<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, 1997       COMMISSION FILE NUMBER 0-18515
                                                                                

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


            NEVADA                                              93-0960302
-------------------------------                           ----------------------
(State or other jurisdiction of                                (IRS Employer 
incorporation or organization)                            Identification Number)
 

            10850 RICHMOND AVENUE, SUITE 216, HOUSTON, TEXAS  77042
            -------------------------------------------------------
                   (Address of Principal Executive Offices)

       Company's telephone number, including area code:   (713) 783-0443

    ------------------------------------------------------------------------- 
    (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 $10,552.
 
As of June 9, 1997, 10,362,627 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 9, 1997 (based upon the mean
of the closing bid and asked price) held by nonaffiliates of the Company, was
approximately $185,473.

                     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, 1996, 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 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.

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.

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 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 

                                       4
<PAGE>
 
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 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.


(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


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 is
possible to prove photochemical reactions at a pica second time scale, and
further excite higher electronic states in target molecules through multiphoton

                                       5
<PAGE>
 
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.

(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 

                                       6
<PAGE>
 
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 two full time employees, Lucien H.
Cullen, Chairman, and Leon D. Hogg, President and CEO.  Both Mr. Hogg and Mr.
Cullen are compensated solely by the issuance of stock for their services.  In
addition, 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.

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 

                                       7
<PAGE>
 
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 occupies approximately 800 sq. ft. of office space at 10850 Richmond
Avenue, Suite 216, Houston, Texas  77042, pursuant to a month-to-month lease.

 
ITEM 3.   LEGAL PROCEEDINGS

None.


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

The Company's shareholders voted, in their annual meeting on February 27, 1995,
to change the Company's name from Medici Corporation to Therapy Lasers, Inc.,
and to sell the Wellness subsidiary.  THS Wellness was sold on June 21, 1995 to
American Medical Corporation.

At the February 28, 1996 meeting of the shareholders, acquisition of LaserCare,
Inc. was discussed and unanimously approved to be acquired as a wholly-owned
subsidiary of LaserCare, Inc.


                                    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, 1997, 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, 1996            HIGH         LOW
       1st Quarter                                  $ .125      $  .06
       2nd Quarter                                  $ .125      $  .03
       3rd Quarter                                  $  .06      $  .03
       4th Quarter                                  $  .19      $  .03
 
     FISCAL YEAR ENDING FEBRUARY 28, 1997
       1st Quarter                                  $.1875      $.1250
       2nd Quarter                                  $.3438      $.1250
       3rd Quarter                                  $.3125      $.2813
       4th Quarter                                  $.2813      $.0938

                                       8
<PAGE>
 
As of June 9, 1997, the Company had 476 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 $88,000 and a working capital deficit of
$52,000 as of February 28, 1997 compared to $48,000 at February 29, 1996.  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, 1997 compared with 1996

The Company had $10,552 in sales and $2,557 in gross profits for the year ended
February 28, 1997, compared with none for February 29, 1996.   Expenses
(including interest) were $110,466 for 1997, compared to $85,840 for 1996.  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 1998, the
Company plans to continue keep expenses at the lowest possible level until sales
revenue is large 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
1997 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, 1997 had the following executive officers elected
by the Board of Directors on February 28, 1996:

<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 43, owns 5,493,511 shares of the Company's
common stock, either directly, or through his spouse, children, or entities
controlled by him, amounting to approximately 54% 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 76.  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 77.  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.

                                       10
<PAGE>
 
Robert C. Meador, Jr., 35.  For the past ten years employed by Gulf Coast Fan &
Light Inc., the last 1 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, 43.  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.


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, 1997 or 1996.  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:

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


At February 28, 1997, none of the options had been exercised. All of the above
options expire 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.

                                       11
<PAGE>
 
(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.

(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 9, 1997, 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
       6026 Dashwood
       Houston, Texas  77081                5,493,511 (A)            53.0%
     Mark Chapman
       4102 University Boulevard
       Houston, Texas 77005                   655,810                 6.3%

(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                      3,699,317
     Family of Charles Sheffield:
       Carolyn Sheffield, spouse              287,539                 2.8%
       Adult children                         575,078                 5.5%
       Minor child                            287,539                 2.8%
     Entities controlled by 
      Charles Sheffield:                       
       Gulf Coast Fan & Light, Inc.           500,269                 4.8%
       U.S. Design & Construction, Inc.       143,769                 1.4%
                                          -------------------------------
         Total                              5,493,511                53.0%
                                          ===============================


The following table sets forth, as of June 9, 1997, 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%

                                       12
<PAGE>
 
     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%


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, 1995 to February 28, 1997 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:
       (1) LISTING OF SUBSIDIARIES OF REGISTRANT:

       NAME                                           PERCENTAGE OWNED
       LaserCare, Inc.                                    100.00%
       Houston, Texas
       (acquired March 12, 1996)

       (2)  FINANCIAL DATA SCHEDULE - See Financial data schedule attached.

(B)  REPORTS FILED ON FORM 8-K:

                                       13
<PAGE>
 
                                                                  FINANCIAL
                                                                  STATEMENTS
DATE               TRANSACTION OR EVENT REPORTED                    FILED
03/14/96,    Change in control of registrant; acquisition       LaserCare, Inc.
amended      of LaserCare, Inc.; change in registrant's            02/29/96 
4/30/96      certifying accountant from Philip H. Salchli, 
             CPA to Bateman, Blomstrom & Co.
     

                                  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: July 31, 1997               
   ---------------------------
    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,       July 31, 1997
Lucien Hugh Cullen                    Secretary-Treasurer
                                      Director
 
/s/ Leon D. Hogg
---------------------------------     President,                   July 31, 1997
Leon D. Hogg                          Chief Executive Officer,
                                      Director
 
/s/ Robert C. Meador, Jr.
---------------------------------     Vice President,              July 31, 1997
Robert C. Meador, Jr.                 Director


   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
 
                                                                         PAGE
                                                                         ----
A.  FINANCIAL STATEMENTS
 
    Reports of independent certified public accountants                   F-2
 
    Balance sheet - February 29, 1997                                     F-3
 
    Statements of loss for the periods ended
      February 18, 1997 and February 29, 1996                             F-4
 
    Statements of stockholders' equity for the two years
      ended February 28, 1997 and February 29, 1996                       F-5
 
    Statements of cash flows for the two years ended
      February 28, 1997 and February 29, 1996                             F-6
 
    Notes to consolidated financial statements                            F-7
 
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.

C.   REPORTS ON FORM 8-K                                                 F-15

                                      F-1
<PAGE>
 
             [Letterhead of Bateman, Blomstrom & Co. appears here]


               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, 1997 and the
related statements of loss, stockholders' equity, and cash flows for the two
years then ended.  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, 1997, and the
results of its operations and cash flows for the two years then ended 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.



                                 /s/ BATEMAN, BLOMSTOM & CO.
                                 ---------------------------------------
                                 BATEMAN, BLOMSTROM & CO.

Houston, Texas
June 14, 1997

                                      F-2
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                                   Balance Sheet
                                                                February 28,1997
--------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
 
 
ASSETS
<S>                                                                  <C>
  Current assets:
    Cash                                                             $       180
    Accounts receivable, affiliated company (Note 5)                       6,727
                                                                     -----------
      Total current assets                                                 6,907
                                                                     -----------
 
  Property and equipment, net of accumulated depreciation of $476            524
                                                                     -----------
      Total assets                                                   $     7,431
                                                                     ===========
 
 
LIABILITIES
  Current liabilities:
    Accounts payable and accrued expenses (Note 6)                   $    49,845
    Due to related parties (Note 5)                                        9,073
                                                                     -----------
      Total current liabilities                                           58,918
                                                                     -----------
 
  Noncurrent liabilities:
    Long term debt (Note 7)                                               29,586
                                                                     -----------
      Total noncurrent liabilities                                        29,586
                                                                     -----------
 
      Total liabilities                                                   88,504
                                                                     -----------
 
  Commitments and contingencies (Note 9)                                       -
 
STOCKHOLDERS' EQUITY
  Common stock, $.001 par value, 100,000,000 shares authorized,
     10,142,627 shares issued and outstanding                             10,143
  Capital in excess of par value                                       4,554,638
  Accumulated deficit (Note1):
    Prior operating accumulated deficit                               (4,452,105)
    Accumulated during the development stage                            (193,749)
                                                                     -----------
      Total stockholders' equity                                         (81,073)
                                                                     -----------
      Total liabilities and stockholders' equity                     $     7,431
                                                                     ===========
 
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                        Statements of Loss For The Periods Ended
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                                  Cumulative
                                                                   March 1,
                                                                     1995
                                                                   through              Years Ended February 28/29 
                                                                 February 28,          ----------------------------
                                                                     1997                  1997              1996
                                                                 ------------          ----------           ------- 
<S>                                                              <C>                   <C>                  <C>
Sales                                                              $   10,552          $   10,552         
Cost of sales                                                           7,995               7,995         
                                                                   ----------          ----------         ---------
  Gross profit                                                          2,557               2,557                --
                                                                   ----------          ----------         ---------
                                                                                                          
Operating expenses:                                                                                       
  Personnel and consulting costs                                      115,596              56,096            59,500
  Rent and occupancy                                                   12,975               8,525             4,450
  Legal and professional fees                                          33,507              28,992             4,515
  Depreciation and amortization                                           476                 333               143
  Other general and administrative                                     20,561              11,020             9,541
                                                                   ----------          ----------         ---------
    Total operating expenses                                          183,115             104,966            78,149
                                                                   ----------          ----------         ---------
    Loss from operations                                             (180,558)           (102,409)          (78,149)
                                                                                                          
Other expense:                                                                                            
  Interest                                                             13,191               5,500             7,691
                                                                   ----------          ----------         ---------
    Loss before taxes on income                                      (193,749)           (107,909)          (85,840)
                                                                                                          
  Provision for income taxes                                               --                  --                --
                                                                   ----------          ----------         ---------
    Loss from continuing operations                                  (193,749)           (107,909)          (85,840)
                                                                   ----------          ----------         ---------
                                                                                                          
Discontinued operations, applicable to period prior                                                       
  to entering development stage:                                                                          
    Income (loss) from discontinued operations                         39,571                  --            39,571         
                                                                   ----------          ----------         ---------
      Total income (loss) from discontinued operations                 39,571                  --            39,571         
                                                                   ----------          ----------         ---------
        Net loss                                                    $(154,178)          $(107,909)         $(46,269)
                                                                   ==========          ==========         =========
                                                                                                          
Net loss per common share:                                                                                
  Loss from continuing operations                                                        $(0.0114)         $(0.0304)
  Discontinued operations                                                                      --            0.0140
                                                                                       ----------         ---------
                                                                                         $(0.0114)         $(0.0164)
                                                                                       ==========         =========
                                                                                                          
Weighted average number of shares outstanding                                           9,467,711         2,823,953         
                                                                                       ==========         =========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                          Statements of Stockholders' Equity For The Years Ended
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 Deficit
                                                                                     Prior     Accumulated
                                                                    Additional     Operating   During the
                                                 Common Stock        Paid In      Accumulated  Development
                                               Shares     Amount     Capital        Deficit       Stage        Total
                                             ----------  --------    ----------   ----------  -----------   ---------
<S>                                          <C>         <C>         <C>          <C>         <C>           <C> 
Balances, February 28, 1995                   2,486,316     2,486     4,380,575    (4,491,676)          -     (108,615)
 
Stock issued for services                       457,000       457        48,443                                 48,900
Stock issued for cash                           649,500       650        31,825                                 32,475
Development stage loss
  from continuing operations                                                                        (85,840)   (85,840)
Income from discontinued
  operations                                                                           39,571                   39,571
                                             ----------   -------    ----------   -----------     ---------  --------- 
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. (Note 11)                   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
Capital contributed by affiliated
  company, for which no shares
  were issued                                         -                  40,291                                 40,291
Development stage loss
  from continuing operations                                                                       (107,909)  (107,909)
                                             ----------   -------    ----------   -----------     ---------  ---------  
Balances, February 29, 1997                  10,142,627   $10,143    $4,554,638   $(4,452,105)    $(193,749) $ (81,073)
                                             ==========   =======    ==========   ===========     =========  =========   
</TABLE>

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      F-5
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                  Statements of Cash Flows For The Periods Ended
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  Cumulative
                                                                   March 1,
                                                                     1995
                                                                   through          Years Ended February 28/29, 
                                                                 February 28,       -----------------------------
                                                                     1997              1997             1996
                                                                 ------------       -----------      ------------ 
<S>                                                              <C>                <C>               <C>
 
Cash flows from operating activities:
 Net loss                                                           $(154,178)        $(107,909)        $(46,269)
 
Adjustments to reconcile net income to cash
  provided (used) by developmental stage activities:
     Discontinued operations                                          (39,571)                -          (39,571)
     Depreciation and amortization                                        476               333              143
     Stock issued for services                                         69,237            20,337           48,900
     Services contributed                                              30,000            30,000
     Decrease (increase) in accounts receivable                        (6,727)           (6,727)               -
     Increase (decrease) in accounts payable and
        accrued expenses                                                6,470            10,881           (4,411)
      Increase in due to related parties                                3,073             3,073
    Other increases, net                                                6,000                 _            6,000
                                                                    ---------         ---------         --------  
      Net cash provided (used) by operating
        activities                                                    (85,220)          (50,012)         (35,208)
                                                                    ---------         ---------         --------  
Cash flows from investing activities:                                       -                 -                -
                                                                    ---------         ---------         --------   
Cash flows from financing activities:
  Proceeds from sale of common stock                                   53,675            21,200           32,475
  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                 82,475            50,000           32,475         
                                                                    ---------         ---------         -------- 
      Net increase (decrease) in cash and equivalents                  (2,745)              (12)          (2,733)
                                                                                                        
Cash and equivalents, beginning of period                               2,925               192            2,925
                                                                    ---------         ---------         --------   
Cash and equivalents, end of period                                 $     180         $     180         $    192
                                                                    =========         =========         ========   
Supplemental cash flow disclosures:                                                                     
  Cash paid for interest                                            $   6,699         $   3,008         $  3,691
  Non-cash financing and investing activities:                                                          
    Stock issued to settle debt                                             -                 -                -
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      F-6
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

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 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 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.

                                      

                                      F-7
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

     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 Company has adopted Statement of Financial Accounting Standards number
     119, Disclosure About Derivative Financial Instruments and Fair Value of
     Financial Instruments. The carrying amounts of cash, accounts receivable,
     accounts payable, and accrued expenses approximate fair value because of
     the short maturity of these items.   The carrying amount of long term debt
     approximates fair value because the interest rate on this instrument
     approximates a market interest rate.   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,
     1997, 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.

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

     NET INCOME PER SHARE OF COMMON STOCK - Net income per share of common stock
     is computed by dividing net income by the weighed average number of shares
     of common stock outstanding during the period, after giving retroactive
     effect to stock splits, if any.

                                      F-8
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

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, 1997, the Company had negative net worth in excess of $81,000
and minimal operating revenues.  Included in liabilities is a lien for
approximately $29,000 in favor of a local bank and a Federal tax lien for
approximately $27,000 relating to unpaid payroll taxes, both of which were
incurred by prior management.  Although the Company realized approximately
$21,000 in cash from sales of common stock during the current year, and although
management is currently seeking additional cash flow through potential
acquisitions and/or mergers with operating companies and 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 research and development
activities, (b) attaining a profitable level of operations, (c) sales of
technology, (d) acquiring a profitable business, or (e) 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 - DISCONTINUED OPERATIONS:

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 previously reported
during the year ended February 28, 1995.

Income (loss) from discontinued operations consists of the following:
<TABLE>
<CAPTION>
 
                                         YEAR ENDED FEBRUARY 28/29,
                                         --------------------------
                                             1997          1996
                                            -------       -------
<S>                                         <C>           <C>
 
Total revenues                                    -       $39,571
Costs and expenses                                -             -
                                            -------       -------
      Income (loss) from discontinued      
       operations                           $     -       $39,571 
                                            =======       =======
</TABLE>

During the year ended February 29, 1996, the Company settled or compromised
several liabilities for less than recorded amounts which had been incurred in
prior years in connection with the discontinued operations.  The settlements are
reflected in the accompanying statement of loss as income from discontinued
operations.

Due to the availability of a net operating loss carryforward, there was no
Federal income tax effect applicable to loss from discontinued operations or
loss on disposal of the segment.

Net liabilities of discontinued operations included in the accompanying balance
sheet are as follows:

                                      F-9
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE>
 
<S>                                             <C>
Accounts payable                                $15,000
Accrued expenses                                 26,464
Long term debt                                   29,586
                                                -------
     Total net liabilities                      $71,050
                                                =======
</TABLE>

NOTE 4 - COMMON STOCK:

The Company has 100,000,000 shares of authorized common stock having a par value
of $.001 per share.  Information relating to common stock are as follows:

<TABLE>
<CAPTION>
                                             1997         1996
                                          -----------  ----------
<S>                                       <C>          <C>
Shares outstanding at year end             10,142,627   3,592,816
 
Weighted average number of shares         
 outstanding during the year                9,467,711   2,823,953
 
Stock issued for services:
     Number of shares issued                  593,035     457,000
     Value of shares issued to officers
      and directors for salaries         
           and bonuses                    $    20,337  $   48,900 
     Average value per share              $     .0343  $    .1070
 
Stock issued for cash (including
 officers and directors):                    
     Number of shares issued                  206,000     649,500
     Total amount received                $    21,200  $   32,475
     Price per share                      $     .1029  $      .05
</TABLE>

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, 1997.  No compensation expense was recognized upon
granting of the options.

NOTE 5 - 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 $10,552, were to Gulf Coast Fan
& Light, Inc., and all of its purchases, totaling $7,995, were from A C Global
Corp., both of which entities are controlled by the Company's principal
shareholder.  At February 28, 1997, the Company had $6,727 in accounts
receivable from Gulf Coast Fan & Light, Inc., which arose from lighting fixture
sales.

Also, at February 28, 1997, the Company was indebted to related parties as
follows:

                                      F-10
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 
 
DESCRIPTION                                            BALANCE
<S>                                                    <C>
Account payable to A C Global Corp. for
 purchases of electrical components                    $5,073
Loan from Gulf Coast Fan & Light, Inc.,
 non-interest bearing, unsecured, due
 February 28, 1998                                      4,000
                                                      -------
    Total                                              $9,073
                                                      =======
</TABLE>

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

During the year ended February 28, 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 $30,000 and 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 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Details of accounts payable and accrued expenses are as follows:
<TABLE>
<CAPTION>
 
DESCRIPTION                               BALANCE
<S>                                       <C>
Accounts payable, trade                   $17,380
Accrued expenses:
  Federal payroll tax lien, including     
   accrued interest                        26,465
  Accrued salaries                          6,000
                                          -------
     Total                                $49,845
                                          =======
</TABLE>

NOTE 7 - LONG TERM DEBT:

The Company is 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 is due in full.  The note is
collateralized by a lien on all of the Company's assets.  Maturities of the note
are as follows:
<TABLE>
<CAPTION>
 
YEAR ENDED FEBRUARY 28:                 AMOUNT
<S>                                     <C>
  2002                                  $29,586
                                        -------
     Total                              $29,586
                                        =======
</TABLE>

NOTE 8 - FEDERAL INCOME TAX:

At February 28, 1997, the Company had net operating loss carryovers of
approximately $1,685,000, which expire as follows:

                                      F-11
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 
EXPIRES FEBRUARY 28:                    AMOUNT
<S>                                     <C>
  2003                                  $  118,000
  2004                                     126,000
  2007                                     458,000
  2008                                     542,000
  2010                                     389,000
  2012                                      52,000
                                        ----------
    Total                               $1,685,000
                                        ==========
</TABLE>

No provision for currently refundable Federal income tax has been made in the
accompanying statements of loss as no recoverable taxes were paid previously.
Similarly, no deferred tax asset attributable to the net operating loss
carryforward has been recognized, as its realization is less likely than not.

NOTE 9 - 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 $8,525 (1997) and $4,450 (1996).

NOTE 10 - 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 11 - 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:

<TABLE>
<CAPTION> 

ASSETS

<S>                                           <C>
  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
</TABLE> 

                                      F-12
<PAGE>
 
                                             THERAPY LASERS, INC. AND SUBSIDIARY
                                                (A development stage enterprise)
                                                   Notes to Financial Statements
                                         February 28, 1997 and February 29, 1996
--------------------------------------------------------------------------------

<TABLE> 
<S>                                      <C> 
  Deficit accumulated during the                   
   development stage                       (3,483) 
    Total stockholders' equity             18,517
                                          -------
    Total liabilities and stockholders'           
     equity                               $18,807 
                                          =======
</TABLE>

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.

If the transaction had been completed on March 1, 1995, proforma results of
operations for the year ended February 29, 1996 would be as follows (including
operations of LaserCare, Inc. from its inception, March 28, 1995, through
February 29, 1996):

<TABLE>
<CAPTION>
                                             THERAPY     LASERCARE,    COMBINED
                                          LASERS, INC.      INC.      (PROFORMA)
                                          ------------   -----------  --------- 
<S>                                       <C>            <C>          <C>
Developmental stage expenses:
  Personnel and consulting costs              $ 59,500                 $ 59,500
  Rent and occupancy                             4,450                    4,450
  Legal and professional fees                    4,515      $   267       4,782
  Depreciation and amortization                    143                      143
  Other general and administrative               9,541        3,216      12,757
  Interest                                       7,691                    7,691
                                              --------      --------   -------- 
    Development stage loss from operations     (85,840)      (3,483)    (89,323)
 
Discontinued operations applicable to
 operating period prior to entering
 development stage:                                                            
                                                                               
    Income from discontinued operations         39,571                   39,571
      Net loss                                --------      --------   --------
                                              $(46,269)     $(3,483)   $(49,752)
                                              ========      =======    ======== 
</TABLE>

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.

                                      F-13