desires in the laser medical device which is thus manufactured.
Registration by the FDA in this category is an unusual requirement.
Registration by the FDA in this category means that the Company can relabel and
repackage such laser device under its own name.

WHOLESALE ELECTRICAL COMPONENTS BUSINESS

Substantially of the the electrical components marketed by the Company meet
Underwriters Laboratory ("UL") standards, as required by Federal regulations.
There are no other significant regulations that affect the business.

                                       6
<PAGE>
 
(e)  MARKETING

LASER BUSINESS

In the past, the Company purchased the original MLT-129 He-Ne Laser from its
supplier and then relabeled each laser with a corporation insignia and serial
number for medical use pursuant to FDA approval, and intends to follow the same
procedure with the new THERALASE Gallium Arsenide Laser when and if it becomes
available.  Therapy Lasers, Inc. will, in turn, sell the laser to the medical
provider.  More than 500 doctors, clinics and hospitals have contacted the
Company in the past indicating an interest in purchasing Therapy's lasers when
and if FDA approval can be secured.  The manufacturer has assured the Company
that it will be able to supply an adequate number of lasers so that the Company
will experience no delays in filling purchase orders for the laser devices.

The Company has not sold any lasers in more than two years, and, as indicated
above, the Company has been unable to devote any substantial efforts in the
laser field since late 1996.

WHOLESALE ELECTRICAL COMPONENTS BUSINESS

As previously indicated, all of the Company's sales of electrical components
have been made to an affiliated company, Gulf Coast Fan & Light, Inc.
Substantially all of the sales are initiated by Gulf Coast, and are not
generated by the Company or its employees.  Therefore, there can be no assurance
that future sales will continue, or that they will be sufficient to enable the
Company to operate at a profit.

(f)  RETURNS AND WARRANTIES

LASER BUSINESS AND WHOLESALE ELECTRICAL COMPONENTS BUSINESS

The Company offers whatever warranty is in existence from the manufacturer, both
with respect to lasers and electrical components.  It also allows credit on
items from which it receives credit from the manufacturers.  No losses have been
experienced to date.

(g)  EMPLOYEES

At fiscal year end, Therapy Lasers, Inc. had only one employee.  Robert C.
Meador, Jr., Vice President, devotes part of his time to the Company's affairs.
Mr. Meador is compensated by an affiliated company controlled by Therapy's
principal shareholder, and the affiliate contributes Mr. Meador's services to
Therapy.

(h)  CUSTOMERS

LASER BUSINESS AND WHOLESALE ELECTRICAL COMPONENTS BUSINESS

As indicated above, the Company has curtailed substantially all activity with
respect to the laser business;  therefore, there are currently no customers for
laser products.  Also, as indicated above, all electrical components sales are
made to Gulf Coast Fan & Light, Inc., an affiliated company, for resale to the
ultimate consumers, primarily contractors.

(i)  COMPETITION

LASER BUSINESS

To the Company's knowledge there is at present one competitor seeking approval
from the FDA for a similar therapeutic laser.

                                       7
<PAGE>
 
WHOLESALE ELECTRICAL COMPONENTS BUSINESS

There is substantial competition in the wholesale electrical components
business, many of which competitors have more resources than the Company.  The
industry is a highly competitive one, and success depends on developing a broad
customer base, having a broad line of goods at attractive prices, and providing
prompt delivery and service.  There is no assurance the Company will be
successful in competing with its larger and better-financed competitors.

(j)  OTHER PRODUCTS/SERVICES

The Company is currently exploring other income-producing ideas not necessarily
in the medical field.


ITEM 2.   PROPERTIES

The Company formerly occupied approximately 800 sq. ft. of office space at 10850
Richmond Avenue, Suite 216, Houston, Texas  77042, under a month-to-month lease.
During the current fiscal year, that space was vacated.  Currently, the Company
shares office space with Builder Source, an affiliated company, and does not
incur rent.

ITEM 3.   LEGAL PROCEEDINGS

None.

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

None.

                                    PART II
                                        
ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

The table below sets forth the high and low bid price of the common stock
through February 28, 1998, as reported by the National Quotation Bureau.  Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commissions, and may not necessarily represent actual
transactions.

FISCAL YEAR ENDING FEBRUARY 28, 1997           High             LOW
     1st Quarter                              $.1875           $.1250
     2nd Quarter                              $.3438           $.1250
     3rd Quarter                              $.3125           $.2813
     4th Quarter                              $.2813           $.0938
 
FISCAL YEAR ENDING FEBRUARY 28, 1998
     1st Quarter                              $.0312           $.0625
     2nd Quarter                              $.0312           $.0312
     3rd Quarter                              $.0312           $.0312
     4th Quarter                              $.0312           $.0312

                                       8
<PAGE>
 
As of June 8, 1998, the Company had 462 shareholders of record.  The Company has
never paid any cash dividends and has no plans to pay any cash dividends in the
foreseeable future.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

LIQUIDITY

The Company had total liabilities of $59,000 and a working capital deficit of
$49,000 as of February 28, 1998 compared to $52,000 at February 29, 1997.  This
decrease in working capital is attributable to the lack of operating revenues
coupled with continuing expenses.  The Company expects that cash requirements
for development stage operations for the next fiscal year will be provided from
the wholesale electrical components business and private placements of common
stock.  However, there can be no assurance that these activities will, in fact,
provide the necessary working capital for operations.

PLAN OF OPERATION

Year Ended February 28, 1998 compared with 1997

The Company had $62,170 in sales and $16,606 in gross profits for the year ended
February 28, 1998, compared with $10,552 in sales and $2,557 in gross profits
for February 29, 1997.   Expenses (including interest) were $30,990 for 1998,
compared to $104,966 for 1997. The Company is considered to have re-entered the
development stage effective March 1, 1995 upon the sale of its last operating
unit  In fiscal 1999, the Company plans to continue maintain expenses at the
lowest possible level until sales revenue is high enough to carry the operating
expenses.  Some of the Company's larger shareholders have agreed to purchase
enough of the Company's stock in private placements to meet operating expense
obligations.  However, such agreements are not evidenced by any written
agreements; therefore, there can be no assurance the shareholders will continue
to provide such funding when called upon.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:  The information contained in the preceding paragraph is forward looking
and involves risks and uncertainties that could significantly impact expected
results.  While it is impossible to itemize the many factors and specific events
that could affect the outlook of any company,  the Company's outlook for fiscal
1998 is predominately based on its interpretation of what it considers key
economic assumptions.

ITEM 7.   FINANCIAL STATEMENTS

The information required by this item is included in a separate section of this
Annual Report beginning on Page F-1.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

                                       9
<PAGE>
 
                                   PART III
                                        
ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


(a)  IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

The Company, pursuant to its by-laws, maintains a Board of Directors of three
members and as of February 28, 1998 had the following executive officers elected
by the Board of Directors on February 28, 1997:


<TABLE>
<CAPTION>
      NAME                           POSITION HELD                             AGE      DATES OF SERVICE
--------------------------------------------------------------------------------------------------------------
<S>                            <C>                                            <C>   <C>
Lucien Hugh Cullen             Chairman, Secretary-Treasurer                    75   February 27, 1995 to date
Leon D. Hogg                   President, Chief Executive Officer               76   February 27, 1995 to date
Robert C. Meador, Jr.          Vice President                                   34   February 28, 1996 to date
</TABLE>

In addition, Charles Sheffield, age 45, owns 5,208,972  shares of the Company's
common stock, either directly, or through his spouse, children, or entities
controlled by him, amounting to approximately 50.27% of total outstanding
shares, and is deemed to be a control person.  Mr. Sheffield is not an officer
of director of the Company.

All Directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Vacancies in the Board of Directors are filled by the remaining members of the
Board until the next annual meeting of shareholders.  The officers of the
Company are elected by the Board of Directors at its first meeting after each
annual meeting of the Company's shareholders and serve at the discretion of the
Board of Directors or until their earlier resignation or death.

(b)  BUSINESS EXPERIENCE

Lucien Hugh Cullen, Age 77.  Mr. Cullen has over forty (40) years of general
experience in the management of business involved in oil operations, chemicals,
mining and the management of investments.  For the twelve (12) years prior to
his joining the Company in February, 1995, Mr. Cullen was the Chief Executive
Officer of Twentieth Century Pipe and Equipment Company, a specialized line pipe
company that he formed in 1982.  Mr. Cullen began his education at Rice
University, then transferred to the University of Texas.  After a three (3) year
interruption for military service in 1942-45, Mr. Cullen completed his education
at Glendale College, California and the University of Houston.  He has both a
Bachelor of Arts and Master's degree in Business Administration.

Leon D. Hogg, Age 78.  Mr. Hogg has been a Director and Officer of the Company
since February 27, 1995.  Mr. Hogg has been involved in the commercial banking
industry in Houston for the last twenty-eight (28) years.  From 1962 through
1970 he was a senior commercial lending officer with two Houston banks.  In 1970
he formed Lee Hogg & Company, Inc., Mortgage Bankers and Financial Consultants,
and has been continuously involved with that company prior to joining Therapy
Lasers, Inc.  Mr. Hogg obtained a Bachelor of Science degree from North Texas
State University in 1942 and has subsequently taken a number of advanced
banking, law and accounting courses from the American Institute of Banking.

Robert C. Meador, Jr., 36.  For the past ten years employed by Gulf Coast Fan &
Light Inc., the last 2 1/2 years as Vice President.  In 1992, he became
President of Ceiling Fans Direct, Inc., and in 1996 he became General Manager of
A C Global Corp.  Mr. Meador is also President of the Company's subsidiary,
LaserCare, Inc.

Charles Sheffield, 45.  Mr. Sheffield is President and majority shareholder of
U.S. Ceiling Fan Corp., the parent company of Gulf Coast Fan & Light, Inc. and A
C Global Corp.  He is also a director and majority shareholder of  U.S. Design
and Construction, Inc.  Mr. Sheffield is a graduate of the University of
Houston, where he obtained a Bachelors degree in finance.

                                       10
<PAGE>
 
ITEM 10.  EXECUTIVE COMPENSATION

(a)  SUMMARY COMPENSATION TABLE

No executive of the Company was paid more than $60,000 during the fiscal years
ended February 28, 1998 or 1997.  All compensation paid during the past two
fiscal years to Company executives was paid in stock.

(b)  OPTION AND LONG-TERM COMPENSATION TABLES

There has been no restricted stock awards, stock options, SAR's, LTIP payouts or
other forms of long-term compensation paid to any officer or director of the
Company during the last three years, except for certain stock options granted to
former officers which either expired without being exercised or were canceled by
the Board of Directors on March 24, 1995.  Subsequent to February 28, 1995, the
Board of Directors granted stock options as follows:

<TABLE>
<CAPTION>
            Granted to                   Number of          Vesting Schedule          Option Price
                                          Shares
----------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>                           <C>
Lucien Hugh Cullen                        80,000         20,000 s/s Quarterly           $.05 / Share
Leon D. Hogg                              80,000         20,000 s/s Quarterly           $.05 / Share
</TABLE>

At February 28, 1998, none of the options had been exercised. All of the above
options expired at the end of three years (March 24, 1998).

(c)  PENSION PLANS AND OTHER BENEFIT OR ACTUARIAL PLANS

The Company has no annuity, pension or retirement plans, nor other plans whose
benefits are based on actuarial computations.

(d)  EMPLOYMENT CONTRACTS AND TERMINATION AGREEMENTS

The Company has no employment contracts or termination agreements with any
officer, director or key employee.

(e)  DIRECTOR COMPENSATION

The Company has no standard arrangement by which its directors are compensated.

(f)  COMPENSATION COMMITTEE REPORT

The Company's Compensation Committee consists of Lucien Hugh Cullen, Leon D.
Hogg and Robert C. Meador, Jr., who administer the Company's Stock Option Plan
which was adopted March 12, 1996.

(g)  STOCK PERFORMANCE CHART

A graph comparing the Company's commutative total return to stockholders in
terms of stock price appreciation plus dividends during the previous five years
to a broad market index, such as the S&P 500, has not been presented due to the
Company's operating losses in recent years and the resulting lack of any
significant stock price appreciation or dividends.

                                       11
<PAGE>
 
(h)  INTERLOCKING RELATIONSHIPS OF DIRECTORS

Robert C. Meador, Jr. is also a director of the wholly owned Laser Care, Inc.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table set forth, as of June 8, 1998, the stock ownership of each
person known by the Company to be the beneficial owner of five percent or more
of the Company's common stock.  Unless otherwise indicated, each person has
beneficial voting and investment power with respect to the shares owned.

NAME/ADDRESS OF BENEFICIAL OWNER       NUMBER OF SHARES     PERCENTAGE OF TOTAL
--------------------------------       ----------------     -------------------
Charles Sheffield
     10450 Westoffice
     Houston, Texas  77042                5,496,511 (A)                 53.0%
Mark Chapman
    4102 University Boulevard
    Houston, Texas 77005                    820,300                      7.9%

(A)  Includes shares owned directly and shares owned indirectly by spouse,
family members, and related entities, as follows:

NAME/ADDRESS OF BENEFICIAL OWNER       NUMBER OF SHARES     PERCENTAGE OF TOTAL
--------------------------------       ----------------     -------------------
Charles Sheffield                         3,702,317                     35.7%
Family of Charles Sheffield:
  Adult children                            575,078                      5.5%
  Minor child                               287,539                      2.7%
Entities controlled by Charles Sheffield:
  Gulf Coast Fan & Light, Inc.              500,269                      4.8%
  U.S. Design & Construction, Inc.          143,769                      1.4%
                                          -------------------------------------
    Total                                 5,208,972                     50.1%
                                          =====================================

The following table sets forth, as of June 8, 1998, the common stock ownership
of all officers and directors of the Company:

NAME/ADDRESS OF BENEFICIAL OWNER       NUMBER OF SHARES     PERCENTAGE OF TOTAL
--------------------------------       ----------------     ------------------- 
Lucien Hugh Cullen
     4529 Tonawanda
     Houston, Texas  77035                  460,000                      4.4%
 
Leon D. Hogg
     6701 Sands Point, Suite 15
     Houston, Texas  77074                  464,000                      4.5%

Robert C. Meador, Jr.
     10850 Richmond, Suite 216
     Houston, Texas  77042                  287,539                      2.8%
 
All Officers and Directors as a Group
     (3 persons)                          1,211,539                     11.7%

                                       12
<PAGE>
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On March 12, 1996, Therapy Lasers, Inc. acquired 100% ownership of LaserCare,
Inc., a Delaware corporation, which has designed a hand-held 10 mW laser that is
planned to be manufactured in Mexico and distributed in Mexico, Central and
South America, and eventually in Europe and the Orient.  The acquisition was in
exchange solely for the shares of the corporation in a tax free reorganization
under Section 368(a)(1)(b) of the Internal Revenue Code of 1986, as amended.

(a)  COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission.  Officers, directors and greater than ten-percent
shareholders are required by the Securities and Exchange Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file.

The Company's current management has insufficient information to determine
whether during the period from March 1, 1997 to February 28, 1998 all Section
16(a) filing requirements applicable to its former officers, former directors
and greater than ten-percent beneficial owners were complied with.

                                    PART IV
                                        
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:
     21.  SUBSIDIARIES OF REGISTRANT
     27.  FINANCIAL DATA SCHEDULE.

(b)  REPORTS FILED ON FORM 8-K:

None.

                                       13
<PAGE>
 
                                  SIGNATURES
                                        

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                             THERAPY LASERS, INC.



By: /s/ Lucien Hugh Cullen                          Date: December 30, 1998
    -----------------------------------------             -----------------
    Lucien Hugh Cullen, Chairman of the Board
    Secretary-Treasurer


In accordance with the Exchange Act, this report has been signed below by the
following persons, on behalf of the Registrant and in the capacities and on the
dates indicated.

         NAME                       TITLE                          DATE
         ----                       -----                          ----

/s/ Lucien Hugh Cullen         Chairman of the Board,         December 30, 1998
---------------------------    Secretary-Treasurer            -----------------
Lucien Hugh Cullen             Director              


/s/ Leon D. Hogg               President,                     December 30, 1998
___________________________    Chief Executive Officer,       -----------------
Leon D. Hogg                   Director                



/s/ Robert C. Meador, Jr.      Vice President,                December 30, 1998
___________________________    Director                       -----------------
Robert C. Meador, Jr.


SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
      15(D) OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES 
                      PURSUANT TO SECTION 12 OF THE ACT:

                                NOT APPLICABLE.

                                       14
<PAGE>
 
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
                        REQUIRED BY ITEMS 8 AND ITEM 13


                                     INDEX

A.   FINANCIAL STATEMENTS

     Reports of independent certified public accountants

     Balance sheet - February 29, 1998

     Statements of loss for the periods ended
        February 28, 1998 and 1997

     Statements of stockholders' equity for the two years
        ended February 28, 1998 and, 1997

     Statements of cash flows for the periods ended
        February 28, 1998 and, 1997

     Notes to consolidated financial statements


B.   FINANCIAL STATEMENT SCHEDULES

Schedules are omitted because of the absence of the conditions under which they
are required, or because the information required by such omitted schedule is
contained in the financial statements or the notes thereto.

                                      F-1
<PAGE>
 
[LOGO APPEARS HERE]
Bateman & Co., Inc., P.C.
Certified Public Accountants
 
                                                          5 Briardale Court
                                                       Houston, Texas 77027-2904
                                                            (713) 552-9800
                                                          FAX (713) 552-9700
                                                         www.batemanhouston.com



              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                        

To The Board of Directors and Stockholders
Therapy Lasers, Inc.
Houston, Texas

We have audited the accompanying balance sheet of Therapy Lasers, Inc. and
Subsidiary, (a development stage enterprise) as of February 28, 1998 and the
related statements of income (loss), stockholders' equity, and cash flows for
the periods ended February 28, 1998 and 1997.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our 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 audit provides 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 Therapy Lasers, Inc. and
Subsidiary (a development stage enterprise) as of February 28, 1998 and the
results of its operations and cash flows for the periods ended February 28, 1998
and 1997, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and development stage activities and has a working capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



                                            BATEMAN & CO., INC.,  P.C..

Houston, Texas
December 9, 1998



                                    Member
              INTERNATIONAL ASSOCIATION OF PRACTISING ACCOUNTANTS
                 Offices in Principal Cities Around The World
<PAGE>
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                                   BALANCE SHEET
                                                               FEBRUARY 28, 1998
--------------------------------------------------------------------------------


ASSETS
  Current assets:
    Cash                                                           $     1,284
    Accounts receivable, affiliated company                              8,479
                                                                   -----------
      Total current assets                                               9,763
                                                                   -----------

  Property and equipment, net of accumulated depreciation of $809          191
                                                                   -----------
      Total assets                                                 $     9,954
                                                                   ===========

LIABILITIES
  Current liabilities:
    Note payable                                                   $     2,000
    Accounts payable and accrued expenses                               46,713
    Due to related parties                                              10,512
                                                                   -----------
      Total current liabilities                                         59,225
                                                                   -----------
      Total liabilities                                                 59,225
                                                                   -----------
  Commitments and contingencies                                              -

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value, 100,000,000 shares authorized,
     10,362,627 shares issued and outstanding                           10,363
Capital in excess of par value                                       4,577,018
  Accumulated deficit:
    Prior operating accumulated deficit                             (4,452,105)
    Accumulated during the development stage                          (184,547)
                                                                   -----------
      Total stockholders' equity                                       (49,271)
                                                                   -----------
      Total liabilities and stockholders' equity                   $     9,954
                                                                   ===========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
<TABLE> 
<CAPTION> 

                                                                                         THERAPY LASERS, INC. AND SUBSIDIARY
                                                                                            (A DEVELOPMENT STAGE ENTERPRISE)
                                                                           STATEMENTS OF INCOME (LOSS) FOR THE PERIODS ENDED
                                                                                                  FEBRUARY 28, 1998 AND 1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                      <C>                  <C> 
                                                                            
                                                                  CUMULATIVE
                                                                    MARCH 1,
                                                                        1995
                                                                     THROUGH                 YEARS ENDED FEBRUARY 28,
                                                                FEBRUARY 28,             --------------------------------
                                                                        1998                   1998                  1997
                                                                  ----------             ----------            ----------
Sales                                                             $   72,722             $   62,170            $   10,552
Cost of sales                                                         53,559                 45,564                 7,995
                                                                  ----------             ----------            ----------
  Gross profit                                                        19,163                 16,606                 2,557
                                                                  ----------             ----------            ----------
Operating expenses:
  Personnel and consulting costs                                     122,196                  6,600                56,096
  Rent and occupancy                                                  22,152                  9,177                 8,525
  Legal and professional fees                                         43,454                  9,947                28,992
  Depreciation and amortization                                          809                    333                   333
  Other general and administrative                                    25,494                  4,933                11,020
                                                                  ----------             ----------            ----------
    Total operating expenses                                         214,105                 30,990               104,966
                                                                  ----------             ----------            ----------
    Loss from operations                                            (194,942)               (14,384)             (102,409)

Other expense
  Interest                                                            17,191                  4,000                 5,500
                                                                  ----------             ----------            ----------
    Loss before taxes on income                                     (212,133)               (18,384)             (107,909)

  Provision for income taxes                                               -                      -                     -
                                                                  ----------             ----------            ----------
    Loss from continuing operations                                 (212,133)               (18,384)             (107,909)
                                                                  ----------             ----------            ----------
  Discontinued operations, applicable to period 
    prior to entering  development stage:
       Income from discontinued operations                            39,571                      -                     -
                                                                  ----------             ----------            ----------
         Total income (loss) from discontinued operations             39,571                      -                     -
                                                                  ----------             ----------            ----------
    Loss before extraordinary item                                  (172,562)               (18,384)             (107,909)

Extraordinary item:
  Income from forgiveness of debt                                     27,586                 27,586                     -
                                                                  ----------             ----------            ----------
    Net income (loss)                                             $ (144,976)            $    9,202            $ (107,909)
                                                                  ==========             ==========            ==========
Basic earnings (loss) per common share from:
  Continuing operations                                                                  $  (0.0018)           $ (0.0114)
  Discontinued operations                                                                         -                    -
  Extraordinary item                                                                         0.0027                    -
                                                                                         ----------            ----------
    Net income (loss)                                                                    $   0.0009            $  (0.0114)
                                                                                         ==========            ==========
Weighted average number of shares outstanding                                            10,352,819             9,467,711
                                                                                         ==========            ==========
</TABLE> 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
<TABLE> 
<CAPTION> 
                                                                                                 THERAPY LASERS, INC. AND SUBSIDIARY
                                                                                                    (A DEVELOPMENT STAGE ENTERPRISE)
                                                                              STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                                                                                                          FEBRUARY 28, 1998 AND 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>             <C>              <C>             <C>             <C> 
                                                                                                       DEFICIT
                                                                                       PRIOR          ACCUMULATED
                                                                    ADDITIONAL        OPERATING       DURING THE
                                           COMMON STOCK               PAID IN        ACCUMULATED      DEVELOPMENT
                                       SHARES         AMOUNT          CAPITAL          DEFICIT           STAGE          TOTAL
                                     ----------      --------       -----------      -----------       ---------      ---------
 Balances, February 29, 1996          3,592,816       $ 3,593       $ 4,460,843      $(4,452,105)      $ (85,840)     $ (73,509)

 Stock issued to acquire
   LaserCare, Inc.                    5,750,776         5,751            12,766                                          18,517
 Stock issued for services              593,035           593            19,744                                          20,337
 Stock issued for cash                  206,000           206            20,994                                          21,200
 Services contributed by affiliated
   company, for which no shares
   were issued                                                           40,291                                          40,291
 Development stage net loss                                                                             (107,909)      (107,909)
                                     ----------      --------       -----------      -----------       ---------      ---------
 Balances, February 29, 1997         10,142,627        10,143         4,554,638       (4,452,105)       (193,749)       (81,073)

 Stock issued for services
   performed in prior year              120,000           120             5,880                                           6,000
 Stock issued for cash                  100,000           100             9,900                                          10,000
 Services contributed by affiliated
     company for which no shares
     were issued                                                          6,600                                           6,600
 Developmental stage net income                                                                            9,202          9,202
                                     ----------      --------       -----------      -----------       ---------      ---------
 Balances, February 28, 1998         10,362,627      $ 10,363       $ 4,577,018      $(4,452,105)      $(184,547)     $ (49,271)
                                     ==========      ========       ===========      ===========       =========      =========
</TABLE> 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
<TABLE> 
<CAPTION> 
                                                                                      THERAPY LASERS, INC. AND SUBSIDIARY
                                                                                         (A DEVELOPMENT STAGE ENTERPRISE)
                                                                           STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED
                                                                                               FEBRUARY 28, 1998 AND 1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                    <C>                 <C> 
                                                                              
                                                                  CUMULATIVE  
                                                                    MARCH 1,  
                                                                        1995
                                                                     THROUGH                  YEARS ENDED FEBRUARY 28,
                                                                 FEBRUARY 28,              ------------------------------
                                                                        1998                   1998                  1997
                                                                  ----------               --------            ----------
 Cash flows from operating activities:
  Net income (loss)                                               $ (144,976)              $  9,202            $ (107,909)

 Adjustments to reconcile  net income to cash 
  provided  (used) by  developmental stage activities:
     Income from forgiveness of debt                                 (27,586)               (27,586)                    -
     Discontinued operations                                         (39,571)                     -                     -
     Depreciation and amortization                                       809                    333                   333
     Stock issued for services                                        75,237                  6,000                20,337
     Services contributed                                             36,600                  6,600                30,000
     Decrease (increase) in accounts receivable                       (8,479)                (1,752)               (6,727)
     Increase (decrease) in accounts payable and
        accrued expenses                                               3,338                 (3,132)               10,881
     Increase (decrease) in due to related parties                     4,512                  1,439                 3,073
     Other increases, net                                              6,000                      -                     -
                                                                  ----------               --------            ----------
       Net cash provided (used) by operating
         activities                                                  (94,116)                (8,896)              (50,012)
                                                                  ----------               --------            ----------
 Cash flows from investing activities:                                     -                      -                     -
                                                                  ----------               --------            ----------
 Cash flows from financing activities:
   Proceeds from sale of common stock                                 63,675                 10,000                21,200
   Stock issued to acquire subsidiary                                 18,517                      -                18,517
   Capital contributed by affiliated company                          10,291                      -                10,291
   Decrease in long term debt                                             (8)                     -                    (8)
                                                                  ----------               --------            ----------
       Net cash provided (used) by financing activities               92,475                 10,000                50,000
                                                                  ----------               --------            ----------
       Net increase (decrease) in cash and equivalents                (1,641)                 1,104                   (12)

 Cash and equivalents, beginning of period                             2,925                    180                   192
                                                                  ----------               --------            ----------
 Cash and equivalents, end of period                              $    1,284               $  1,284            $      180
                                                                  ==========               ========            ==========
 Supplemental cash flow disclosures:
   Cash paid for interest                                         $   10,669               $  4,000            $    3,008
   Non-cash financing and investing activities:
     Income from forgiveness of debt                                  27,586                 27,586                     -
     Stock issued for services                                        75,237                  6,000                20,337
     Services contributed                                             36,600                  6,600                30,000
</TABLE> 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Following is a summary of the Company's organization and significant accounting
policies:

     ORGANIZATION AND NATURE OF BUSINESS - Therapy Lasers, Inc. (the Company) is
     a Nevada corporation engaged principally in searching for capital, in
     organizing and developing a wholesale electrical components business, and
     in investigating other business opportunities.  From March 1, 1995 until
     late 1996, the Company was attempting to establish markets in foreign
     countries (primarily Mexico and Canada) for medical laser products it had
     developed, and was seeking financing to obtain approval of the Food and
     Drug Administration to market the medical laser products in the United
     States.  In late 1996, the Company substantially discontinued its efforts
     in the laser field, as its efforts had been unsuccessful.  Also in late
     1996, the Company commenced activities in the wholesale electrical
     components business, serving as a non-stocking sales representative based
     in Houston, Texas for an affiliated company.  In that connection, the
     Company sells primarily to another affiliated company.  At year end, the
     Company was investigating other opportunities in related fields.

     The Company is deemed to have been in the development stage since March 1,
     1995.  Prior to that time, it was in the operating stage and was engaged in
     the sale and rental of medical supplies and equipment; these operations
     have been sold and/or discontinued.

     In its current development stage, management anticipates incurring
     substantial additional losses as it pursues its wholesale lighting business
     and as it investigates other business opportunities.

     On February 27, 1995, the Company changed its name from Medeci Corporation
     to Therapy Lasers, Inc.

     BASIS OF PRESENTATION - The accounting and reporting policies of the
     Company conform to generally accepted accounting principles, and, effective
     March 1, 1995, the accounting and reporting policies conform to generally
     accepted accounting principles of development stage enterprises.

     PRINCIPLES OF CONSOLIDATION - The accompanying financial statements include
     the accounts of its wholly owned subsidiary, LaserCare, Inc., also a
     development stage enterprise.  All significant intercompany transactions
     have been eliminated.

     USES OF ESTIMATES - The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements and the reported amount of 
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

     revenues and expenses during the reporting period. Actual results could
     differ from those estimates. The Company's periodic filings with the
     Securities and Exchange Commission include, where applicable, disclosures
     of estimates, assumptions, uncertainties and concentrations in products and
     markets which could affect the financial statements and future operations
     of the Company.

     CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
     the Company considers all cash in banks, money market funds, and
     certificates of deposit with a maturity of less than one year to be cash
     equivalents.

     FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS  -
     The carrying amounts of cash, accounts receivable, accounts payable, notes
     payable, and accrued expenses approximate fair value because of the short
     maturity of these items.   These fair value estimates are subjective in
     nature and involve uncertainties and matters of significant judgment, and,
     therefore, cannot be determined with precision.  Changes in assumptions
     could significantly affect these estimates.  At February 28, 1998, the
     Company had no derivative financial instruments.

     EQUIPMENT AND FURNISHINGS - Equipment and furnishings is stated at cost
     less accumulated depreciation, computed principally on the straight-line
     method over the estimated useful lives of the assets.  Estimated useful
     lives approximate five years.  Depreciation is taken on the straight-line
     method for tax purposes also, using lives prescribed by the Internal
     Revenue Code, which are similar to book basis lives.

     Maintenance and repairs of equipment and furnishings are charged to
     development stage expenses and new purchases and major improvements are
     capitalized.  Upon retirement, sale or other disposition, the cost and
     accumulated depreciation are eliminated from the accounts, and any gain or
     loss is included in operating income.

     FEDERAL INCOME TAXES - Deferred income taxes are reported for timing
     differences between items of income or expense reported in the financial
     statements and those reported for income tax purposes in accordance with
     Statement of Financial Accounting Standards number 109 Accounting for
     Income Taxes, which requires the use of the asset/liability method of
     accounting for income taxes.  Deferred income taxes and tax benefits 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, and for tax loss and credit
     carryforwards.  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.  The
     Company provides deferred taxes for the estimated future tax effects
     attributable to temporary differences and carryforwards when realization is
     more likely than not.
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

     Differences between book and tax income arise primarily from the valuation
     of stock issued for services.

     EARNINGS PER SHARE OF COMMON STOCK - Earnings per share of common stock is
     computed in accordance with Statement of Financial Accounting Standards
     number 128, Earnings Per Share, which became effective for financial
     statements for periods ending after December 15, 1997.  Prior periods have
     been restated to conform to the new pronouncement.  Basic earnings per
     share is computed by dividing net income (loss) by the weighed average
     number of shares of common stock outstanding during the period, after
     giving retroactive effect to stock splits, if any.  The company does not
     have a complex capital structure; therefore, there are no diluted earnings
     per share amounts presented.

NOTE 2 - GOING CONCERN ASSUMPTION:

The Company has incurred net operating losses and negative cash flow from
operations in recent years, and has disposed of its last operating subsidiary.
As of February 28, 1998, the Company had negative net worth in excess of $49,000
and operating revenues that were insufficient to generate a profit.  Included in
liabilities is a Federal tax lien for approximately $29,000 relating to unpaid
payroll taxes, which was incurred by prior management.  The Company has
submitted an offer in compromise to the Internal Revenue Service regarding this
liability, but there is no assurance the offer will be accepted.  Also, although
the Company realized $10,000 in cash from sales of common stock during the
current year, management is currently seeking additional cash flow through
potential acquisitions and/or mergers with operating companies, and management
is seeking to expand its wholesale components business, there is no assurance
that these activities will be successful.

These factors create substantial doubt about the Company's ability to continue
as a going concern.  The ability of the Company to continue as a going concern
is dependent upon (a) obtaining sufficient additional debt or equity financing
to finance operations, capital improvements, and other necessary activities, (b)
achieving a profitable level of operations, (c) acquiring a profitable business,
or (d) a combination of these actions.  The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.

NOTE 3 - RELATED PARTY TRANSACTIONS:

During the year ended February 28, 1997, the Company commenced limited
operations as a non-stocking sales representative in the wholesale electrical
components business.  All of its sales, totaling $62,170 (1998) and $10,552
(1997), were to Gulf Coast Fan & Light, Inc., and all of its purchases, totaling
$45,564 (1998) and $7,995 (1997), were from A C Global Corp., both of which
entities are controlled by the Company's principal shareholder.  At February 28,
1998, the 
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

Company was due $8,479 in accounts receivable from Gulf Coast Fan & Light, Inc.,
which arose from lighting fixture sales.

Also, at February 28, 1998, the Company was indebted to related parties as
follows:
 
DESCRIPTION                                                      BALANCE
Account payable to A C Global Corp. for purchases of
  electrical components                                          $ 6,512
Loan from Gulf Coast Fan & Light, Inc., non-interest
  bearing, unsecured, due February 28, 1999                        4,000
                                                                 -------
    Total                                                        $10,512
                                                                 =======

All of the above companies are controlled by the Company's principal
shareholder.

During the years ended February 28, 1998 and 1997, the salary of the Company's
Vice President was paid by affiliated companies, and a portion of his salary was
allocable to services for the Company.  The affiliates did not seek
reimbursement for such salary.  The estimated value of the contributed services
was $6,600 (1998) and $30,000 (1997), has been reflected in the accompanying
financial statements as a contribution to capital in excess of par value, and is
included in personnel and consulting costs.    Also, during the year ended
February 28, 1997, the Company received $5,000 in cash from an affiliated
company for which no stock was issued, and two affiliated companies forgave
$5,291 in balances due for prior years' advances for which no stock was issued.
Likewise, these amounts have been reflected as a contribution to capital in
excess of par value.

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Details of accounts payable and accrued expenses are as follows:
 
DESCRIPTION                                                      BALANCE
Accounts payable, trade                                          $17,598
Accrued expenses:
  Federal payroll tax lien, including accrued interest            29,115
                                                                 -------
     Total                                                       $46,714
                                                                 =======

Accounts payable, trade, include approximately $15,000 in estimated payables
that were incurred prior to March 1, 1995, as a provision related to the
Company's discontinued operations.  During the year ended February 28, 1998, no
demands were made on the Company for payment of these amounts.
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

Subsequent to February 28, 1998, the Company made an offer in compromise to the
Internal Revenue Service to settle the Federal tax lien for a nominal amount.
No response has yet been received.

NOTE 5 - NOTE PAYABLE TO BANK:

At February 28, 1997, the Company was obligated on a promissory note to a bank,
resulting from the discontinued operation of its Wellness business, having a
principal balance of $29,586, payable in monthly installments of interest only
at 10% per annum through July 5, 2001, at which time it was due in full.  The
note was collateralized by a lien on all of the Company's assets. During the
current year, the Company made an offer to the bank to settle this note for
$2,000, which was accepted by the bank.  Payment in full settlement was made on
May 19,1998.  Accordingly, the balance at February 28, 1998 has been reduced to
$2,000, and income from forgiveness of debt in the amount of $27,586 was
recognized, and is classified as an extraordinary item.

NOTE 6 - FEDERAL INCOME TAX:
The currently payable (refundable) provision (credit) for Federal income tax
consists of the following

<TABLE>
<CAPTION>
                                                                           1998                  1997
                                                                         ------------------------------
<S>                                                               <C>                    <C>
Currently payable (refundable) provision (credit),
attributable to:
    Current operations                                                   $ 5,400               ($26,500)
    Less:
      Benefit from net operating loss carryover                           (5,400)                     -
      Limitation due to absence of prior taxable income                        -                 26,500
                                                                         -------              ---------
    Net amount payable (refundable)                                      $     -              $       -
                                                                         ========             =========
</TABLE>

The Company follows Statement of Financial Accounting Standards number 109 (SFAS
109), Accounting for Income Taxes. Deferred income taxes reflect the net effect
of (a) temporary difference between carrying amounts of assets and liabilities
for financial purposes and the amounts used for income tax reporting purposes,
and (b) net operating loss carryforwards. The cumulative tax effect at the
expected rate of 35% of significant items comprising the Company's net deferred
tax amounts as of February 28, 1998 and 1997 are as follows:
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

                                                 1998                1997
                                               ---------          ---------
  Deferred tax assets attributable to:
     Net operating loss carryforward           $ 593,400          $ 598,900
                                               ---------          ---------
      Subtotal                                   593,400            598,900
    Less, Valuation allowance                   (593,400)          (598,900)
     Net deferred tax assets                   $       -          $       -
                                               =========          =========
                                                                                
At February 28, 1998 the Company had net operating loss carryovers of
approximately $1,695,000 which expire as follows:

  EXPIRES:                                                    AMOUNT
    December 31, 2003                                       $  101,000
    December 31, 2004                                          126,000
    February 28, 2007                                          459,000
    February 28, 2008                                          542,000
    February 28, 2010                                          389,000
    February 28, 2012                                           78,000
                                                            ----------
     Total                                                  $1,695,000
                                                            ==========
                                                                                
NOTE 7 - COMMITMENTS:
The Company occupies approximately 500 square feet of office space under a
month-to-month lease that requires monthly rentals of $764.  Rent expense
charged to operations were $9,177 (1998) and $8,525 (1997).

NOTE 8 - REVERSION TO DEVELOPMENT STAGE ENTERPRISE - As indicated in Note 1, the
Company has been a development stage enterprise since March 1, 1995.
Previously, it had been an operating company, and is deemed to have reverted to
a development stage enterprise effective March 1, 1995.   Certain items of
income or expense incurred during the year ended February 29, 1996 related to
discontinued operations during the period when the company was an operating
entity.  Accordingly, such items are not included in development stage loss.

The deficit accumulated while the Company was an operating company has been
segregated into a separate account from the development stage deficit since
accumulated.

NOTE 9 - ACQUISITION:
On March 12, 1996, the Company acquired 100% of the stock of LaserCare, Inc. in
exchange for 5,750,776 shares of its common stock.  A summary balance sheet of
LaserCare, a development stage enterprise, at February 29, 1996 follows:
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

ASSETS
  Cash                                                          $12,807
  Advances receivable, Therapy Lasers, Inc.                       6,000
                                                                -------
    Total assets                                                $18,807
                                                                =======
LIABILITIES
  Account payable, affiliated company                           $   290
                                                                -------
STOCKHOLDERS' EQUITY
  Common stock                                                    1,000
  Capital in excess of par value                                 21,000
  Deficit accumulated during the development stage               (3,483)
                                                                -------
    Total stockholders' equity                                   18,517
                                                                -------
    Total liabilities and stockholders' equity                  $18,807
                                                                =======

The above summary balance sheet is based on financial statements on which the
auditors disclaimed an opinion due to uncertainty as to the collectibility of
advances to Therapy Lasers, Inc. and its ability to continue as a going concern.

As a result of this transaction, one individual controls approximately 54% of
Therapy Lasers, Inc.'s outstanding common stock.  The transaction was accounted
for as a purchase, and was recorded at the net underlying assets of LaserCare.

Since its acquisition in March, 1996, LaserCare has had no substantial
operations.

In addition to the acquisition of LaserCare, the Company is actively seeking and
evaluating additional possible acquisition opportunities.

NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board has issued several new accounting
pronouncements which may affect the Company in future years. FASB Statement
Number 123, Accounting For Stock-Based Compensation, became effective in 1996,
prescribes a fair value based method of accounting for stock options and other
stock-based compensation.  FASB Statement Number 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments, became
effective in 1997 and prescribes disclosure requirements for fair values of
financial instruments and information about derative financial instruments,
among other things; non-public entities with less than $100 million in total
assets need not disclose the fair values of financial instruments. FASB
Statement Number 130, Reporting Comprehensive Income, becomes effective in 1998,
and requires that "comprehensive income" be reported in addition to Net 
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

Income. Comprehensive income includes changes in stockholders' equity that are
not reported in the income statement, such as changes in the fair values of
investments held for sale. The Company has not determined what effect, if any,
these pronouncements might have on its financial statements in the future.

NOTE 11 - YEAR 2000 COMPLIANCE:
The Company utilizes "off-the-shelf" computer software in its operations
obtained from major vendors such as Peachtree and Microsoft.  Currently,
management believes that most critical systems are year 2000 compliant, or will
be made compliant prior to December 31, 1999.  The estimated cost of becoming
compliant is minimal, and is not expected to have a material effect on the
financial statements or the Company's ability to serve its customers.

NOTE 12 - COMMON STOCK:
Since returning to the development stage, the Company has issued shares of its
common stock as follows:
 
<TABLE>
<CAPTION>
                                                                         PRICE PER
DESCRIPTION AND DATES                                 SHARES                 SHARE                AMOUNT
--------------------------------------------------------------------------------------------------------
<S>                                           <C>                   <C>                   <C>
SHARES ISSUED FOR CASH:
  March, 1995                                         40,000               $ 0.050               $ 2,000
  June, 1995                                         230,000                 0.050                11,500
  July, 1995                                         107,500                 0.050                 5,375
  August, 1995                                       112,000                 0.050                 5,600
  November, 1995                                     160,000                 0.050                 8,000
  June, 1996                                          40,000                 0.125                 5,000
  July, 1996                                          16,000                 0.125                 2,000
  August, 1996                                        80,000                 0.090                 7,200
  October, 1996                                       70,000                 0.100                 7,000
  March, 1997                                        100,000                 0.100                10,000
 
SHARES ISSUED TO ACQUIRE
  LASERCARE, INC. (1):
  March, 1996                                      5,750,776               $0.0032               $18,517
 
SHARES ISSUED FOR SERVICES (2):
  August, 1995                                       209,000               $ 0.100               $20,900
  November, 1995                                     120,000                 0.100                12,000
  February, 1996                                     128,000                 0.125                16,000
  May, 1996                                          160,000                 0.050                 8,000
  August, 1996                                        96,000                 0.076                 7,296
  December, 1996                                      96,000                 0.050                 4,800
  March, 1997                                        120,000                 0.050                 6,000
</TABLE>
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE ENTERPRISE)
                                                   NOTES TO FINANCIAL STATEMENTS
                                         FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------------

     (1)  Transaction recorded at net book value of LaserCare, Inc.
     (2)  Value based on management's estimate of fair value at date of
          issuance.

On March 24, 1995, the Company granted nonqualified options to certain officers,
directors, and key employees to purchase 200,000 shares of common stock at $.05
per share at any time prior to March 24, 1998.  None of the options had been
exercised at February 29, 1998, and the options lapsed in March, 1998.  No
compensation expense was recognized upon granting of the options.