PREMIER LASER SYSTEMS INC, POS AM, 1996-07-10

PREMIER LASER SYSTEMS INC
POS AM, 1996-07-10
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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As Filed with the Securities and Exchange Commission on July 10, 1996.
Registration No. 33-83984
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________

POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________________

PREMIER LASER SYSTEMS, INC.
(Name of small business issuer in its charter)

<S><C>
CALIFORNIA 3841 33-0476284
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

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3 MORGAN
IRVINE, CALIFORNIA 92718
(714) 859-0656
(Address and telephone number of principal executive offices)

COLETTE COZEAN, PH.D.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PREMIER LASER SYSTEMS, INC.
3 MORGAN
IRVINE, CALIFORNIA 92718
(714) 859-0656
(Name, address and telephone number of agent for service)

Copies to:
THOMAS G. BROCKINGTON, ESQ.
ELLEN S. BANCROFT, ESQ.
RUTAN & TUCKER
611 ANTON BOULEVARD, SUITE 1400
COSTA MESA, CALIFORNIA 92626
(714) 641-5100

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/

Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to anti-dilution provisions of the
Class A Warrants and Class B Warrants and/or the IPO Unit Purchase Options,
as defined herein.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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PREMIER LASER SYSTEMS, INC.

CROSS REFERENCE SHEET

FORM SB-2 ITEM CAPTION IN PROSPECTUS
- -------------- ----------------------------------

PART I

1. Front of Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . Outside Front Cover Page of
Prospectus

2. Inside Front and Outside Back
Cover Pages of Prospectus. . . . Inside Front and Outside Back Cover
Pages of Prospectus; Available
Information

3. Summary Information and Risk
Factors. . . . . . . . . . . . . Prospectus Summary; Risk Factors

4. Use of Proceeds. . . . . . . . . Use of Proceeds

5. Determination of Offering Price. Risk Factors; Plan of Distribution

6. Dilution. . . . . . . . . . . . Not Applicable

7. Selling Security Holders . . . . Concurrent Offering by Selling
Securityholders

8. Plan of Distribution . . . . . . Plan of Distribution

9. Legal Proceedings . . . . . . . Business-Legal Proceedings

10. Director, Executive Officers,
Promoters and Control Persons. . Management

11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders

12. Description of Securities . . . Description of Securities

13. Interest of Named Experts and
Counsel . . . . . . . . . . . . Not Applicable

14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities . . . Management-Director Compensation

15. Organization within Last Five
Years . . . . . . . . . . . . . Certain Transactions

16. Description of Business . . . . Business

17. Management's Discussion and
Analysis or Plan of Operation. . Management's Discussion and Analysis
of Financial Condition and Results of
Operations

18. Description of Property . . . . Business-Facilities

19. Certain Relationships and
Related Transactions . . . . . . Certain Transactions

20. Market for Common Equity and
Related Stockholder Matters . . Price Range of Class A
Common Stock; Dividend Policy

21. Executive Compensation . . . . Management

22. Financial Statements . . . . . . Selected Financial Data;
Financial Statements

23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure . . . . Not Applicable

<PAGE>
EXPLANATORY NOTE

This Post Effective Amendment No. 2 to Form SB-2 Registration Statement
covers the registration of (i) the offer and sale of Class A Common Stock, no
par value ("Class A Common Stock") of Premier Laser Systems, Inc., a
California corporation (the "Company") and redeemable Class B Warrants of the
Company ("Class B Warrants"), pursuant to outstanding redeemable Class A
Warrants of the Company ("Class A Warrants") and Class B Warrants issued in
the Company's underwritten initial public offering in December 1994 and
January 1995 or subsequently sold in registered resales by selling
securityholders, and (ii) the resale of Class A Warrants by certain holders
thereof who acquired such securities in a private transaction, and the sale
of the Class A Common Stock and Class B Warrants issuable upon exercise of
such Class A Warrants.

The first of these transactions involves the registration of (1) up to
3,720,050 units (the "Units"), each Unit consisting of one share of Class A
Common Stock, and one Class B Warrant, for sale by the Company upon the
exercise of Class A Warrants, and (2) an additional 6,526,000 shares of Class
A Common Stock issuable upon exercise of outstanding Class B Warrants or
Class B Warrants issuable upon exercise of the Class A Warrants contained
within the Units. The second of these transactions involves the registration
of (3) an additional 79,000 Class A Warrants, for resale by the holders
thereof (the "Remaining Selling Securityholders' Warrants") in an offering
that is not underwritten, and (4) an additional 79,000 shares of Class A
Common Stock and 79,000 Class B Warrants underlying the Remaining Selling
Securityholders' Warrants, and 79,000 shares of Class A Common Stock issuable
upon exercise of the Class B Warrants underlying the Remaining Selling
Securityholders' Warrants. The Remaining Selling Securityholders' Warrants
were issued upon the closing of the underwritten offering in exchange for
warrants issued in a private placement by the Company completed in August
1994 prior to the filing of this Registration Statement. The Remaining
Selling Securityholders' Warrants became freely tradeable 45 days from the
date of the final Prospectus included in this Registration Statement (which
date was November 30, 1994).

Following the Prospectus for the offering made pursuant to outstanding
Class A Warrants and Class B Warrants are the following pages of the Prospectus
relating solely to the resale of the Remaining Selling Securityholders' Warrants
and the securities underlying the Remaining Selling Securityholders' Warrants:
alternate front and back cover pages and sections entitled "Concurrent Offering"
and "Selling Securityholders and Plan of Distribution," to be used in lieu of
the sections entitled "Concurrent Offering by Selling Securityholders" and "Plan
of Distribution." All other sections of the Prospectus for the offering made
pursuant to the outstanding Warrants are to be used in the Prospectus relating
to the resale of the Remaining Selling Securityholders' Warrants and the
securities underlying the Remaining Selling Securityholders' Warrants.

The Registration Statement on Form SB-2 which is amended by this
Post-Effective Amendment also registered the issuance of options issued to
the Company's underwriter in its December 1994 initial public offering, and
the issuance of options issued to certain finders in such offering, as well
as the issuance of underlying securities upon the exercise of such options.
This Post-Effective Amendment is not intended to deregister any of the
securities so registered, and such Registration Statement, as amended hereby,
is intended to continue to register such transactions.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION - DATED JULY 10, 1996
PROSPECTUS

PREMIER LASER SYSTEMS, INC.

3,720,050 UNITS, EACH CONSISTING OF ONE SHARE OF
CLASS A COMMON STOCK AND ONE REDEEMABLE CLASS B WARRANT,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS A WARRANTS
AND
6,526,000 SHARES OF CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS B WARRANTS

Premier Laser Systems, Inc., a California corporation (the "Company")
hereby offers: (i) 3,720,050 Units ("Units") issuable upon the exercise of
3,720,050 outstanding Class A Warrants ("Class A Warrants"), each Unit
consisting of one share of Class A Common Stock, no par value ("Class A
Common Stock") and one redeemable Class B Warrant ("Class B Warrant"); and
(ii) 6,526,000 shares of Class A Common Stock issuable upon the exercise of
Class B Warrants which are either presently outstanding or are issuable upon
the exercise of Class A Warrants. The shares of Class A Common Stock and
Class B Warrants included in the Units will be immediately separately
transferable and the Units will not trade as a separate security. An
aggregate of 2,400,000 of the outstanding Class A Warrants and Class B
Warrants (collectively, the "Warrants") were issued in connection with the
Company's initial public offering ("IPO") in December 1994 of 2,400,000 units
("IPO Units"), with each IPO Unit consisting of one share of Class A Common
Stock, one Class A Warrant and one Class B Warrant. In January 1994, D.H.
Blair Investment Banking Corp. ("Blair"), as the underwriter in the IPO,
exercised its over-allotment option to purchase an additional 360,000 IPO
Units. The Company also registered in the IPO 1,085,000 Class A Warrants
(the "Selling Securityholders' Warrants") on behalf of certain selling
securityholders (the "Selling Securityholders"), of which 1,006,000 have been
sold to date by the Selling Securityholders. There are 3,720,050 Class A
Warrants outstanding and 2,760,000 Class B Warrants outstanding as of the
date of this Prospectus (excluding the Warrants that continue to be held by
Selling Securityholders and 321,099 Class A Warrants and 321,099 Class B
Warrants included in IPO Units issued in a private transaction in December
1994 (the "Investor Warrants")). Assuming the exercise of all outstanding
Class A Warrants (excluding the Investor Warrants and the 79,000 Class A
Warrants that continue to be held by Selling Securityholders (the "Remaining
Selling Securityholder Warrants")), there will be 3,720,050 additional Class
B Warrants issuable, for a total of 6,526,000 Class B Warrants. Each Class A
Warrant entitles the registered holder thereof to purchase one Unit at $6.50
on or prior to November 30, 1999. Each Class B Warrant entitles the
registered holder thereof to purchase one share of Class A Common Stock at
$8.00 on or prior to November 30, 1999. The exercise prices of the Warrants
are subject to adjustment. The Class A Warrants and Class B Warrants are
subject to redemption by the Company at $.05 per warrant on 30 days' written
notice commencing November 30, 1997, provided that the average closing bid as
reported by the Nasdaq National Market ("Nasdaq") of the Class A Common Stock
exceeds $9.10 or $11.20 per share, respectively, for 30 consecutive trading
days ending within 15 days of the notice of redemption.
________________________________

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" AND "DILUTION."
________________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The Class A Common Stock is one of three classes of the Company's Common
Stock: Class A, Class E-1 and Class E-2 (which are collectively referred to
herein as the "Common Stock"). See "Description of Securities - Common Stock."

THE DATE OF THIS PROSPECTUS IS , 1996
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The Company has agreed to pay to Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise prices in connection with the
exercise of Warrants under certain conditions. See "Plan of Distribution." The
exercise prices of the Warrants were determined by negotiation between the
Company and Blair, and are not necessarily related to the Company's asset value,
net worth or other criteria of value.

The Company's Class A Common Stock, Class A Warrants and Class B
Warrants are traded on the Nasdaq National Market under the symbols PLSIA,
PLSIW and PLSIZ, respectively. The Company's IPO Units are traded on the
Nasdaq SmallCap Market under the symbol PLSIU. On July 5, 1996, the closing
sale prices of the IPO Units, Class A Common Stock, Class A Warrants and
Class B Warrants were $17, $8 7/8, $5 1/2 and $2 3/4, respectively.

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Warrant Warrant Proceeds to
Exercise Price Solicitation Fee(1) Company(2)
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Per Class A Warrant $6.50 $.33 $6.17
Total (3) $24,180,325 $1,227,617 $22,952,708
Per Class B Warrant $8.00 $.40 $7.60
Total (3) $52,208,000 $2,610,400 $49,597,600
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(1) Represents Solicitation Fees payable to Blair pursuant to the Warrant
Agreement between the Company and Blair in certain circumstances. See
"Plan of Distribution."

(2) Before deducting expenses of the offering payable by the Company, estimated
to be $40,000.

(3) Assumes the exercise of all Class A Warrants and Class B Warrants. There
can be no assurance that any of the Warrants will be exercised.

<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 ("Registration Statement")
under the Securities Act of 1933, as amended (the "Act") with respect to the
securities offered hereby. This Prospectus omits certain information contained
in the Registration Statement, and exhibits and schedules thereto, as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the contents of any contract
or other document are not necessarily complete and, in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional office of the Commission located at 5670 Wilshire Blvd., 11th Floor,
Los Angeles, California 90036-3648. Copies of all or any part thereof may be
obtained from the Commission upon the payment of the fees prescribed by the
Commission.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be
obtained at prescribed rates from the Commission at such address. Such reports,
proxy statements and other information can also be inspected at the Commission's
regional offices at 75 Park Place, 14th Floor, New York, New York 10007 and 500
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.

A copy of the Company's Annual Report on Form 10-KSB, as filed with the
Commission, is available upon request, without charge, by writing to Premier
Laser Systems, Inc., 3 Morgan, Irvine, California 92718, Attention: James
Polentz.

The Company intends to furnish its security holders with annual reports
containing audited financial statements and such interim unaudited reports as it
deems appropriate.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS
PROSPECTUS ASSUMES (I) NO CLOSING OF THE COMPANY'S PENDING SECONDARY PUBLIC
OFFERING AND (II) NO EXERCISE OF ANY OTHER OUTSTANDING WARRANTS OR OPTIONS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."

THE COMPANY

It is estimated that over 60 million soft tissue (gums) procedures are
performed by dentists or periodontists in the United States annually, many of
which the Company believes can be addressed with laser technology. The Company's
Aurora diode laser is currently used by dentists and periodontists to treat
periodontal disease and has been shown to postpone or in some cases eliminate
the need for conventional periodontal surgery. The Company's Arago and MOD
(Multi Operatory Dentalaser) argon lasers are currently used by dentists to
accelerate the curing of composites placed in cavity preparations. The use of
the laser for this application has been shown to result in a stronger
restoration than composites cured by traditional curing lights. The Company is
seeking clearance for additional dental applications to enable it to market its
Centauri Er:YAG laser for hard tissue (teeth) procedures, and is currently
initiating clinical trials for cavity prevention and teeth whitening.

Approximately two million cataract extractions were performed in the United
States in 1994 and approximately three million people suffered from glaucoma in
the United States in 1995. The Company's multiple application Centauri Er:YAG
laser is priced significantly below current single purpose refractive lasers and
has been cleared for anterior capsulotomy (one step in the cataract extraction
procedure) and occuloplastic and other cosmetic procedures, among other
indications. The Centauri laser is also currently being tested in clinical
trials and animal studies for cataract removal, glaucoma treatment and corneal
sculpting (treatment of myopia, hyperopia and astigmatism).

The suture, staple and wound closure market in 1994 was estimated to be
approximately $2 billion worldwide, a significant portion of which the Company
believes may be addressed with surgical lasers, either in conjunction with or
independent of traditional sutures or staples. The Company believes that the
benefits of the use of surgical lasers for tissue melding, as compared to
sutures and staples, include fluid-static seals, immediate closure strength and
reduced surgical time. The Company and its strategic partner are currently
conducting clinical and animal studies for tissue melding for ducts, arteries,
veins and skin, in support of future regulatory applications.

The Company's strategy is to seek to increase its market penetration in the
dental, ophthalmic and surgical markets by (i) expanding its marketing and
distribution efforts, (ii) creating market awareness through increased publicity
and the education of dentists and physicians, (iii) pursuing clearance for
additional laser applications, (iv) capitalizing on disposable aftermarket
related products, and (v) expanding domestically and internationally through
strategic alliances or acquisitions of companies with additional distribution
channels, complementary products or an international presence.

4
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The Company commenced operations in August 1991, after acquiring
substantially all of the assets of Pfizer Laser Systems, a division of Pfizer
Hospital Products Group, Inc. ("Pfizer HPG"), in an acquisition led by the
Company's Chief Executive Officer. The assets acquired by the Company included
the proprietary rights to a broad base of laser and fiberoptic technologies,
which the Company developed over the past four years into 19 laser models
cleared for market introduction. Following an initial public offering in
December 1994, the Company increased inventory and expanded its dental sales
force in December 1995 to include five area sales managers and 25 independent
marketing representatives. As a result of this expansion, the Company achieved
$723,000 in sales to the dental market for the fiscal year ended March 31, 1996.

The Company has not generated significant revenues to date, and may incur
losses for the foreseeable future due to substantial costs associated with
manufacturing, marketing and distributing its laser products and continued
research and development related to additional applications for these products.

The Company's principal executive offices are located at 3 Morgan, Irvine,
California 92718. The Company's telephone number is (714) 859-0656.

UNLESS OTHERWISE INDICATED, THE NUMBER OF OUTSTANDING SHARES OF THE
COMPANY'S CLASS A COMMON STOCK REFERENCED IN THIS PROSPECTUS DOES NOT INCLUDE
(I) 730,402 SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE OF
OUTSTANDING OPTIONS AS OF JULY 5, 1996 GRANTED UNDER THE COMPANY'S 1992
EMPLOYEE STOCK OPTION PLAN, 1995 STOCK OPTION PLAN AND 1996 STOCK OPTION
PLANS; (II) 2,500,000 SHARES OF CLASS A COMMON STOCK PROPOSED TO BE ISSUED IN
THE COMPANY'S PENDING SECONDARY OFFERING OR THE 375,000 SHARES OF CLASS A
COMMON STOCK ISSUABLE UPON EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION; (III) UP TO 250,000 SHARES OF CLASS A COMMON STOCK ISSUABLE UPON
EXERCISE OF WARRANTS TO BE GRANTED TO THE REPRESENTATIVE OF THE UNDERWRITERS
UPON COMPLETION OF THE PENDING SECONDARY OFFERING; (IV) 698,303 SHARES OF
CLASS A COMMON STOCK ISSUABLE UPON EXERCISE OF OTHER OUTSTANDING OPTIONS AND
WARRANTS TO PURCHASE CLASS A COMMON STOCK; (V) 8,240,298 SHARES OF CLASS A
COMMON STOCK ISSUABLE UPON EXERCISE OF THE COMPANY'S OUTSTANDING
PUBLICLY-HELD CLASS A WARRANTS AND THE UNDERLYING CLASS B WARRANTS; (VI)
3,127,049 SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE OF THE
COMPANY'S OUTSTANDING PUBLICLY-HELD CLASS B WARRANTS; (VII) 960,000 SHARES OF
CLASS A COMMON STOCK ISSUABLE UPON EXERCISE OF UNIT PURCHASE OPTIONS (AND THE
UNDERLYING CLASS A WARRANTS AND CLASS B WARRANTS) GRANTED TO THE UNDERWRITERS
FOR THE COMPANY'S INITIAL PUBLIC OFFERING IN DECEMBER 1994 (THE "IPO") AND TO
CERTAIN OTHER PERSONS (THE "IPO UNIT PURCHASE OPTIONS"), AND (VIII) 1,256,818
SHARES OF EACH OF CLASS E-1 COMMON STOCK AND CLASS E-2 COMMON STOCK. FOR A
DESCRIPTION OF THE CLASS A WARRANTS, CLASS B WARRANTS, IPO UNIT PURCHASE
OPTIONS, CLASS E-1 COMMON STOCK AND CLASS E-2 COMMON STOCK, SEE "DESCRIPTION
OF SECURITIES." FOR A DESCRIPTION OF THE COMPANY'S STOCK OPTION PLANS AND
OPTIONS OUTSTANDING THEREUNDER, SEE "MANAGEMENT -- STOCK OPTION PLANS."

<PAGE>

RISK FACTORS

In evaluating an investment in the securities being offered hereby,
investors should consider carefully the following principal risk factors, as
well as the other information contained in this Prospectus.

LIMITED OPERATING HISTORY; CONTINUING OPERATING LOSSES.

The Company was formed in July 1991 and has not generated significant
revenues to date. As of March 31, 1996, the Company had an accumulated deficit
of $18,616,414. For the fiscal years ended March 31, 1994, 1995 and 1996, the
Company had operating losses of $2,762,645, $3,867,675 and $5,851,932,
respectively, resulting principally from costs incurred in research and
development and other costs of operations. The Company expects that operating
losses will continue until such time as product sales generate sufficient
revenues to fund its continuing operations, concerning which there can be no
assurance.

INDEPENDENT ACCOUNTANTS' REPORT; GOING CONCERN QUALIFICATION

The report from the Company's independent accountants includes an
explanatory paragraph which describes substantial doubt concerning the ability
of the Company to continue as a going concern. The Company may incur losses for
the foreseeable future due to the significant costs associated with
manufacturing, marketing and distributing its laser products and due to
continual research and development activities which will be necessary to develop
additional applications for the Company's laser technology.

UNCERTAINTIES CONCERNING FUTURE PROFITABILITY

The Company's ability to achieve profitability will depend, in part, on its
ability to continue to successfully develop clinical applications and obtain
regulatory approvals for its products and to develop the capacity to manufacture
and market such products on a wide scale. There is no assurance that the
Company will be able to successfully make the transition from research and
development to manufacturing and selling commercial medical laser products on a
broad basis. While attempting to make this transition, the Company will be
subject to all risks inherent in a growing venture, including the need to
produce reliable and effective products, develop marketing expertise and enlarge
its sales force.

UNCERTAIN MARKET ACCEPTANCE

The Company's future sales are dependent, in part, on the Company's ability
to demonstrate to dentists, ophthalmologists and other physicians the potential
cost and performance advantages of its laser systems over traditional methods of
treatment and, to a lesser extent, over competitive laser systems. To date,
commercial sales of the Company's lasers have been limited, and no assurance can
be given that these laser products can be successfully commercialized on a broad
basis. Lasers have not been widely used in dentistry and their use requires
training and expertise. The acceptance of dental lasers may be adversely
affected by their high cost, concerns by patients and dentists relating to their
safety and efficacy, and the substantial market acceptance and penetration of
alternative dental tools such as the dental drill. Current economic pressure
may make dentists and physicians reluctant to purchase substantial capital
equipment or invest in new technology. The failure of medical lasers to achieve
broad market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. No assurance can be
given that any of the Company's products will be accepted by the medical or
dental community or by patients, or that a significant market for the Company's
laser systems will be developed and sustained. The Company currently has a
limited sales force and will need to hire additional sales and marketing
personnel to facilitate the general acceptance of its products.

<PAGE>

DEPENDENCE ON SUPPLIERS

The Company purchases certain raw materials, components and subassemblies
included in the Company's products from a limited group of qualified suppliers
and does not maintain long-term supply contracts with any of its key suppliers.
The disruption or termination of these sources could have a material adverse
effect on the Company's business and results of operations. For example, during
fiscal 1994, the Company's sole supplier of the specialized optic fiber required
for use in the Company's Er:YAG lasers ceased to provide this fiber to the
Company. The Company's inability to obtain sufficient quantities of this
specialized optical fiber had a material adverse effect on the volume of Er:YAG
lasers the Company was able to sell during fiscal 1994 and 1995. The Company's
arrangement with the supplier of its Arago argon laser terminates in August
1996, and if this arrangement is not renewed and the Company is unable to secure
another source for this argon laser, the Company's results of operations may be
adversely affected. There can be no assurance that any supplier could be
replaced in a timely manner. Any interruption in the supply of these and other
key components could have a material adverse effect on the Company's ability to
manufacture its products and on its business, financial condition and results of
operations.

RISKS APPLICABLE TO FOREIGN SALES

Sales of the Company's products to foreign markets account for a
substantial portion of the Company's sales. Foreign sales expose the Company to
certain risks, including the difficulty and expense of maintaining foreign sales
distribution channels, barriers to trade, potential fluctuations in foreign
currency exchange rates, political and economic instability, availability of
suitable export financing, accounts receivable collections, tariff regulations,
quotas, shipping delays, foreign taxes, export licensing requirements and other
United States and foreign regulations that may apply to the export of medical
lasers. The regulation of medical devices worldwide also continues to develop,
and there can be no assurance that new laws or regulations will not have an
adverse effect on the Company. In addition, the Company may experience
additional difficulties in providing prompt and cost effective service of its
medical lasers in foreign countries. The Company does not carry insurance
against such risks. The occurrence of any one or more of these events may
individually or in the aggregate have a material adverse effect upon the
Company's business, financial condition and results of operations.

RISK OF TECHNOLOGICAL OBSOLESCENCE

The markets in which the Company's laser products compete are subject to
rapid technological change, as well as the potential development of alternative
surgical techniques or new pharmaceutical products. Such changes could render
the Company's products uncompetitive or obsolete. The Company will be required
to invest in research and development to attempt to maintain and enhance its
existing products and develop new products. No assurances can be given that
such research and development efforts will result in the introduction of new
products or product improvements.

DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend, in part, on its ability to obtain patent
protection for products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. The Company
holds 18 U.S. patents and has other patent applications pending in the United
States. The Company also holds 11 foreign patents including two utility model
patents and has other foreign patent applications pending. No assurance can be
given that any additional U.S. or foreign patents will be issued, that the scope
of any patent protection will exclude competitors or that any of the Company's
patents will be held valid if subsequently challenged. Further, there can be no
assurance that others will not independently develop similar products, duplicate
the Company's products or design products that circumvent any patents used by
the Company. The Company is aware of certain patents which, along with other
patents that may exist or be granted in the future, could restrict the Company's

<PAGE>

right to market certain of its technologies without a license, including,
without limitation, patents relating to the Company's lens emulsification
product and ophthalmic probes for the Er:YAG laser. In the past, the Company
has received allegations that certain of the Company's laser products infringe
other patents. There has been significant patent litigation in the medical
industry in general, and in the medical laser industry in particular. Adverse
determinations in litigation or other patent proceedings to which the Company
may become a party could subject the Company to significant legal judgments or
other liabilities to third parties and could require the Company to seek
licenses from third parties that may or may not be economically viable. Patent
and other intellectual property rights disputes often are settled through
licensing arrangements. No assurance can be given that any licenses required
under these or any other patents or proprietary rights would be available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product introductions while it attempts
to design around such patents, or it could find that the development,
manufacture or sale of products requiring such licenses could be enjoined. If
the Company is found, in a legal proceeding, to have infringed the patents or
other proprietary rights of others, it could be liable for significant damages.
The Company also relies upon unpatented trade secrets, and no assurance can be
given that others will not independently develop or otherwise acquire
substantially equivalent trade secrets. In addition, at each balance sheet
date, the Company is required to review the value of its intangible assets based
on various factors, such as changes in technology. Any adjustment downward in
such value may result in a writeoff of the intangible asset and a substantial
charge to earnings, thereby adversely affecting the operating results of the
Company in the future.

NEED FOR FDA AND FOREIGN GOVERNMENTAL APPROVALS; GOVERNMENT REGULATION

The Company's products are regulated as medical devices by the FDA under
the Federal Food, Drug and Cosmetic Act (the "FDC Act") and the regulations
promulgated thereunder. As such, these devices require either Section 510(k)
premarket clearance ("510(k)") or approval of a premarket approval application
("PMA") by the FDA prior to commercialization. Satisfaction of applicable
regulatory requirements may take several years and varies substantially based
upon the type, complexity and novelty of such devices, as well as the clinical
procedure. There can be no assurance that some of the Company's products will
not require the more rigorous and time consuming PMA approval, including laser
uses for vasovasotomy or other tissue melding, dental hard tissue, cavity
prevention, cosmetic surgery, sclerostomy and lens emulsification, among others.
Filings and governmental approvals may be required in foreign countries before
the devices can be marketed in these countries. There can be no assurance that
further clinical trials of the Company's medical lasers or of any future
products will be successfully completed or, if they are completed, that any
requisite FDA or foreign governmental clearances or approvals will be obtained.
FDA or other governmental clearances or approvals of products developed by the
Company in the future may require substantial filing fees which could limit the
number of applications sought by the Company and may entail limitations on the
indicated uses for which such products may be marketed. In addition, approved
or cleared products may be subject to additional testing and surveillance
programs required by the FDA and other regulatory agencies, and product
approvals and clearances could be withdrawn for failure to comply with
regulatory standards or by the occurrence of unforeseen problems following
initial marketing. Also, the Company has made modifications to certain of its
existing products which it does not believe require the submission of a new
510(k) notification to the FDA. However, there can be no assurance that the FDA
would agree with the Company's determination and not require the Company to
discontinue marketing one or more of the modified devices until they have been
cleared by the FDA. There also can be no assurance that any such clearance of
modifications would be granted should it become necessary. The Company is also
required to adhere to applicable requirements for current Good Manufacturing
Practices ("cGMP") and radiological health requirements, to engage in extensive
record keeping and reporting and to comply with the FDA's product labeling,
promotional and advertising requirements. Noncompliance with state, local,
federal or foreign requirements can result in fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, delay, denial or withdrawal of premarket clearance or approval of
devices, recommendations by the FDA that the Company not be allowed to enter
into government contracts, and

<PAGE>

criminal prosecution, all of which would have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's manufacturing facilities are subject to periodic inspections by state
and federal agencies, including the FDA, the California Department of Health
Services, and comparable agencies in other countries.

DEPENDENCE ON KEY PERSONNEL

The Company depends to a considerable degree on a limited number of key
personnel, including Colette Cozean, Ph.D., its Chairman of the Board, Chief
Executive Officer, President and Director of Research. Dr. Cozean is also an
inventor of a number of the Company's patented technologies. During the
Company's limited operating history, many key responsibilities within the
Company have been assigned to a relatively small number of individuals. The
loss of Dr. Cozean's services or those of certain other members of management
could adversely affect the Company. The Company has no long-term employment
agreements with its key personnel. The success of the Company will also depend,
among other factors, on the successful recruitment and retention of qualified
technical and other personnel.

HIGHLY COMPETITIVE INDUSTRY

The medical laser industry is subject to intense competition and is
characterized by rapid technological change. The Company is and will continue
to be subject to competition in its targeted markets, principally from
businesses providing other traditional surgical and nonsurgical treatments,
including existing and developing technologies, and to a lesser extent
competitors' CO(2), argon, Er:YAG and Nd:YAG lasers. Many of the Company's
competitors have substantially greater financial, marketing and manufacturing
resources and experience than the Company. Furthermore, the Company expects
other companies will enter the market, particularly as medical lasers gain
increasing market acceptance. Significant competitive factors which will affect
future sales in the marketplace include regulatory approvals, performance,
pricing and general market acceptance.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Due to the relatively high sales price of the Company's laser systems and
the low sales unit volume, minor timing differences in receipt of customer
orders have produced and could continue to produce significant fluctuations in
quarterly results. In addition, if anticipated sales and shipments in any
quarter do not occur when expected, expenditures and inventory levels could be
disproportionately high, and the Company's operating results for that quarter,
and potentially for future quarters, would be adversely affected. Quarterly
results may also fluctuate based on a variety of other factors, such as
seasonality, production delays, product mix, cancellation or rescheduling of
orders, new product announcements by competitors, receipt of clearances or
approvals by the Company or its competitors, notices of product suspension or
recall, the Company's ability to manage product transitions, sales prices and
market conditions. In addition, if the Company expands or augments its
manufacturing capabilities in connection with the introduction of new products,
quarterly revenues and operating results are expected to fluctuate to an even
greater degree.

UNCERTAIN ABILITY TO MEET CAPITAL NEEDS

The Company will require substantial additional funds for its research and
development programs, preclinical and clinical testing, development of its sales
and distribution force, operating expenses, regulatory processes and
manufacturing and marketing programs. The Company's capital requirements will
depend on numerous factors, including the progress of its research and
development programs, results of preclinical and clinical testing, the time and
cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's

<PAGE>

existing research, licensing and other relationships and the terms of any new
collaborative, licensing and other arrangements that the Company may
establish. The Company believes that its available short-term assets and
expected revenues from operations, together with funds available under a
credit line with Silicon Valley Bank, will be sufficient to meet its
operating expenses and capital expenditures through the next three months.
There can be no assurance that additional financing will be available when
needed, or if available, will be available on acceptable terms. Insufficient
funds may prevent the Company from implementing its business strategy or may
require the Company to delay, scale back or eliminate certain of its research
and product development programs or to license to third parties rights to
commercialize products or technologies that the Company would otherwise seek
to develop itself. Any additional equity financings may be dilutive to
shareholders, and debt financing, if available, may involve restrictive
covenants. The Company's inability to secure additional financing would have
a material adverse effect on the Company, its business and results of
operations.

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of
the Company's Common Stock has been and is likely to be highly volatile.
Factors such as fluctuations in the Company's operating results, announcements
of technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, developments with respect to patents
or proprietary rights, public concern as to the safety of products developed by
the Company or its competitors, changes in health care policy in the United
States and internationally, changes in analysts' recommendations regarding the
Company, other medical companies or the medical laser industry generally and
general market conditions may have a significant effect on the market price of
the Company's Common Stock.

PRODUCT LIABILITY EXPOSURE

The sale of the Company's laser products involves the inherent risk of
product liability claims against the Company. The Company currently maintains
product liability insurance coverage in the amount of $5 million per occurrence
and $5 million in the aggregate, but such insurance is expensive, subject to
various coverage exclusions and may not be obtainable by the Company in the
future on terms acceptable to the Company. There can be no assurance that
claims against the Company arising with respect to its products will be
successfully defended or that the insurance carried by the Company will be
sufficient to cover liabilities arising from such claims. A successful claim
against the Company in excess of the Company's insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.

LIMITATIONS ON THIRD PARTY REIMBURSEMENT

The Company's laser products are generally purchased by physicians,
dentists and surgical centers which then bill various third party payors, such
as government programs and private insurance plans, for the procedures conducted
with the Company's lasers. Third-party payors carefully review and are
increasingly challenging the prices charged for medical products and services.
Reimbursement rates from private companies vary depending on the procedure
performed, the third-party payor, the insurance plan and other factors.
Medicare reimburses hospitals a prospectively-determined fixed amount for the
costs associated with an in-patient hospitalization based on the patient's
discharge diagnosis, and reimburses physicians a prospectively-determined fixed
amount based on the procedure performed, regardless of the actual costs incurred
by the hospital or physician in furnishing the care and unrelated to the
specific devices used in that procedure. Third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered products. Payors may deny coverage and reimbursement for the Company's
products if they determine that the device was not reasonable and necessary for
the purpose for which used, was investigational or not cost-effective. As a
result, there can be no assurance that reimbursement from third party payors for
these procedures will be available

<PAGE>

or if available, that reimbursement will not be limited, thereby adversely
affecting the Company's ability to sell its products on a profitable basis.
Moreover, the Company is unable to predict what legislation or regulation, if
any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future, or what effect such legislature or
regulation may have on the Company.

UNCERTAINTIES REGARDING HEALTH CARE REFORM

Several states and the United States government are investigating a variety
of alternatives to reform the health care delivery system and further reduce and
control health care spending. These reform efforts include proposals to limit
spending on health care items and services, limit coverage for new technology
and limit or control the price health care providers and drug and device
manufacturers may charge for their services and products. If adopted and
implemented, such reforms could have a material adverse effect on the Company's
business, financial condition and results of operations.

CHARGE TO EARNINGS IN THE EVENT OF RELEASE OR ESCROW SHARES

The Company has outstanding 1,256,818 shares of each of Class E-1 and Class
E-2 Common Stock (the "Escrow Shares") which are being held by the Company in
escrow, and which will be released from escrow and converted into shares of
Common Stock if certain criteria are met. In the event any of these criteria
are met and any shares are released from escrow to shareholders who are
officers, directors, employees or consultants of the Company, a substantial
noncash compensation expense will be recorded for financial reporting purposes.
The recognition of such compensation expense may have an adverse effect on the
market price of the Company's securities.

POTENTIAL ANTI-TAKEOVER EFFECTS

The Company's Articles of Incorporation authorize the issuance of 8,850,000
shares of "blank check" preferred stock, which will have such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of the Company's Common Stock. In the event of
such issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. In addition, the Company has entered into Termination
Agreements with each executive officer of the Company, pursuant to which the
Company will provide such officers in the event of a termination of employment
following a change in control of the Company, as defined in such agreement, with
(i) a lump sum cash payment equal to two times the highest annual level of total
cash compensation paid to that officer during the three calendar years prior to
the termination, (ii) immediate vesting of all previously granted stock options,
and (iii) continuing health benefits for a period of 24 months. These
agreements could also discourage, delay or prevent a change in control of the
Company.

CONTINUATION OF SECURITY INTEREST IN ASSETS TO SECURE CERTAIN INDEBTEDNESS

Pfizer HPG has a security interest in substantially all of the Company's
tangible assets and in certain patents and patent applications, as security
for repayment of the remaining balance on certain indebtedness due commencing
in July 1996. Should the Company default in the payment of such indebtedness,
Pfizer HPG would be entitled to foreclose such security interest, which would
have a material and adverse effect upon the Company and its ability to remain
in operation. In addition, the existence of such security interest, until
such indebtedness is paid, may materially and adversely affect the Company's
ability to obtain financing from banks and other sources.

<PAGE>

NO DIVIDENDS

The Company has not paid any cash dividends upon its Common Stock since its
inception and does not anticipate paying any cash dividends in the foreseeable
future.

ARBITRARY DETERMINATION OF WARRANT EXERCISE PRICES AND TERMS

The exercise prices and other terms of the Warrants have been
arbitrarily established by negotiation between the Company and Blair, the
underwriter in the Company's initial public offering, and do not necessarily
bear any relationship to the asset value, net worth or financial condition of
the Company or to any other generally recognized criteria of value and should
not be regarded as an indication of any future market price of the Company's
securities.

SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF
COMMON STOCK RESULTING FROM EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

Sales of a substantial number of shares of Class A Common Stock in the
public market following this offering could adversely affect the market price
for the Class A Common Stock. Substantially all of the Company's 14,994,808
shares of Class A Common Stock to be outstanding upon completion of this
offering will be freely tradeable, including 993,811 unregistered shares of
Class A Common Stock which may be sold in the public market subject to
compliance with Rule 144 promulgated under the Securities Act. An additional
2,388,705 shares of Class A Common Stock are issuable upon exercise of other
outstanding warrants and options. The issuance of shares upon the exercise of
the Class A Warrants, Class B Warrants, the IPO Unit Purchase Options and
options under the 1995 Stock Option Plan has been registered under the
Securities Act, and 720,499 shares of Class A Common Stock issuable upon
exercise of the remaining options and warrants may be resold pursuant to Rule
701 under the Securities Act. The existence of the Company's outstanding
warrants and options could adversely affect the Company's ability to obtain
future financing. The price which the Company may receive for the Common
Stock issued upon exercise of such options and warrants will likely be less
than the market price of the Common Stock at the time such options and
warrants are exercised. Moreover, the holders of the options and warrants
might be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain needed capital by a new offering of its
securities on terms more favorable than those provided for by the options and
warrants. See "Management -- Stock Option Plans" and "Shares Eligible for
Future Sale."

POTENTIAL ANTI-TAKEOVER EFFECTS

The Company's Articles of Incorporation authorize the issuance of
8,850,000 shares of "blank check" preferred stock, which will have such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's Common
Stock. In the event of such issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. See "Description of Securities
- -- Preferred Stock." In addition, the Company has entered into Termination
Agreements with each executive officer of the Company, pursuant to which the
Company will provide such officers in the event of a termination of
employment following a change in control of the Company, as defined in such
agreement, with (i) a lump sum cash payment equal to two times the highest
annual level of total cash compensation paid to that officer during the three
calendar years prior to the termination, (ii) immediate vesting of all
previously granted stock options, and (iii) continuing health benefits for a
period of 24 months. These agreements could also discourage, delay or prevent
a change in control of the Company.

<PAGE>

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS

The Warrants may be redeemed by the Company at any time commencing
November 30, 1997 at a redemption price of $.05 per Warrant upon 30 days' notice
if the average closing bid prices (or last sales prices if listed on a national
securities exchange) of the Class A Common Stock exceeds $9.10 for 30
consecutive trading days ending within 15 days of the notice of redemption in
the case of the Class A Warrants and $11.20 in the case of the Class B Warrants.
Redemption of the Warrants could force the holders to exercise the Warrants and
pay the exercise price at a time when it may be disadvantageous for the holders
to do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

Warrantholders will only be able to exercise the Warrants if (i) a current
prospectus under the Act, relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken to use
its best efforts to maintain the effectiveness of a current prospectus covering
the securities underlying the Warrants, there can be no assurance that the
Company will be able to do so. The value of the Warrants may be greatly reduced
if a current prospectus, covering the securities issuable upon the exercise of
the Warrants, is not kept effective or if such securities are not qualified, or
exempt from qualification, in the states in which the holders of Warrants
reside.

POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO THE
INVESTIGATION OF D.H. BLAIR INVESTMENT BANKING CORP. AND D.H. BLAIR & CO., INC.
BY THE SECURITIES AND EXCHANGE COMMISSION

The Commission is conducting an investigation concerning various business
activities of Blair and D.H. Blair & Co., Inc. ("Blair & Co."). The
investigation appears to be broad in scope, involving numerous aspects of Blair
and Blair & Co.'s compliance with the federal securities laws and compliance
with the federal securities laws by issuers whose securities were underwritten
by Blair or Blair & Co., or in which Blair or Blair & Co. made over-the-counter
markets, persons associated with Blair or Blair & Co., such issuers and other
persons. The Company has been advised by Blair that the investigation has been
ongoing since at least 1989 and that Blair is cooperating with the
investigation. Blair cannot predict whether this investigation will ever result
in any type of formal enforcement action against Blair or Blair & Co., or, if
so, whether any such action might have an adverse effect on Blair, Blair & Co.
or the securities offered hereby. Blair & Co. makes a market in the Company's
securities. An unfavorable resolution of the Commission's investigation could
have the effect of limiting such firm's ability to make a market in the
Company's securities, which could affect the liquidity or price of such
securities.

POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES

Blair has advised the Company that Blair & Co. intends to make a market
in the Company's securities (the "Securities"). Rule 10b-6 promulgated under
the Exchange Act may prohibit Blair & Co. from engaging in any market-making
activities with regard to the Company's securities for a period from nine
business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by Blair of the exercise of the Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that Blair may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, Blair &
Co. may be unable to provide a market for the Company's securities during
certain periods while the Warrants are exercisable. Any temporary cessation
of such market-making activities could have an adverse effect on the market
price of the Company's securities. In addition, under applicable rules and
regulations under the Exchange Act, any person

<PAGE>

engaged in the distribution of the Securities may not simultaneously engage in
market making activities with respect to any securities of the Company for a
period of at least two (and possibly nine) business days prior to the
commencement of such distribution. Accordingly, in the event Blair or Blair &
Co. is engaged in a distribution of the Securities, neither of such firms will
be able to make a market in the Company's securities during the applicable
restrictive period. Any temporary cessation of such market-making activities
could have an adverse effect on the market price of the Company's securities.

POSSIBLE DELISTING OF SECURITIES FROM NASDAQ STOCK MARKET

The Company's Units are listed on the Nasdaq SmallCap Market, and the
Company's Class A Common Stock, Class A Warrants and Class B Warrants are listed
on the Nasdaq National Market. For continued inclusion on the Nasdaq SmallCap
Market or National Market system, the Company will have to maintain specified
levels of total assets and capital and surplus, as well as meeting additional
criteria concerning the minimum bid price of the Class A Common Stock, the
number and value of shares in the public float, the number of active market
makers, and the number of holders of Common Stock.

If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Class A Common Stock and Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of the transactions, reduction in
security analysts' and the news media's coverage of the Company, and lower
prices for the Company's securities than might otherwise be attained.

LACK OF LIQUIDITY OF LOW-PRICED STOCK

If the Company's securities were to be delisted from the Nasdaq SmallCap or
National Market, they could become subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers,
including requirements pertaining to the suitability of the investment for the
purchaser and the delivery of specific disclosure materials and monthly
statements. Consequently, this rule may adversely affect the ability of broker-
dealers to sell the Company's securities and may adversely affect the ability of
purchasers in this Offering to sell any of the securities acquired hereby in the
secondary market.

The foregoing "penny stock" restrictions will not apply to the Company's
securities if such securities are listed on the Nasdaq SmallCap or National
Market and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest.

If the Company's securities were subject to the existing or proposed rules
on penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.

<PAGE>

USE OF PROCEEDS

Holders of Warrants are not obligated to exercise their Warrants and
there can be no assurance that the Warrantholders will choose to exercise all
or any of their Warrants. In the event that all of the 3,720,050 outstanding
Class A Warrants (excluding the Investor Warrants and the Remaining Selling
Securityholder Warrants) are exercised, the net proceeds to the Company would
be $22,952,708, after deducting the Solicitation Fee and excluding other
expenses of the offering. In the event that all of the 6,526,000 Class B
Warrants outstanding and issuable upon the exercise of the outstanding Class
A Warrants are exercised, the Company would receive additional net proceeds
of $49,597,600, after deducting the Solicitation Fee, exclusive of other
expenses of the offering.

The Company intends to use the net proceeds received upon the exercise of
the Warrants, if any, for general corporate purposes and working capital to
support anticipated growth, including research and development programs and
continuing development of a distributor network.

<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK

The Company's Class A Common Stock is quoted on the Nasdaq National
Market under the symbol "PLSIA." Prior to May 1, 1995, the Company's Class A
Common Stock was listed on the Nasdaq SmallCap Market under the same
symbol. The following table sets forth, for the quarters indicated, the
high and low bid prices of the Company's Class A Common Stock on the Nasdaq
SmallCap Market through April 30, 1995, and the high and low last sale prices
of the Class A Common Stock on the Nasdaq National Market thereafter.

<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1995:
Third Quarter (commencing November 30, 1994).............. $ 4 $ 4
Fourth Quarter............................................ 4 1/2 3 1/2
FISCAL YEAR ENDED MARCH 31, 1996:
First Quarter*............................................ $ 6 3/4 $ 3 3/4
Second Quarter............................................ 7 5 5/8
Third Quarter............................................. 6 1/8 5
Fourth Quarter............................................ 8 5/8 3 7/8
FISCAL YEAR ENDING MARCH 31, 1997:
First Quarter ............................................ $ 10 3/4 $ 8
</TABLE>

- ------------------------
* For April 1 through April 30, 1995, the high and low bid prices of the
Class A Common Stock were $5.00 and $3.50.

The quotations in the above table reflect inter-dealer prices without
retail markups, markdowns or commissions. In addition, for all periods prior
to May 1, 1995, the quotations do not represent actual transactions.

On July 5, 1996, the last reported sale price for the Company's Class A
Common Stock on the Nasdaq National Market was $8 7/8. The Company's Class A
Warrants and Class B Warrants are quoted on the Nasdaq National Market and
the Company's Units are listed on the Nasdaq SmallCap Market. The Company
also has outstanding Class E-1 Common Stock and Class E-2 Common Stock for
which there is no public market. See "Description of Securities." As of July
5, 1996, the approximate number of holders of record of the Company's Class A
Common Stock, Class E-1 and Class E-2 Common Stock were 277, 325 and 325,
respectively.

<PAGE>

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, to
finance future growth and therefore does not anticipate paying any cash
dividends in the foreseeable future. The Company's credit facility with
Silicon Valley Bank prohibits the Company's payment of any dividends without
the prior consent of such bank. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

17
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company: (i) as
of March 31, 1996, (ii) as adjusted to reflect the exercise of all of the
3,720,050 Class A Warrants and (iii) as further adjusted to reflect the
exercise of all of the 6,526,00 Class B Warrants outstanding and issuable
upon exercise of the Class A Warrants. This table should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.

AS OF MARCH 31, 1996
---------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(1) ADJUSTED(2)
------ -------------- -----------
<S> <C> <C> <C>

Short term debt. . . . . . . . . . . . $ 481,195 -- --
----------- ----------- -----------
----------- ----------- -----------

Shareholders' equity:
Preferred Stock, no par value;
8,850,000 shares authorized;
no shares outstanding . . . . . . -- -- --
----------- ----------- -----------

Class A Common Stock, no par value;
35,600,000 shares authorized;
4,702,203 shares outstanding;
8,422,253 shares outstanding, as
adjusted; 14,948,253 shares
outstanding, as further
adjusted(3) . . . . . . . . . . . $16,317,376 $41,591,141 $91,565,515
----------- ----------- -----------
Class E-1 Common Stock, no par value;
2,200,000 shares authorized;
1,256,818 shares outstanding, as
adjusted and as further adjusted 4,769,878 4,769,878 4,769,878
----------- ----------- -----------

Class E-2 Common Stock, no par
value;
2,200,000 shares authorized;
1,256,818 shares outstanding, as
adjusted and as further adjusted 4,769,878 4,769,878 4,769,878
----------- ----------- -----------

Class A Warrants . . . . . . . . . . 2,321,057 -- --
-----------
Class B Warrants . . . . . . . . . . 376,774 376,774 --
----------- ----------- -----------

Warrants to purchase Class A
Common Stock . . . . . . . . . . . . . 192,130 192,130 192,130

Unrealized holding gain on short-term
investments . . . . . . . . . . . . . 3,666,367 3,666,367 3,666,367
----------- ----------- -----------

Accumulated deficit . . . . . . . . (18,616,414) (18,616,414) (18,616,414)
----------- ----------- -----------

Total shareholders' equity . . . . 13,797,046 36,749,754 86,347,354
----------- ----------- -----------

Total capitalization . . . . . . $14,278,241 $36,749,754 $86,347,354
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

____________________________________________

(1) Gives effect to the exercise of 3,720,050 Class A Warrants (which excludes
the 79,000 Remaining Selling Securityholders' Warrants) at $6.50 per Class
A Warrant, net of solicitation fees and excluding other expenses of the
offering.

(2) Gives effect to the exercise of the 6,526,000 Class B Warrants outstanding
and issuable upon the exercise of the outstanding Class A Warrants (other
than the Investor Warrants and the Remaining Selling Securityholder
Warrants) at $8.00 per Class B Warrant, net of solicitation fees and
excluding other expenses of the offering.

(3) Unless otherwise indicated, the number of outstanding shares of the
Company's Class A Common Stock referenced in this Prospectus does not
include (i) 730,402 shares of Class A Common Stock issuable upon exercise
of outstanding options as of July 5, 1996 granted under the Company's
1992 Employee Stock Option Plan, 1995 Stock Option Plan and 1996 Stock
Option Plans; (ii) 2,500,000 Shares of Class A Common Stock proposed to
be issued in the Company's pending secondary offering or the 375,000
shares of Class A Common Stock issuable upon exercise of the
Underwriters' over-allotment option; (iii) up to 250,000 shares of
Class A Common Stock issuable upon exercise of Warrants proposed to be
granted to the Representative of the Underwriters upon completion of the
pending secondary offering; (iv) 688,547 shares of Class A Common Stock
issuable upon exercise of other outstanding options and warrants to
purchase Class A Common Stock; (v) 8,332,198 shares of Class A Common
Stock issuable upon exercise of the Company's outstanding publicly-held
Class A Warrants and the underlying Class B Warrants; (vi) 3,081,099
shares of Class A Common Stock issuable upon exercise of the Company's
outstanding publicly-held Class B Warrants; (vii) 960,000 shares of Class
A Common Stock issuable upon exercise of Unit Purchase Options (and the
underlying Class A Warrants and Class B Warrants) granted to the
underwriters for the Company's initial public offering in December 1994
(the "IPO") and to certain other persons (the "IPO Unit Purchase
Options"); and (viii) 1,256,818 shares of each of Class E-1 Common Stock
and Class E-2 Common Stock. For a description of the Class A Warrants,
Class B Warrants, IPO Unit Purchase Options, Class E-1 Common Stock and
Class E-2 Common Stock, see "Description of Securities." For a description
of the Company's stock option plans and options outstanding thereunder,
see "Management -- Stock Option Plans."

18
<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth for the periods indicated, the selected
financial data of the Company and should be read in conjunction with the
Company's Financial Statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. The selected financial data of the
Company as of March 31, 1994, 1995 and 1996 and for each of the fiscal years
then ended are derived from financial statements of the Company audited by Price
Waterhouse LLP, independent accountants. The balance sheet at March 31, 1996 and
the related statements of operations, shareholders' equity and cash flows for
the fiscal years ended March 31, 1995 and 1996 and notes thereto are included in
this Prospectus. The report of Price Waterhouse LLP, which also appears herein,
contains an explanatory paragraph that describes uncertainty as to the ability
of the Company to continue as a going concern.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $ 2,079,335 $ 1,249,403 $ 1,704,390
Cost of sales.................................................... 1,753,352 1,298,420 3,324,757
------------- ------------- -------------
Gross profit (loss).............................................. 325,983 (49,017) (1,620,367)
Selling and marketing expenses................................... 1,087,461 1,035,863 1,308,767
Research and development expenses................................ 678,279 1,035,705 1,213,471
General and administrative expenses.............................. 1,322,888 1,747,090 1,709,327
------------- ------------- -------------
Loss from operations............................................. (2,762,645) (3,867,675) (5,851,932)
Interest (expense) income, net................................... (434,851) (322,540) 99,037
------------- ------------- -------------
Loss before extraordinary items.................................. (3,197,496) (4,190,215) (5,752,895)
Extraordinary gain from extinguishment of indebtedness........... -- 381,730 --
------------- ------------- -------------
Net loss......................................................... $ (3,197,496) $ (3,808,485) $ (5,752,895)
------------- ------------- -------------
------------- ------------- -------------
SELECTED PER SHARE DATA:
Net loss......................................................... $ (1.26)
-------------
-------------
Weighted average shares outstanding (1).......................... 4,556,959
Pro forma loss before extraordinary item (2)..................... $ (2.45) $ (1.59)
Extraordinary gain from extinguishment of indebtedness........... -- .15
------------- -------------
Pro forma net loss (2)........................................... $ (2.45) $ (1.44)
------------- -------------
------------- -------------
Pro forma weighted average shares outstanding (1)(2)............. 1,288,751 2,584,722

<CAPTION>
AT MARCH 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 308,764 $ 5,888,237 $ 35,463
Working capital.................................................. 1,287,587 6,756,149 5,818,492
Total assets..................................................... 12,325,029 16,883,975 15,674,568
Total debt (3)................................................... 4,403,890 481,195 481,195
Shareholders' equity............................................. 6,022,174 15,002,260 13,797,046
</TABLE>

- --------------------------
(1) Does not include 1,256,818 shares of each of Class E-1 or Class E-2 Common
Stock outstanding as of March 31, 1996, which are subject to cancellation
under certain circumstances. See "Description of Securities -- Common Stock"
and Notes 2 and 16 of Notes to Financial Statements.

(2) Adjusted to give pro forma effect to the conversion of certain of the
Company's indebtedness which occurred upon completion of the Company's
initial public offering. The effect on net loss per common share from the
conversion of such indebtedness was to reduce historical net loss by $37,500
and $67,995, and to increase weighted average shares outstanding by 76,875
and 321,099 shares for the fiscal years ended March 31, 1994 and 1995,
respectively.

(3) Amounts for long-term debt at March 31, 1994 include $285,000 in mandatorily
redeemable warrants.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the Company's Financial Statements and related notes
thereto appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements including, without limitation, statements concerning
future cost of sales, which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in these
forward-looking statements. Factors that may cause such differences include, but
are not limited to, those discussed in "Risk Factors."

GENERAL

The Company develops, manufactures and markets several lines of proprietary
medical lasers, fiberoptic delivery systems and associated products for a
variety of dental, ophthalmic and surgical applications. The Company commenced
operations in August 1991, after acquiring substantially all of the assets of
Pfizer Laser Systems ("Pfizer Laser"), a division of Pfizer HPG which is a
wholly-owned subsidiary of Pfizer, Inc. The assets acquired by the Company
included the proprietary rights to a broad base of laser and fiberoptic
technologies developed by Pfizer Laser. This acquisition was led by the
Company's current Chief Executive Officer.

Since its formation and until its IPO in December 1994, the Company
principally focused on, and its research and development activities related to,
growing markets in dentistry, ophthalmology, cosmetic procedures and certain
surgical specialties to be used in surgical centers and medical offices. To
implement this strategy, the Company developed the Pegasus Nd:YAG dental laser
system from existing technology and introduced this laser to the dental market
in February 1992. In June 1993, the Company introduced the Centauri Er:YAG laser
for ophthalmology and initiated clinical trials for hard tissue procedures in
dentistry. In December 1993, the Company acquired from Proclosure, Inc., a
Florida corporation ("Proclosure"), certain technology, assets and proprietary
rights relating to a 1.32m Nd:YAG laser system for tissue melding. From its
formation in 1991 through its initial public offering, the Company developed and
received regulatory approvals for 15 models of lasers and sold certain of those
products for soft tissue applications in dentistry and as part of clinical
trials conducted by third parties.

After the Company's IPO in December 1994, the Company increased its
inventory, acquired the distribution rights to two new dental lasers and, in
December 1995, expanded its dental sales force. In September and November 1995,
the Company acquired rights to market and distribute the Arago and MOD argon
lasers, respectively for dental applications, and in February 1996, the Company
introduced and began shipping its Aurora diode laser for soft tissue dental
applications.

While the Company has received clearance to market laser products covering a
variety of medical applications, to date the Company has focused its research,
development and marketing efforts on a limited number of products or
applications (principally specific dental and ophthalmic applications). As
future resources permit, the Company may introduce certain products for
applications for which it already has all necessary approvals or may seek
strategic alliances to develop, market and distribute such products.

The Company has recorded operating losses in each of the fiscal years since
its formation, resulting principally from substantial costs incurred in research
and development activities and obtaining regulatory approvals, together with the
absence of significant revenues to date primarily due to the Company's limited
marketing and financial resources, the Company's inability to obtain certain
critical components and lasers from time to time, and until recently, the
limited acceptance of lasers in the medical industry, in general. The report of
the Company's independent accountants includes an explanatory paragraph
describing substantial doubt concerning the ability of the Company to continue
as a going concern. The Company believes, however, that its presently available

20
<PAGE>
short-term assets, expected revenues from operations and funds available
under a line of credit from Silicon Valley Bank will provide sufficient
working capital through the next three months. See "-- Liquidity and Capital
Resources."

RESULTS OF OPERATIONS

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995

Net sales increased 36.4% to $1,704,390 in fiscal 1996 from $1,249,403 in
fiscal 1995. This increase was primarily attributable to an increase of $723,000
in sales to the dental market, related principally to the introduction of three
new products, the Aurora diode laser, the Arago argon laser and the MOD argon
laser, in the latter half of fiscal 1996. This increase was partially offset by
a decrease in sales to the surgical market of approximately $200,000, largely
due to a decline in the demand for the Company's 10 and 20 watt CO(2) lasers,
which are nearing the end of their product life cycle. The Company's arrangement
with the supplier of the Arago argon laser terminates in August 1996, and to the
extent the Company is unable to extend this arrangement or to secure another
source for this laser, the Company's results of operations may be adversely
affected.

Cost of sales increased 156.1% to $3,324,757 in fiscal 1996 from $1,298,420
in fiscal 1995. This increase in the cost of sales was due primarily to (i) a
write down of approximately $848,000 principally attributed to the Company's
CO(2) lasers and accessories obtained in the acquisition of Pfizer Laser, and
Nd:YAG lasers and accessories, which lasers were developed prior to March 31,
1992 and are nearing the end of their product life cycle, (ii) the
underabsorption of manufacturing costs due to low production volumes due in part
to the unavailability of certain key components which require long lead-times
for delivery, coupled with an increase in the number of manufacturing employees
during fiscal 1996 from 12 to 17 employees constituting an increase in payroll
expense of approximately $280,000, and (iii) increased costs associated with
higher sales volumes in fiscal 1996. Cost of sales for fiscal 1996 also included
a fee of $122,000 to a third party pursuant to the Company's manufacturing
arrangement relating to the MOD argon laser. If production volumes increase in
future periods, management anticipates higher absorption of manufacturing costs
and increased utilization of the Company's manufacturing personnel, which could
lead to positive gross margins based upon management's current calculation of
the Company's standard cost of sales for fiscal 1996. There can be no assurance
that the Company will, in future periods, achieve positive gross margins, or
that the assumptions on which standard cost of sales is computed will be
realized by the Company.

Selling and marketing expenses increased 26.3% to $1,308,767 in fiscal 1996
from $1,035,863 in fiscal 1995. This increase was primarily attributable to
marketing efforts related to the Company's dental products, which included a
$219,000 expense related to the appointment of more than 25 new manufacturer's
representatives during the third quarter, and associated expenses including
training, promotional costs and commissions.

Research and development expenses increased 17.2% to $1,213,471 in fiscal
1996 from $1,035,705 in fiscal 1995. This increase resulted primarily from
increases in outside industrial and software design services of approximately
$305,000, and expenses of approximately $196,000 associated with the development
of new laser products. This increase was partially offset by a $175,000
reduction in clinical studies expense, due to the completion of the Company's
dental hard tissue clinical trials and a $250,000 payment received by the
Company under a Small Business Innovative Research ("SBIR") grant.

General and administrative expenses decreased 2.2% to $1,709,327 in fiscal
1996 from $1,747,090 in fiscal 1995. This decrease was the result of a reduction
in legal expenses associated with the Company's litigation with a former
supplier of optical fiber (the "Fiber Litigation"), partially offset by
increases associated with becoming a public company. In 1995, the Company
incurred legal expenses of approximately $400,000 in connection with the Fiber
Litigation. Future legal expenses in the Fiber Litigation (not including out-of
- -pocket expenses) are expected to be limited in accordance with the Company's
agreement with its legal counsel, although if the litigation is successful,
counsel will be entitled to certain contingency fees.

Net interest income increased to $99,037 in fiscal 1996 from net interest
expense of $322,540 in fiscal 1995, reflecting the investment of the Company's
remaining net proceeds from its IPO and the repayment in December 1994 of a
significant portion of the Company's outstanding debt.

21
<PAGE>

Net loss increased 51.1% to $5,752,895 in fiscal 1996 from $3,808,485 in
fiscal 1995. This increase was principally attributable to increases in cost of
sales, selling and marketing expenses and research and development expenses.

FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1994

Net sales decreased 39.9% to $1,249,403 in fiscal 1995 from $2,079,335 in
fiscal 1994. Net sales during fiscal 1994 included substantial revenue from the
introduction of the Company's Er:YAG laser. Sales in fiscal 1995 of Nd:YAG
lasers, Er:YAG lasers and other laser products were adversely affected by the
lack of working capital to fund the purchase of inventory components (some of
which require a three month lead time to supply) and manufacturing operations,
and the limited availability of optical fibers for the Er:YAG laser. The
decrease in sales of these products was partially offset by a general increase
in sales of the Company's other products.

Cost of sales decreased 25.9% to $1,298,420 in fiscal 1995 from $1,753,352
in fiscal 1994. This decrease was primarily attributable to reduced expenditures
of raw materials resulting from lower sales.

Selling and marketing expenses decreased 4.7% to $1,035,863 in fiscal 1995
from $1,087,461 in fiscal 1994.

Research and development expenses increased 52.7% to $1,035,705 in fiscal
1995 from $678,279 in fiscal 1994 primarily due to increased efforts directed
towards dental hard tissue clinical trials and the initial development efforts
associated with two potential products.

General and administrative expenses increased 32.1% to $1,747,090 in fiscal
1995 from $1,322,888 in fiscal 1994. This increase was primarily due to expenses
incurred in connection with the Fiber Litigation, which were partially offset by
reductions in management compensation.

Net interest expense decreased 25.8% to $322,540 in fiscal 1995 from
$434,851 in fiscal 1994.

Net loss increased 19.1% to $3,808,485 in fiscal 1995 from $3,197,496 in
fiscal 1994. This increase reflected the decreased level of sales and an
increase in research and development and general and administrative expenses
during fiscal 1995. The net loss for fiscal 1995 included a net extraordinary
gain of $381,730 from the extinguishment of indebtedness.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations have been financed through the proceeds from the
sale of the Company's equity securities, including the IPO, revenues from
operations and the proceeds from an SBIR grant. The Company's principal capital
requirements include the financing of inventory, accounts receivable, research
and development activities, the development of an ophthalmic and a surgical
sales force, the development of marketing programs and the acquisition and/or
licensing of patents.

At March 31, 1996, the Company had a minimal cash balance and its working
capital was $5,818,492. This represents a reduction from March 31, 1995 of
$5,852,774 in cash and cash equivalents. The decrease in cash and cash
equivalents was the result of net cash used in operating activities of
$5,312,384 and cash used in investing activities of $540,694, including a
$195,971 increase in patent expenditures, a $219,723 addition to capital
equipment primarily for molds for new products and a $125,000 note receivable
from International Biolaser Corporation.

In December 1995, the Company entered into a strategic marketing alliance
with Mattan Corporation ("Mattan"), a Canadian corporation whose stock is
publicly traded on the Alberta Stock Exchange. Pursuant to this alliance, the
Company entered into a Purchasing Agreement with Mattan which provides that the
Company will supply all laser equipment and associated disposables for all laser
surgery centers to be designed and opened by Mattan in Canada and the United
States. In connection with this alliance, the Company entered into a Share
Exchange Agreement with Mattan pursuant to which the Company issued 200,000
shares of the Company's Common Stock to two parties affiliated with Mattan, in
exchange for 1,150,000 shares of Mattan's Common Stock, which constituted
approximately 12% of Mattan's outstanding Common Stock as of the date of the
transaction. The Company accounts for this investment as an available-for-sale
security pursuant to SFAS 115.

At March 31, 1996, the Company's indebtedness consisted of a $481,195
note payable to Pfizer HPG due in three installments commencing with a
$240,598 principal reduction, plus accrued interest, in July 1996 and
$120,299 quarterly payments in October 1996 and January 1997. Upon completion
of the Company's pending public offering, any remaining unpaid principal and
accrued interest becomes immediately due and payable.

At March 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $16,319,249 which will begin
to expire in fiscal 2007. Net operating

22
<PAGE>

loss carryforwards for state income tax purposes totaling approximately
$7,895,167 at March 31, 1996 which will begin to expire in fiscal 1998. The
Tax Reform Act of 1986 includes provisions which may limit the net
operating loss carryforwards available for use in any given year if
certain events occur, including significant changes in stock ownership.
Utilization of the Company's net operating loss carryforwards to offset
future income may be limited.

The Company has a credit facility (the "Credit Facility") with Silicon
Valley Bank which permits borrowings of up to $1 million based on the value of
the 1,150,000 shares of common stock of Mattan Corporation (the "Mattan Shares")
held by the Company. Borrowings under the Credit Facility are secured by the
Mattan Shares, bear interest at the rate of 1.0% per annum over the prime rate
of interest, and are due and payable in November 1996. In connection with this
Credit Facility, the Company issued to such lender warrants to purchase up to
9,756 shares of the Company's Common Stock at an exercise price equal to $10.25
per share. As of June 24, 1996, the Company has drawn approximately $300,000 on
this Credit Facility.

The Company is also in the process of seeking equity financing through a
pending public offering of approximately 2,500,000 shares of its Class A
Common Stock. Although no assurance can be given that such offering will be
successful, the Company believes that if such offering is successfully
consummated, the net proceeds thereof would provide the Company with
sufficient working capital for the next 24 months.

The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development activities,
the scope and results of preclinical studies and clinical trials, the costs
and timing of regulatory approvals, the rate of technology advances by the
Company, competitive conditions within the medical laser industry, the
establishment of manufacturing capacity and the establishment of
collaborative marketing and other relationships which may either involve cash
infusions to the Company, or require additional cash from the Company.
Management believes that short term assets, cash generated through expected
future revenues and SBIR grants and funds available under the Credit Facility
will be adequate to satisfy its working capital needs for at least the next
three months. After that period the Company's ability to meet its working
capital needs will be dependent on its ability to achieve a positive cash
flow from operations and profitable operations, in addition to its ability to
secure additional debt or equity financing. No assurance can be given that
the Company will be able to achieve a positive cash flow from operations,
profitable operations or secure financing on acceptable terms.

SEASONALITY OF BUSINESS

To date, the Company's revenues have typically been significantly higher in
the second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year end tax planning
influencing the purchasing of capital equipment for depreciation during the
fourth calendar quarter. The Company expects that this seasonality will continue
indefinitely.

GOVERNMENT GRANTS

The Company has been awarded a SBIR grant for approximately $750,000 for the
study of laser cataract emulsification. Approximately $250,000 of this amount
was drawn at March 31, 1996, and an additional approximately $398,000 has been
drawn since that date. The remainder of the grant can be drawn over the next six
months upon the achievement of specified criteria. The Company has also applied
for new Phase I research grants related to dentistry, orthopedics, tissue
melding, and ophthalmology. No assurance can be given that the Company will be
awarded any of these potential government grants.

POTENTIAL FUTURE CHARGE TO INCOME

The Commission has adopted a position with respect to arrangements such as
the one entered into among the Company and the holders of its outstanding Class
E-1 and Class E-2 Common Stock ("Escrow Shares") which provides that in the
event any shares are released from escrow to certain persons who are officers,
directors, employees or consultants of the Company, compensation expense will be
recorded for financial reporting purposes. Accordingly, the Company expects, in
the event of the release of the Escrow Shares from escrow, to recognize
substantial noncash charges to earnings during the periods in which the criteria
for release of the Escrow Shares are met, which would have the effect of

23
<PAGE>

significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. The recognition of such compensation expense by the
Company may have a depressive effect on the market price of the Company's
securities.

The Escrow Shares will be automatically converted into Class A Common
Stock (at a conversion rate of one share of Class A Common Stock for each
Escrow Share) in the event that the Company meets certain criteria relating
to the market price of the Class A Common Stock or the achievement by the
Company of certain levels of "income," as defined. Different criteria relate
to the Class E-1 Common Stock and Class E-2 Common Stock. For these purposes,
"income" means the Company's net income before provision for income taxes,
including earnings from joint ventures, distribution agreements and licensing
agreements, but exclusive of any other earnings that are classified as an
extraordinary item, and exclusive of charges to income that may result from
conversion of the Escrow Shares into Common Stock, as stated in the Company's
financial statements audited by the Company's independent accountants. See
"Description of Securities -- Common Stock."

If none of the pretax net income or market price levels are attained, the
Escrow Shares, as well as any dividends or other distributions made with
respect thereto, will be cancelled. The pretax net income and market price
levels were determined by negotiation between the Company and the Company's
underwriter for the IPO and should not be construed to imply or predict any
future earnings by the Company or any increase in the market price of its
securities. There can be no assurance that such earnings and market price
levels will be attained or that any or all of the Escrow Shares will be
converted into Class A Common Stock.

24
<PAGE>

BUSINESS

OVERVIEW

Premier Laser Systems, Inc. develops, manufactures and markets several lines
of proprietary medical lasers, fiberoptic delivery systems and associated
products for a variety of dental, ophthalmic and surgical applications
principally for use in surgical centers and medical offices. The Company's
lasers and related products use the controlled application of thermal, acoustic
and optical energy to allow the physician or dentist to perform selected
minimally invasive procedures which, compared to conventional techniques not
involving the use of lasers, vaporize or sever tissue with minimal blood loss
and scarring, increase patient comfort and reduce patient treatment time and
treatment costs. To date, the Company has received clearance to market 19 models
of medical lasers, which are covered by 18 United States patents, 13 pending
United States patent applications, 11 foreign patents and 41 pending foreign
patents. While the Company has clearance to market laser products for a variety
of medical applications, due to limited resources the Company has focused its
marketing and distribution efforts to date on a limited number of products and
applications (principally specific dental applications) which the Company
believes have the most potential for commercial success. As future resources
permit, the Company may introduce certain products for applications for which it
already has all necessary approvals or may seek strategic alliances to develop,
market and distribute such products.

MARKET OVERVIEW

The use of laser technology in dentistry, ophthalmology and surgery involves
the controlled application of laser light to hard or soft tissue causing an
optical, thermal, acoustic or plasma interaction with the tissue. When applied
to tissue, the laser light is partially absorbed. This process of absorption
converts the light to heat, which in turn alters the state of the tissue. The
degree of tissue absorption varies with the choice of wavelength and is an
important variable in the application of laser technology in treating various
tissues. The laser energy can also form a gas bubble in a water medium which
provides an acoustic cutting effect as it bursts. The Company often uses its
proprietary delivery systems to control the relative proportions of acoustic,
thermal and optical energy applied to tissue resulting in enhanced cutting
effects. These delivery systems include flexible fiberoptics, waveguides,
articulated arms and micromanipulators which are used on a disposable or limited
reuse basis which the Company intends will provide a recurring revenue stream
for the Company. The Company's strategy is to target specific applications in
the dental, ophthalmic and surgical markets, where management believes that the
Company's technology and products have competitive strengths.

DENTAL AND PERIODONTAL MARKET

The current market for laser equipment in dental procedures is comprised of
soft tissue procedures, composite curing and teeth whitening. If clearance or
approval is obtained, this market may be expanded to include hard tissue and
cavity prevention procedures.

SOFT TISSUE. It is estimated that over 60 million periodontal procedures
are performed by dentists and periodontists annually in the United States, many
of which the Company believes can be addressed with laser technology. In a
clinical study involving more than 900 procedures, periodontists used the
Company's lasers during a new minimally invasive surgical technique used in lieu
of traditional periodontal flap surgery, for which technique the Company has
filed a patent application which is pending. The results demonstrated a
reduction in bacteria, improved periodontal pocket depth, minimal or no pain
when using the laser even without anesthesia, little or no prescription
medication following surgery and a substantial reduction in surgical time. This
study also demonstrated that the dental laser can also be used to treat early
gum disease, postponing or in some cases eliminating the need for conventional
periodontal surgery. While the Company has clearance to market six lasers for
soft tissue dental procedures, the Company focuses its marketing efforts on its
Aurora diode laser in this area. The Company's Aurora diode laser and Centauri
Er:YAG laser have been cleared to market for these soft tissue dental
procedures.

COMPOSITE CURING. Approximately 48% of all respondants in a recent survey
conducted by Clinical Research Associates use composites, an alternate material
to amalgams (gold and silver) for cavity filling. Composites are rapidly
replacing amalgams as the material of choice for restoration of cavities because
they more closely match the color of teeth and because amalgams have drawn
increasing worldwide concern over safety due to the toxic gases which may be
released when the amalgams are removed from teeth. Composite fillings are
typically cured using a

<PAGE>

curing light which provides a broad spectrum of wavelengths. The use
of the argon laser for this application has been shown to result in a
stronger restoration than composites cured by traditional curing lights.
The Company's argon lasers can also be used to cure the resins used in
placing veneers or to bond orthodontic brackets. The Company's Arago and
MOD argon lasers have received clearance for use in these applications.

TEETH WHITENING. In a recent survey conducted by Clinical Research
Associates, approximately 79% of dentists surveyed used light accelerated
bleaching materials with clinical success for teeth whitening. These materials
are traditionally applied at night over a six to eight week period to whiten a
patient's teeth while he or she sleeps. Lasers have been shown to facilitate the
use of these light sensitive materials in the dentist's office by accelerating
this process and resulting in an approximate three shade change in less than one
hour. The Company is currently conducting a marketing study with its Arago argon
laser for this application and has a 510(k) application pending before the FDA.

HARD TISSUE (CAVITY PREPARATION). The American Dental Association estimates
that more than 170 million hard tissue restorative procedures are performed each
year in the United States, many of which the Company believes could be addressed
by a dental laser which could reduce or eliminate the need for a high speed
dental hand drill, reduce the need for anesthesia and assist in the prevention
of dental caries. Potential dental laser applications for hard tissue procedures
include pit and fissure sealing, etching, caries removal and cavity preparation.
Based on user feedback from the Company's clinical sites, the Company believes
that the use of a laser in dentistry reduces the pain associated with various
traditional procedures performed with a dental drill. Although no lasers are
currently approved by the FDA for hard tissue procedures, the Company has
completed clinical trials to support its 510(k) application to the FDA for
clearance to market its Centauri Er:YAG laser on teeth. No assurance can be
given, however, that the FDA will not require the Company to submit a PMA
application for this use, or require the Company to conduct additional clinical
trials.

CAVITY PREVENTION. Studies performed by an outside university on human
extracted teeth have demonstrated that lasers used in conjunction with fluoride
treatments can be highly effective in the prevention of cavity formation. The
Company is currently initiating clinical trials to use its lasers for cavity
prevention applications. The Company's clinical trials are at an early stage and
there can be no assurance that the Company will obtain clearance for these
applications.

OPHTHALMIC MARKET

Lasers have been used for the treatment of eye disorders for many years and
are widely accepted in the ophthalmic community. The original and most widely
accepted use of lasers in ophthalmology has been for posterior capsulotomy. The
Company does not promote its lasers for this market, which it believes is
approaching saturation, but instead focuses on intraocular procedures including
anterior capsulotomy, cataract removal, glaucoma treatment, corneal sculpting
and occuloplastic or cosmetic procedures. The Company has developed the Centauri
Er:YAG laser which is capable of performing all of these procedures, which are
typically performed using several different types of medical lasers, although to
date, the Centauri laser has only been cleared for use in anterior capsulotomies
and certain cosmetic procedures.

CATARACT REMOVAL PROCEDURES. According to the American Society of Cataract
and Refractive Surgeons, approximately two million cataract extraction
procedures are performed annually in the United States. The Company believes
that no lasers have been approved to date for this application, and that lasers
may result in less trauma and inflammation than traditional surgical methods,
providing more comfort to the patient. The Company's Centauri Er:YAG laser has
been cleared to market for anterior capsulotomy, a procedure which opens the
capsule of the eye prior to the removal of the cataract. The Company is also
currently conducting clinical trials on the Centauri laser for lens emulsifica-
tion (the removal of the cataract itself), as an alternative to phacoemulsifica-
tion (the breakup of the cataract by ultrasonic energy). The Company believes
this patented technology for use in lens emulsification may provide an easier
and safer method of cataract removal.

26
<PAGE>

TREATMENT OF GLAUCOMA. According to the National Institutes of Health, in
1995, approximately three million people in the United States suffered from
glaucoma, a disease of the eye characterized by increased intraocular pressure
within the eyeball and progressive loss of vision. Traditionally, glaucoma has
been treated with drug therapy. When drug therapy is ineffective, periodic
invasive surgery may be required. In these cases, lasers may be used to open the
sclera and relieve pressure in the eye. This procedure, which must be repeated
periodically, can be performed under local anesthesia with a self closing
incision on an outpatient basis. The Company is currently conducting clinical
trials to support investigational device exemption ("IDE") submittals for
clearance to market its Centauri Er:YAG laser for this procedure. If clearance
is obtained, concerning which there can be no assurance, the Company's Er:YAG
laser could provide a viable alternative to the traditional invasive surgical
procedures.

CORNEAL SCULPTING. Medical Insight, Inc. estimated in 1993 that 170 million
people in the United States suffered from vision disorders including
nearsightedness (myopia), farsightedness (hyperopia) and astigmatism. The
Company believes that the recent approval of excimer lasers has resulted in
greater acceptance and recognition of laser refractive surgery in the ophthalmic
market. Medical lasers may be used for corneal sculpting (photorefractive
keratectomy), a procedure in which the laser is used to sculpt the cornea of the
eye to a desired curvature to correct the myopia, hyperopia or astigmatism. The
Company plans to seek FDA approval to market the Centauri laser for corneal
sculpting and has initiated animal studies for this application. No assurance
can be given, however, that FDA approval will be given for this application.

SURGICAL MARKET

Lasers have been approved for and are currently being used in a variety of
surgical applications including orthopedics, neurosurgery, urology,
gastroenterology, ophthalmology, cardiology, dermatology, gynecology and plastic
surgery. Although the Company's products are cleared to market in a number of
specialty areas within the surgical market, the Company has specifically
targeted tissue melding (tissue fusion) and cosmetic applications within the
surgical market.

TISSUE MELDING. The suture, staple and wound closure market represented
approximately $2 billion worldwide in 1994. The Company believes a significant
number of these procedures may be addressed with surgical lasers in conjunction
with or independent of traditional sutures or staples. The Company believes that
the benefits of the use of surgical lasers for tissue melding, as compared to
suture and staples, include fluid-static seals, immediate strength of the
closure and reduced surgical time. The Company and its strategic partner have
conducted animal tests to support IDE submittals for the use of the Company's
Polaris Nd:YAG laser in the areas of arteries, veins, blood vessels and ducts,
and are currently conducting clinical studies for skin and hypospadias. The
Company has also completed clinical trials for vasovasotomy (reversal of
vasectomies) which demonstrated a success rate of approximately 89%. The Company
is also beginning Phase I clinical trials for the treatment of hypospadias, the
lengthening of the urethra to the end of the penis in infant boys, in which it
is anticipated that the laser's fluid-static seal may minimize post-surgical
complications such as the leakage of urine which requires secondary surgical
procedures. The Company has clearance for Phase II clinical trials for skin
closure following mastectomies and eyelid surgery at five clinical sites. Artery
and vein melding is being tested in animals by the Company's strategic partner
in Japan in preparation for clinical studies.

COSMETIC SURGICAL PROCEDURES. The market for cosmetic laser surgery is
growing rapidly worldwide. Medical Laser Insight, Inc. estimates the procedural
fees for the aesthetic facial surgery market in the United States was $775
million in 1992. The Company entered into a Purchasing Agreement
and a Share Exchange Agreement dated December 20, 1995 with Mattan Corporation
("Mattan"), the parent corporation of Medical Laser Institute of America
("MLIA"), pursuant to which the Company made an investment in and formed an
alliance with MLIA. Mattan owns and operates or provides marketing support for a
series of medical laser cosmetic surgery centers, which centers focus on wrinkle

27
<PAGE>

removal, treatment of varicose veins, acne scar removal, tattoo removal and
refractive surgery. Pursuant to these agreements, Mattan has agreed to purchase
all laser equipment, accessories and disposable laser products for use in its
laser centers exclusively from the Company until December 31, 2005. To the
extent the Company is unable to provide a requested laser to Mattan, the Company
will act as purchasing agent for Mattan and purchase the lasers from a third
party for resale to Mattan.

The Company has regulatory clearance to market its products for a variety of
additional applications, including urology, orthopedics, gynecology,
gastroenterology, podiatry, pulmonary and neurosurgery, among other areas. In
areas where the Company's technology is not being fully utilized, the Company
may seek agreements to supply its products under private label for other
manufacturers or may enter into strategic alliances to develop and market the
Company's lasers for other applications.

BUSINESS STRATEGY

The Company's strategy is to seek to increase its market penetration in the
dental, ophthalmic and surgical markets. Key elements of the Company's strategy
include the following:

FOCUS ON THE OFFICE AND SURGICAL CENTER MARKETS. Recognizing the cost
containment environment of the medical industry, the Company intends to focus on
clinical applications for lasers which may be performed in a surgical center or
medical office. Management believes that the Company's compact and portable
lasers offer cost efficiencies and can be used to take advantage of industry
trends which favor minimally invasive medical procedures.

INCREASE DOMESTIC MARKETING AND ACCEPTANCE OF LASER TECHNOLOGY. The Company
intends to expand its domestic marketing organization through additional sales
representatives and distributors to target the dental, ophthalmic and surgical
markets in the United States. The Company also intends to continue to implement
a doctor awareness and education program to address the individual doctor's
training, practice management and marketing needs. The Company believes
increased publicity and additional publications are essential to educate
dentists, physicians and patients about the clinical benefits of medical lasers.

EMPHASIZE EXPANSION IN INTERNATIONAL MARKETS. Foreign sales account for a
substantial portion of the Company's revenues and the Company intends to devote
additional resources to expand the worldwide marketing of its products,
particularly in the Pacific Rim and Europe. The Company anticipates substantial
growth opportunity in these markets and will seek to enter into marketing
arrangements with recognized distributors who will aggressively market and
service the Company's products in each region. Such expansion may include
potential acquisitions of businesses which have a marketing presence in Europe
and the Pacific Rim. There are no present negotiations or agreements with
respect to any acquisitions, and no assurance may be given that the Company will
be able to identify or consummate any such acquisitions.

EXPAND CLINICAL APPLICATIONS FOR PROPRIETARY LASER TECHNOLOGY. The Company
manufactures lasers which are multidisciplinary in their surgical applications
and multifunctional in the specific procedures for which they have been cleared.
The Company holds 18 United States patents and 11 foreign patents, and has
pending 13 United States patents and 41 foreign patents. The Company intends to
expand its proprietary laser technology by developing and marketing lasers for
selected additional applications, which may include corneal sculpting, hard
tissue (teeth and bone) cutting, teeth whitening procedures and tissue melding
applications, subject to FDA approval or clearance.

28
<PAGE>

CAPITALIZE ON DISPOSABLE AFTERMARKET SALES. The Company manufactures a
variety of disposable fiberoptic delivery systems and sculpted fiberoptic
probes, optical tips, waveguides and catheters which are designed for
single-patient use. The unique design of the Company's lasers, including the
patented connecters, encourages the users of the Company's products to purchase
the compatible disposable products distributed by the Company. The Company
believes that the increasing demand for product sterility and cost containment
will result in an increase in disposable product sales and will provide a
recurring revenue stream. The Company intends to market these products to
existing customers, as well as to hospital administrators on a custom basis for
other surgical lasers.

DEVELOP NEW MARKETS THROUGH STRATEGIC ALLIANCES. The Company intends to
establish strategic alliances in order to expedite and lower the cost of
developing and bringing to market new products in current markets and existing
products in new markets. The Company believes a substantial potential market
exists for its laser technology and products both inside and outside the dental,
ophthalmic and surgical markets. Strategic alliances could accelerate the
Company's efforts to expand in several key areas including, but not limited to,
tissue melding, bone shaping, removal of bone cement and disectomy in
orthopedics, photo dynamic therapy, revascularization of the heart and
interstitial treatment of the prostate. The Company plans to seek strategic
alliances to develop additional clinical applications and markets. Pursuant to
this strategy, the Company entered into an Exclusive Marketing Agreement dated
July 26, 1994 with Nippon Shoji Kaisha, Ltd. ("NSK") to distribute the Company's
Polaris Nd:YAG laser for tissue melding applications in Japan, China and Taiwan,
subject to receipt of regulatory approval. The Company also entered into a
letter agreement dated October 19, 1995 to form a strategic alliance with
International Biolaser Corporation ("IBC") to manufacture and distribute the MOD
argon laser for dental use pursuant to the Company's joint marketing
relationship with IBC.

29
<PAGE>

Although the Company will continue to seek to increase its market
penetration in the dental, opthalmic and surgical markets, there can be no
assurance that the foregoing strategy will be commercially successful or that
the Company's products will be accepted by the medical or dental community, or
that a significant market for the Company's laser systems will be developed and
sustained.

LASER PRODUCTS

The Company's line of portable lasers are specifically designed for use in
outpatient surgical centers and medical offices. The Company believes that its
lasers are also well suited for the international market, particularly in
facilities with many surgical suites where easy transportation of equipment is
necessary. By employing techniques developed in the computer industry, the
Company has designed a laser system that (i) is modularly designed and uses
similar components for multiple laser systems thereby reducing their overall
cost, (ii) allows for efficient and inexpensive repair by replacing a board or
assembly in the field or through the mail, reducing the need for a field service
force, and (iii) can be easily moved from the office to surgical centers because
of its compact size and limited voltage requirements. The Company's Er:YAG
lasers are currently priced from $35,000 to $115,000 and its Nd:YAG lasers are
currently priced from $25,000 to $80,000. The Company's diode lasers are
currently priced from $20,000 to $30,000, its argon laser is priced from $8,000
to $20,000 and its CO(2) lasers are currently priced from $5,500 to $20,000. The
prices of lasers within these ranges depend upon each model's power capability
and the features offered.

<PAGE>
PRINCIPAL LASER APPLICATIONS AND FDA STATUS.

The following table presents in summary form, the Company's principal
lasers and delivery systems, the primary applications for which the Company
intends to use them, and the FDA status of such products.

<TABLE>
<CAPTION>
PRODUCT MEDICAL APPLICATION FDA REGULATORY STATUS(1)
- ----------------------------- --------------------------------------------------------- ------------------------
<S> <C> <C>
Centauri (Er:YAG) Dental -- Soft Tissue.................................... Cleared to market
Dental -- Hard Tissue.................................... Clinical trials
completed
Pending 510(k)
Ophthalmology (e.g. Anterior Capsulotomy)................ Cleared to market
Ab-externo and Ab-interno Sclerostomy, Laser Lens
Emulsification.......................................... Clinical trials
Corneal Sculpting........................................ Preclinical animal
studies
General Surgery, Neurosurgery, Orthopedics,
Gastrointestinal and Genitourinary Procedures, Urology,
Gynecology and Oral Surgery............................. Cleared to market
Pegasus (Nd:YAG) 20W Dental -- Soft Tissue.................................... Cleared to market
Polaris (1.32m Nd:YAG) Tissue Melding........................................... Clinical trials
General Surgery, Ophthalmology, Arthroscopic Surgery,
Gastrointestinal and Genitourinary Procedures, Urology,
Gynecology and Oral Surgery............................. Cleared to market
Aurora (diode) Dental -- Soft Tissue.................................... Cleared to market
Dental and General Surgery, Ophthalmology, Arthroscopic
Surgery, Gastrointestinal and Genitourinary Procedures,
Urology, Dermatology, Plastic Surgery, Podiatry,
Neurosurgery, Gynecology, Pulmonary Surgery and Oral
Surgery................................................. Cleared to market
Arago and MOD (argon) Dental -- Composite and Resin Curing..................... Cleared to market
Dental -- Teeth Whitening................................ Pending 510(k)
</TABLE>

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

(1) The Company has made modifications to certain of its products which the
Company believes do not require the submission of new 510(k) notifications.
However, there can be no assurance that the FDA will agree with the
Company's determinations and will not require the Company to discontinue
marketing one or more of the modified devices until the modifications have
been cleared by the FDA. There also can be no assurance that any such
clearance of modifications would be granted should clearance be necessary.
See "-- Government Regulation."

31
<PAGE>

CENTAURI ER:YAG LASER

The Company's Centauri Er:YAG laser is a portable Er:YAG pulsed solid state
laser which generates high frequencies (up to 30Hz) at relatively low peak
power. These high frequencies allow faster cutting at lower energies. The 2.9
micron wavelength of the Er:YAG is highly absorbed by water, producing a cut
similar to the scalpel. The Er:YAG wavelength is delivered through a fiber optic
delivery system which enables the beams to be focused and angled. These
fiberoptic catheters are difficult to produce and the Company has invested
heavily in the technology to develop fibers which can handle adequate power. The
Company has experienced difficulties in securing a consistent source for these
fibers in the past, although it has recently procured two new sources for these
fibers. See "-- Legal Proceedings" and "Risk Factors -- Dependence on
Suppliers."

The Company's Centauri Er:YAG laser has many potential applications
in different medical specialties, including cutting hard tissue such as
bone and teeth, which could replace or minimize the use of noisy, high speed
dental hand drills, and removing ocular structures or performing
microsurgery with minimal thermal damage. Although presently marketed only
for soft tissue dental procedures and anterior capsulotomy, the Centauri
laser also has clearances to market for hemostasis (cessation of
bleeding), excision and vaporization of tissues in ophthalmology,
general surgery, neurosurgery, orthopedics, gastroenterology, urology,
gynecology and oral surgery. See "-- Government Regulation." The Centauri
laser is highly effective in cataract ophthalmic procedures because its
wavelength is at the peak of the water absorption spectrum and water
comprises greater than 60% of ophthalmic tissues. Therefore, the Centauri
laser can emulsify cataracts, surgically excise tissue in the treatment of
glaucoma and can precisely remove layers of cornea similarly to an
excimer laser. This system, which currently is cleared for anterior
capsulotomy and other procedures in ophthalmology, is estimated to be
available for approximately one-third the price of refractive excimer
lasers currently on the market and requires substantially lower maintenance
costs than excimer lasers (an estimated annual expense of $10,000
as compared to approximately $70,000). In addition, the multiple
application Centauri Er:YAG laser is completely portable, does not emit
any toxic gases or cause any potentially mutagenic effect which may result
from the use of the excimer laser.

The Company has recently introduced what it believes to be the industry's
first fully-integrated Er:YAG laser system for ophthalmic procedures. The new
system incorporates the Centauri Er:YAG laser and provides the option of either
a bi-manual or coaxial, uni-manual handpiece to accommodate an individual
physician's technique. The Company has also recently introduced a new
irrigation/ aspiration product for use in conjunction with the Centauri system,
which integrates with the laser in performing the cataract removal procedure,
and includes proprietary vacuum monitoring connectors that create a sterile
aspiration line.

While animal studies have been encouraging, there can be no assurance that
the FDA will approve the use of the Company's Centauri laser for corneal
sculpting, or that the laser will work effectively in clinical trials. Clinical
trials are estimated to continue for two to five years before approval can be
sought in the United States. There are several patents pending on this
technology and application, although no assurances can be given that these
patents will be approved or approved with the current claims.

POLARIS AND PEGASUS ND:YAG LASERS

The energy of Nd:YAG lasers is absorbed by blood in tissue and as a result
these systems are the preferred lasers to limit bleeding during surgery and for
procedures requiring fiberoptic delivery, such as laparoscopic surgery. The
Nd:YAG fiberoptic delivery system allows the surgeon to perform surgery through
small incisions, providing minimally invasive surgery to patients and usually
reducing treatment costs and the length of hospital stays.

The Company manufactures a variety of continuous wave solid state Nd:YAG
lasers which are designed for use in dentistry and a number of medical
specialties. The Company received its first clearance to market a continuous
wave Nd:YAG laser system for dental (soft tissue) applications and introduced
its 20 watt dental Pegasus Nd:YAG laser in February 1992. The Company also
manufactures 40, 60 and 100 watt Pegasus Nd:YAG lasers which have clearance to
market for various applications and procedures in general surgery, urology,
gastrointestinal procedures, pulmonary procedures, gastroenterology, gynecology
and ophthalmology.

These lasers also utilize the Company's disposable and reusable unique
TouchTIPS, AngleTIPS and sculptured fibers. By using the Pegasus laser with
TouchTIPS, the surgeon is allowed direct contact with tissue and the tactile
feeling of the scalpel or other surgical instruments. The Company believes that
the availability of these technologies permits the use of lower power laser
systems (20 watt in dental, 40-60 watt in surgery).

In December 1993, the Company entered into an Asset Purchase Agreement with
Proclosure, pursuant to which the Company acquired from Proclosure the
proprietary rights, including several patents, to manufacture and sell the
Polaris laser, a 1.32 micron Nd:YAG laser (except in Japan, China

32
<PAGE>
and Taiwan), together with specialized software and delivery systems, for tissue
melding. The Company is developing the Polaris laser for use in cosmetic skin
closures, vascular surgeries and minimally invasive surgical procedures normally
performed with sutures and staples. Although the use of the Polaris laser for
tissue melding is still in the development stage, and no clearance for this
application has been received, the Company believes that tissue melding offers
clinical advantages over traditional sutures and staples.

AURORA DIODE LASER

The Aurora diode laser is the Company's first semiconductor laser and is the
first truly portable diode laser designed for dentistry. The Aurora diode laser
replaces the 20 watt Pegasus laser for periodontal procedures, and is one-fourth
the size and one-half of the cost of that system. The diode wavelength is
absorbed by blood in pigmentation and has been cleared for use in multiple
specialties such as general surgery, ophthalmology, urology and plastic surgery.
The Aurora laser, which was introduced for soft tissue dental applications in
February 1996, is designed to utilize the Nd:YAG delivery systems, including
TouchTIPS, AngleTIPS and sculptured fibers, for soft tissue surgery with minimal
bleeding or anesthesia. The dental laser can also be used to treat early stage
gum disease, postponing or in some cases eliminating the need for periodontal
surgery and providing the opportunity for overall cost savings. The Company
believes the Aurora laser compares favorably with competitive products including
pulsed Nd:YAG lasers, which cannot produce the required laser settings for use
with TouchTIPs, or in the new technique for the treatment of periodontal
disease, as well as with CO(2) lasers (which cannot be delivered through a
fiber), and argon lasers (which tend to be slower in cutting and may produce
charring).

ARAGO AND MOD ARGON LASERS

The Arago and the MOD are argon gas lasers which have been cleared to market
in dentistry to accelerate the composite curing process. Composites are rapidly
replacing amalgams (gold and silver) as the material of choice for the
restoration of cavities. The argon wavelength penetrates through the composite
and has been shown to result in a stronger restoration than composites cured by
traditional curing lights. The Company's argon lasers can also be used to cure
the resins used in placing veneers or bonding orthodontic brackets.

The argon laser can also be used to enhance teeth whitening procedures using
light activated bleaching materials which have traditionally been applied at
night over a six to eight week period. Lasers have been shown to facilitate the
use of these light activated products in a dentist's office by accelerating this
process and resulting in an approximate three shade change in less than one
hour. The Company currently has a pending 510(k) for this application. No
assurance may be given, however, that the Company will be granted clearance to
market this laser for teeth whitening or that the use of the argon laser for
teeth whitening will become a widely accepted practice in the dental industry.
The Company plans to bundle its lasers with light activated whitening materials
and co-market these products with the manufacturers of these materials.

The MOD argon laser is manufactured by the Company pursuant to a letter
agreement dated October 19, 1995 with IBC which creates a joint marketing
relationship for the sale of this product. Pursuant to this agreement, the
Company has loaned IBC $125,000 and has the right to designate one member of
IBC's Board of Directors. The Company has also entered into a distribution
agreement dated March 8, 1996 with Lasermed, Inc., pursuant to which the Company
obtained the co-exclusive right to market the portable lightweight Arago argon
laser. This agreement terminates in August 1996. The Company will seek to extend
this agreement or, if no extension can be obtained on acceptable terms, to find
an alternative source for the argon laser, concerning which no assurance can be
given. The Company's inability to extend the agreement or find a suitable
replacement product could have a material adverse effect on the Company's
business, results of operations and financial condition.

33
<PAGE>
ALTAIR CO(2) LASERS

The CO(2) laser was the first available and the early standard in surgical
laser applications. The 10.6 micron wavelength generated by the CO(2) laser is
absorbed by water in tissue. The CO(2) laser acts like a surgical scalpel to
vaporize tissue with minimal blood loss and scarring. The risk of infection is
reduced by thermal sealing of blood and lymphatic vessels in the adjacent
tissues. The characteristics of the CO(2) laser have provided a wide variety of
medical specialists a modality of treatment that has significantly changed
conventional invasive surgery in a number of clinical specialties.

The Company's hand-held 10 and 20 watt CO(2) lasers acquired from Pfizer
Laser are marketed primarily for office use by podiatrists, dermatologists,
orthopedists, dentists and gynecologists. The laser weighs less than 40 pounds
and packs in a suitcase. The Company and Pfizer Laser have sold a number of
these lasers and the Company continues to provide service and support for these
products. To expand its CO(2) laser product line, the Company has designed 35
watt and 65 watt Altair CO(2) lasers for hospital based surgeries. These lasers
are portable, and laser energy may be delivered through a waveguide arm,
reusable or disposable handpieces or more maneuverable flexible waveguide
delivery systems.

OTHER LASERS -- APPLICATIONS AND FDA STATUS

The Company has developed other solid state pulsed lasers including the
Sirius .532m Nd:YAG laser and the Orion Ho:YAG laser, and other applications for
its existing lasers, but is not actively marketing these lasers at the present
time. The following table sets forth in summary form, certain additional lasers
owned by the Company which are not currently marketed by the Company, and the
principal applications for which the Company has clearance to market such
lasers.

<TABLE>
<CAPTION>
PRODUCT MEDICAL APPLICATION FDA REGULATORY STATUS(1)
- ----------------------------- --------------------------------------------------------- ------------------------
<S> <C> <C>
Altair (CO(2)) and a CO(2) Orthopedics, General and Plastic Surgery, Dermatology,
laser acquired from Pfizer Podiatry, Ear, Nose and Throat, Gynecology, Pulmonary
HPG Procedures, Neurosurgery and Ophthalmology.............. Cleared to market
Dental -- Soft Tissue.................................... Cleared to market
Pegasus (Nd:YAG) 40W/60W General Surgery, Urology, Gastrointestinal Procedures,
Pulmonary Procedures, Gastroenterology, Gynecology and
Ophthalmology........................................... Cleared to market
Pegasus (Nd:YAG) 100W Oral, Arthroscopic and General Surgery, Gastroenterology,
Gastrointestinal and Genitourinary Procedures, Pulmonary
Procedures, Gynecology, Neurosurgery and
Ophthalmology........................................... Cleared to market
Sirius (.532m Nd:YAG) Dermatology, General and Plastic Surgery, Podiatry and
Orthopedic Applications................................. Cleared to market
Orion (Ho:YAG) General Surgery, Orthopedics, Ear, Nose and Throat,
Ophthalmology, Gastroenterology, Pulmonary Procedures
and Urology............................................. Cleared to market
Er:YAG/Nd:YAG combination Various specialties...................................... Cleared to market
</TABLE>

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

34
<PAGE>
DELIVERY SYSTEMS AND DISPOSABLE PRODUCTS

An integral part of any laser system is the means of delivering laser energy
to the target tissue. Delivery systems commonly employed in laser surgery
include flexible fiberoptics, waveguides, articulated arms and
micromanipulators. The Company's proprietary delivery systems control the
relative proportions of acoustic, thermal and optical energy applied to tissue
resulting in enhanced cutting efforts. Flexible fibers are a preferred method of
delivery for most clinical procedures, but until recently were only available
for Nd:YAG and argon lasers. The end of a fiber may be shaped or used with a
detachable tip to control the mechanism of laser/tissue interaction, to give a
tactile feel, to provide certain mechanical effects and to angle or focus the
laser beam. The Company has also been granted a perpetual paid-up license to
manufacture, use and sell flexible waveguides to deliver CO(2) energy pursuant
to the Assignment and Modification Agreement dated July 26, 1991 among the
Company, Pfizer HPG and Medical Laser Technologies Limited.

While each laser system marketed by the Company consists of a laser and an
integral fiber, these fibers and other products, such as tubing sets, are used
by surgeons on a disposable or limited reuse basis for each clinical procedure.
The Company believes that expansion into this market could provide it with a
recurring revenue stream. The Company manufactures a variety of fiberoptic
delivery systems, sculpted fiberoptic probes, optical tips (AngleTIPS and
TouchTIPS), waveguides and catheters which are designed for single-patient use.
The patented connectors and need for product sterility encourage the users of
the Company's lasers to purchase only products which are compatible with this
system. The Company believes it can sell these products on a custom basis to
hospital administrators for other surgical laser systems at a significant
discount to competitors' published prices, while maintaining gross margins
through vertical integration and the extensive use of molds and tooling. The
Company also assembles and distributes a full line of laser accessories,
including glasses, goggles, laser signs and smoke evacuators.

MARKETING, SALES AND SERVICE

MARKETING AND SALES

The Company markets its products to the dental market in the United States
directly to dentists and periodontists through its direct sales force consisting
of five area sales managers and its recently expanded distributor and
manufacturer's representative network consisting of more than 25 people. The
Company markets its products primarily through conventions, educational courses,
direct mail, telemarketing and other dental training programs. In March 1994,
the Company entered into a sales and marketing arrangement for its dental lasers
with Burkhart Dental Supply Company, a member of the American Dental
Cooperative, Inc., which is one of the largest distributors of dental equipment
and supplies in the United States. This agreement is terminable by either party
at any time. If this strategic alliance is successful, the Company believes this
relationship may be expanded to the other members of the American Dental
Cooperative, Inc. which markets dental products to a significant number of the
approximately 129,000 practicing dentists in the United States. Such alliance is
expected to assist the Company if the Company receives clearance to market the
Centauri laser for hard tissue applications. The Company has also entered into a
joint marketing relationship with IBC, pursuant to which IBC will provide
marketing and technical support for the MOD argon laser.

Through an active program of educational courses and preceptorships, the
Company has trained dentists in ten countries during the past year using
industry recognized dentists and periodontists. In the past two years, more than
20 dental papers have been presented by the Company or clinicians using the
Company's products.

The Company markets its products in the ophthalmic market through two direct
sales managers who focus on sales to key ophthalmologists worldwide. The Company
has entered into Distribution Agreements with distributors in nine countries in
preparation for market introduction of the Centauri laser during calendar 1996.
The Company grants exclusive distribution rights in select territories to its
distributors who must maintain certain distribution minimums in order to retain
their exclusive rights. The Company plans to expand its ophthalmic sales force
both by enlarging its domestic sales force, either internally or through
acquisition, and by acquiring or engaging additional international manufacturing
representatives.

In the surgical market, the Company intends to form strategic alliances in
any specialty area where the partner has an established presence in the market
selling to either the physician or the hospital. The Company has entered into
such a strategic alliance with NSK, one of the leading suppliers of sutures in
the Pacific Rim, pursuant to an Exclusive Marketing Agreement. Under this
agreement, Proclosure granted to NSK, in exchange for a license fee, the
exclusive rights to market and distribute the Polaris Nd:YAG laser in Japan,
China and Taiwan. In addition, under this agreement, the Company granted to NSK
an option to manufacture the Polaris, which if exercised would require NSK to
pay the Company a $1.5 million fee and royalties. NSK has not yet indicated
whether it intends to manufacture these products. There can be no assurance that
the Company will receive any payments under this agreement.

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<PAGE>

Sales in fiscal 1996 to one customer, Rockford Industries, Inc., a
leasing company, accounted for 10% of the Company's net sales for that year.
Sales in fiscal 1995 to LaserSight Centers, Inc. accounted for approximately
11% of the Company's net sales for that year.

CUSTOMER SERVICE AND SUPPORT

The Company is seeking to create a group of loyal customers by focusing on
customer service, quality and reliability. In addition to its educational
courses, the Company performs a complete installation of its lasers and trains
the customers' staff in its proper use. Educational videos and papers are
available upon request. The Company conducts service training courses for the
representatives of its distributors. Prior to shipping, every laser is subjected
to an extensive battery of quality control tests. The Company provides a one
year warranty with all lasers and extended warranties are available at an
additional cost. The Company generally provides service within one business day
to all of its customers in the United States. An owner is either sent a loaner
laser by overnight carrier or a service representative visits the owner to
repair the unit. International service is provided either by the foreign
distributor or by return of the laser to the Company. The Company has
experienced and may continue to experience difficulties in providing prompt and
cost-effective service of its medical lasers in foreign countries.

COMPETITION

The Company is and will continue to be subject to competition in its
targeted markets, principally from businesses providing other traditional
surgical and nonsurgical treatments, including existing and developing
technologies or therapies, some of which include medical lasers manufactured by
competitors. In the dental market, the Company competes primarily with dental
drills, traditional curing lights and other existing technologies, and to a
lesser extent competitors' CO(2), argon, Er:YAG and Nd:YAG lasers. In the
ophthalmic market, the Company is subject to competition principally from the
(i) traditional surgical treatments using a needle to tear a circle in the
anterior capsule, (ii) phacoemulsification, an ultrasound device used to break
up cataracts in cataract removal procedures, (iii) corrective eyewear (such as
eyeglasses and contact lenses) and surgical treatments for refractive disorders
such as photorefractive keratectomy which is typically performed with an excimer
laser and radial keratotomy which is performed with a scalpel, and (vi) drug
therapy or surgical treatment of glaucoma. In the surgical market, wound closure
procedures are usually performed using sutures and staples, and traditional
cosmetic surgical procedures may be performed with a scalpel or a CO(2) laser.
The Company believes that for many applications its proprietary methods and
fiberoptic delivery systems provide clinical benefits over other currently known
technologies and competitors' laser products.

The medical laser industry in particular is also subject to intense
competition and rapid technological changes. The Company believes there are
approximately 30 competitors in different sectors of the medical laser industry.
The Company believes that the principal competitive factors in the medical laser
industry are the products' technological capabilities, proven clinical ability,
patent protection,

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<PAGE>
price and scope of regulatory approval, as well as industry expert endorsements.
Many conventional laser systems target one particular application, while the
Company's Er:YAG system is designed to perform in multiple therapeutic
applications. The Company's self-contained units are significantly smaller than
competitive surgical models, have internal cooling devices and are powered
primarily by dedicated readily available 110 volt lines instead of the 220 volt
lines used by most surgical solid state lasers. The specialized menu-driven
system software utilized in the Company's lasers also enhances safety and ease
of use of the lasers.

The Company believes that its ability to compete successfully against
traditional treatments, competitive laser systems and treatments that may be
developed in the future will depend on its ability to create and maintain
advanced technology, develop proprietary products, obtain required regulatory
approvals and clearances for its products, attract and retain scientific
personnel, obtain patent or other proprietary protection for its products and
technologies, and manufacture and successfully market products either alone or
through other parties. Certain of the Company's competitors have substantially
greater financial, technical and marketing resources than the Company. There can
be no assurance that such competition will not adversely affect the Company's
results of operations or its ability to maintain or increase market share.

RESEARCH AND DEVELOPMENT

During the last two fiscal years, the Company has invested an aggregate of
approximately $2.5 million in research and development programs. The Company's
research and development programs have capitalized on the research and
development activities conducted by Pfizer Laser wherein that company identified
key military and aerospace technologies and adapted these technologies to
portable, efficient, solid-state laser products that were modular in nature.
This investment in research and development has resulted in the development of
19 models of lasers, more than 1,000 types of custom delivery systems and
approximately 20 types of surgical tips and accessories. Approximately 41% of
the Company's net sales for fiscal 1996 were derived from sales of three new
lasers introduced during the last six months of that year. Five more lasers or
related products are scheduled for introduction in fiscal 1997, subject to
receipt of clearance to market such products, for which no assurance may be
given.

In order to maintain its technological advantage, the Company must continue
to invest in new product development. The Company seeks to augment its funding
of research and development through government grants. The Company has been
awarded a Phase II SBIR grant of $750,000, of which approximately $648,000 has
been drawn to date and the remainder of which can be drawn over the next six
months to fund additional research and clinical trials regarding laser
emulsification of cataracts. The Company has also applied for new Phase I
research grants related to dentistry, orthopedics, tissue welding, and
ophthalmology. No assurance can be given that the Company will be awarded any of
these potential government grants.

The Company's current research is focused on expanding the clinical
applications of its existing products, reducing the size and cost of current
laser systems, developing custom delivery systems and developing new innovative
products. The Company's in-house research and development efforts have focused
on the development of a systems approach to medical laser products with
proprietary delivery systems designed to allow the laser to interact with tissue
by a number of different mechanisms (e.g., acoustic, ablative and thermal) for
unique laser/tissue effects. These disposable fiberoptic delivery systems,
developed specifically for niche surgical applications, demonstrate the
principal focus of the Company's research efforts. Examples of patented or
patent pending products resulting from these research efforts include:
TouchTIPS, AngleTIPS, Er:YAG fiberoptics and CO(2) waveguides. Clinical research
has also yielded several new surgical procedures.

PATENTS AND PATENT APPLICATIONS

Patent protection is an important part of the Company's business strategy,
and the Company's success depends, in part, on its ability to maintain patents
and trade secret protection and on its ability to operate without infringing on
the rights of third parties. The Company has sought to protect

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its unique technologies and clinical advances through the use of the patent
process. Patent applications filed in the United States are frequently also
filed in selected foreign countries. The Company focuses its efforts on filing
only for those patents which the Company believes will provide it with key
defensible features instead of filing for all potential minor device features.
The Company holds 18 U.S. patents and has other patent applications pending in
the United States, including divisional applications. In addition, the Company
holds 11 foreign patents including two utility model patents and has other
foreign patent applications pending. No assurance can be given that any
additional U.S. or foreign patents will be issued, that the scope of any patent
protection will exclude competitors or that any of the Company's patents will be
held valid if subsequently challenged. The Company also has a nonexclusive
license to a number of basic laser technologies which are commonly licensed on
such basis in the laser industry.

The Company's success will depend in part on its ability to obtain patent
protection for its products and processes, to preserve trade secrets and to
operate without infringing the rights of others. The Company is aware of certain
patents which, along with other patents that may exist or be granted in the
future, could restrict the Company's right to market certain of its technologies
without a license, including, without limitation, patents relating to the
Company's lens emulsification product and ophthalmic probes for its Er:YAG
laser. In the past, the Company has received allegations that certain of the
Company's laser products infringe other patents. There has been significant
patent litigation in the medical industry in general, and in the medical laser
industry in particular. Adverse determinations in litigation or other patent
proceedings in which the Company may become a party could subject the Company to
significant legal judgments or liabilities to third parties, and could require
the Company to seek licenses from third parties that may or may not be
economically viable. Patent and other intellectual property rights disputes
often are settled through licensing arrangements. No assurance can be given that
any licenses required under these or any other patents or proprietary rights
would be available on terms acceptable to the Company, if at all. If the Company
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or it could find
that the development, manufacture or sale of products requiring such licenses
could be enjoined. If the Company is found, in a legal proceeding, to have
infringed the patents or other proprietary rights of others, it could be liable
for significant damages. The Company also relies on unpatented trade secrets,
and no assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent trade secrets.

GOVERNMENT REGULATION

FDA REGULATION

The lasers that are manufactured by the Company are regulated as medical
devices by the FDA under the FDC Act. Satisfaction of applicable regulatory
requirements may take several years and requirements vary substantially based
upon the type, complexity and novelty of such devices as well as the clinical
procedure. Pursuant to the FDC Act and the regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution, and promotion of medical devices. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, denial or
withdrawal of premarket clearance or approval for devices, recommendations by
the FDA that the Company not be allowed to enter into government contracts, and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

The FDA classifies medical devices in commercial distribution into one of
three classes: Class I, II or III. This classification is based on the controls
the FDA deems necessary to reasonably ensure the safety and effectiveness of
medical devices. Class I devices are subject to general control (E.G., labeling,
premarket notification and adherance to GMPs) and Class II devices are subject
to general and special controls (E.G., performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (E.G., life-sustaining, life-supporting and
implantable devices, or

38
<PAGE>

new devices which have been found not to be substantially equivalent to legally
marketed devices). Lasers typically are classified as Class II devices, but the
FDA may classify certain indications or technologies into Class III and require
a PMA.

If a manufacturer or distributor of a medical device can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a pre-1976 Class III medical device for which the
FDA has not called for a PMA, the manufacturer or distributor may seek FDA
clearance for the device by filing a Section 510(k) premarket notification. If a
manufacturer or distributor of a medical device cannot establish that a proposed
device is substantially equivalent to another legally marketed device, the
manufacturer or distributor will have to seek premarket approval for the
proposed device. A 510(k) notification and the claim of substantial equivalence
will likely have to be supported by various types of data and materials,
possibly including test results or the results of clinical studies in humans. A
PMA would have to be submitted and be supported by extensive data, including
preclinical and clinical study data, to prove the safety and effectiveness of
the device. There can be no assurance that some of the Company's products will
not require the more rigorous and time consuming PMA approval, including laser
uses for vasovasotomy or other tissue melding, dental hard tissue, cavity
prevention, cosmetic surgery, sclerostomy and lens emulsification, among others.

If human clinical studies of a proposed device are required, whether for
a 510(k) or a PMA, and the device presents a "significant risk," the
manufacturer or the distributor of the devices will have to file an IDE
application with the FDA prior to commencing human clinical trials. The IDE
application must be supported by data, typically including the results of
animal and mechanical laboratory testing. If the IDE application is approved
by the FDA and one or more appropriate Institutional Review Boards ("IRBs"),
human clinical trials may begin at a specific number of investigational sites
with a specific number of patients, as approved by the FDA. Submission of an
IDE does not give assurance that FDA will approve the IDE and, if it is
approved, there can be no assurance that the FDA will determine that the data
derived from these studies support the safety and efficacy of the device or
warrant the continuation of clinical studies. Sponsors of clinical studies
are permitted to charge for those devices distributed in the course of the
study provided such compensation does not exceed recovery of the costs of
manufacture, research, development and handling. Clinical studies of
nonsignificant risk devices may be performed without prior FDA approval, but
various regulatory requirements still apply, including the requirement for
approval by an IRB, conduct of the study according to applicable portions of
the IDE regulations, and prohibitions against commercialization of an
investigational device.

The manufacturer or distributor may not place the device into interstate
commerce until an order is issued by the FDA granting premarket clearance for
the device. The FDA has no specific time limit by which it must respond to a
510(k) premarket notification. The FDA has recently been requiring more rigorous
demonstration of substantial equivalence in connection with 510(k) notifications
and the review time can take four to 12 months or longer for a 510(k). If a PMA
submission is filed, the FDA has by statute 180 days to review it; however, the
review time is often extended significantly by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee may also evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's good manufacturing practice requirements
prior to approval of a PMA.

Devices are cleared by 510(k) or approved by PMA only for the specific
intended uses claimed in the submission and agreed to by the FDA. Labeling
and promotional activities are also subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. Marketing or promotion of
products for medical applications other than those that are cleared or
approved could lead to enforcement action by the FDA.

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<PAGE>
There can be no assurance that the Company will be able to obtain
necessary regulatory approvals or clearances for its products on a timely
basis or at all, and delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended use imposed as a condition of such
approvals or clearances, or failure to comply with existing or future
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. FDA or other
governmental approvals of products developed by the Company in the future may
require substantial filing fees which could limit the number of applications
sought by the Company and may entail limitations on the indicated uses for
which such products may be marketed. In addition, approved or cleared
products may be subject to additional testing and surveillance programs
required by the FDA and other regulatory agencies, and product approvals and
clearances could be withdrawn for failure to comply with regulatory standards
or by the occurrence of unforeseen problems following initial marketing.

REGULATORY STATUS OF PRODUCTS

The Company has received 510(k) clearance to market the following lasers in
an aggregate of more than 100 specialty areas: CO(2) (four models: 10W, 20W,
35W, 65W); Nd:YAG (four models: 20W, 40W, 60W, 100W); Ho:YAG (one model); Er:YAG
(two models); 1.32m Nd:YAG (two models: 15W, 25W); .532m Nd:YAG (one model);
Argon (two models); diode (four models); Nd:YAG/Er:YAG combination laser (one
model). Each of these lasers has clearances in multiple specialty areas. The
Company also has received 510(k) clearance to market sculptured fiber contact
tip fibers, bare fibers, TouchTIPS, AngleTIPS and focusing tips for all cleared
wavelengths of the Company's lasers as well as argon lasers. If a device for
which the Company has already received 510(k) premarket clearance is changed or
modified in design, components, method of manufacture or intended use, such that
the safety or effectiveness of the device could be significantly affected, a new
510(k) premarket notification is required before the modified device can be
marketed in the United States. The Company has made modifications to certain of
its products which the Company believes do not require the submission of new
510(k) notifications. However, there can be no assurance that the FDA will agree
with the Company's determinations and not require the Company to discontinue
marketing one or more of the modified devices until they have been cleared by
the FDA. There can also be no assurance that any such clearance of modifications
would be granted should it become necessary.

The Company currently is conducting preclinical animal studies and clinical
trials, both under approved IDEs and as nonsignificant risk studies. There can
be no assurance that the results of any of these clinical studies will be
successful or that the FDA will not require the Company to discontinue any of
these studies in the interest of the public health or due to any violations of
the FDA's IDE regulations. There can be no assurance that the Company will
receive approval from the FDA to conduct any of the significant risk studies for
which the Company seeks IDE approval, or that the FDA will not disagree with the
Company's determination that any of its studies are "nonsignificant risk"
studies and require the Company to obtain approval of an IDE before the study
can continue.

ADDITIONAL REGULATORY REQUIREMENTS

Any products manufactured or distributed by the Company pursuant to a 510(k)
premarket clearance notification or PMA are or will be subject to pervasive and
continuing regulation by the FDA. The FDC Act also requires the Company to
manufacture its products in registered establishments and in accordance with
cGMP regulations, which include testing, control and documentation requirements.
The Company must also comply with Medical Device Reporting ("MDR") requirements
that a firm report to the FDA any incident in which its product may have caused
or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, would be likely to cause or
contribute to a death or serious injury. The Company's facilities in the United
States are subject to periodic inspections by the FDA. The FDA may require
postmarketing surveillance with respect to the Company's products. The export of
medical devices is also subject to regulation in certain instances.

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All lasers manufactured by the Company are subject to the Radiation Control
for Health and Safety Act administered by the Center for Devices and
Radiological Health of the FDA. The law requires laser manufacturers to file new
product and annual reports and to maintain quality control, product testing and
sales records, to incorporate certain design and operating features in lasers
sold to end users pursuant to a performance standard, and to comply with
labeling and certification requirements. Various warning labels must be affixed
to the laser, depending on the class of the product under the performance
standard.

In addition, the use of the Company's products may be regulated by various
state agencies. For instance, the Company is required to register as a medical
device manufacturer with certain state agencies. In addition to being subject to
inspection by the FDA, the Company also will be routinely inspected by the State
of California for compliance with cGMP regulations and other requirements.

Although the Company believes that it currently complies and will continue
to comply with the applicable regulations regarding the manufacture and sale of
medical devices, such regulations are always subject to change and depend
heavily on administrative interpretations. There can be no assurance that future
changes in law, regulations, review guidelines or administrative interpretations
by the FDA or other regulatory bodies, with possible retroactive effect, will
not adversely affect the Company's business, financial condition and results of
operations. In addition to the foregoing, the Company is subject to numerous
federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. There can
be no assurance that the Company will not be required to incur significant costs
to comply with such laws and regulations in the future, or that such laws or
regulations will not have a material adverse effect upon the Company's ability
to conduct business.

Furthermore, the introduction of the Company's products in foreign countries
may require obtaining foreign regulatory clearances, and additional safety and
effectiveness standards are required in certain other countries. The Company
believes that only a limited number of foreign countries currently have
extensive regulatory requirements. These countries include the European Union
countries, France, Germany, Canada, Mexico and Japan. Domestic manufacturing
locations of American companies doing business in certain foreign countries,
including European Union countries, may be subject to inspection. The time
required for regulatory approval in foreign countries varies and can take a
number of years. During the period in which the Company will be attempting to
obtain the necessary regulatory approvals, the Company expects to market its
products on a limited basis in certain other countries that do not require
regulatory approval. There can be no assurance that the Company's products will
be cleared or approved by the FDA or other governmental agencies for additional
applications in the United States or in other countries or that countries that
do not now require regulatory approval will not require such approval in the
future.

MANUFACTURING AND MATERIALS

Manufacturing consists of component assembly and systems integration of
electronic, mechanical and optical components and modules. The Company's product
costs are principally related to the purchase of raw materials while labor and
overhead have been reduced due to the use of customized tooling and automated
test systems. The Company believes that these manufacturing systems improve
quality and manufacturing reliability resulting in lower overall manufacturing
costs, and that these systems will allow the Company to expand production
rapidly.

The Company purchases certain raw materials, components and subassemblies
included in the Company's products from a limited group of qualified suppliers
and does not maintain long-term supply contracts with any of its key suppliers.
While multiple sources of supply exist for most critical components used in the
laser and fiberoptic delivery systems, the disruption or termination of these
sources could have a material adverse effect on the Company's business and
results of operations. Vendor delays or quality problems could also result in
production delays of up to six months as several

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components have long production lead times. These long lead times, as well as
the need for demonstration units, require a significant portion of working
capital to fund inventory growth. The Company has in the past experienced and
may continue to experience shortages in raw materials and certain supplies. See
"Risk Factors -- Dependence on Suppliers."

The Company owns the molds used to produce certain proprietary parts of its
laser products and owns the software used in the operation of its laser systems.
The Company designs and assembles its own fiberoptic delivery systems and laser
accessory equipment such as laser carts, smoke evacuation devices and associated
disposable supplies. The Company believes that its manufacturing practices are
in accordance with cGMP regulations.

PRODUCT LIABILITY AND INSURANCE

Since the Company's products are intended for use in the treatment of human
medical conditions, the Company is subject to an inherent risk of product
liability and other liability claims which may involve significant claims and
defense costs. The Company currently has product liability insurance with
coverage limits of $5.0 million per occurrence and $5.0 million in the aggregate
per year. Product liability insurance is expensive and subject to various
coverage exclusions, and in the future may not be available in acceptable
amounts, on acceptable terms, or at all. Although the Company does not have any
outstanding product liability claims, in the event the Company were to be held
liable for damages exceeding the limits of its insurance coverage or outside of
the scope of its coverage, the business and results of operations of the Company
could be materially adversely affected. The Company's reputation and business
could also be adversely affected by product liability claims, regardless of
their merit or eventual outcome.

FACILITIES

The Company leases approximately 28,000 square feet in one facility in
Irvine, California pursuant to a lease which expires in December 2000. This
facility contains the Company's executive offices, service center and
manufacturing space. The Company is required to lease an additional 13,000
square feet in the same facility commencing in January 1999, or on such earlier
date that the adjoining tenant's lease terminates. While the Company believes
that its manufacturing and administrative facilities are adequate to satisfy the
Company's needs through at least 2000, it may need to lease additional clean
room facilities in the future.

EMPLOYEES

As of July 5, 1996, the Company employed 42 people, two of whom are
employed on a part-time basis. None of these employees are represented by a
union. Ten employees perform sales, marketing and customer support
activities. The remaining employees perform manufacturing, financial,
administration, regulatory, research and development and quality control
activities. The Company believes that its relationship with its employees is
good.

LEGAL PROCEEDINGS

In March 1994, the Company instituted litigation in the U.S. District Court,
Central District of California, against Infrared Fiber Systems, Inc., a Delaware
corporation ("IFS") which contracted to supply optical fiber to the Company for
the Company's Er:YAG laser. Two of IFS's senior officers are also named as
defendants. The Company's complaint in this matter alleges that IFS and two of
its officers made misrepresentations to the Company and that IFS breached its
agreement to supply fibers and certain warranties concerning the quality of the
fiber to be provided. The Company is seeking damages and an injunction requiring
IFS to subcontract the production of optical fiber to a third party, as provided
in the supply agreement. In April 1994, IFS filed a general denial and a cross-
complaint against the Company alleging breach of contract and intentional
interference with prospective economic advantage, seeking compensatory damages
"in excess of $500,000," punitive damages and a judicial declaration that the
contract has been terminated and that IFS is free to market its fibers to
others.

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IFS has agreed to license certain fiber technologies, to which the Company
claims exclusive license rights, to Coherent, Inc. ("Coherent"), a competitor of
the Company. Coherent joined the above litigation on behalf of IFS, seeking a
declaration that IFS had the legal right to enter into this license and supply
the fiber covered by that agreement.

In May 1995, the Company instituted litigation concerning this dispute in
the Orange County, California Superior Court against Coherent, Westinghouse
Electric Corporation ("Westinghouse") and an individual employee of Westinghouse
who was an officer of IFS from 1986 to 1993, when the events involved in the
federal action against IFS took place and while Westinghouse owned a substantial
minority interest in IFS. The complaint charges that Coherent conspired with IFS
in the wrongful conduct which is the subject of the federal lawsuit described
above and interfered with the Company's contracts and relations with IFS and
with prospective contracts and advantageous economic relations with third
parties. The complaint asserts that Westinghouse is liable for its employee's
wrongful acts as an IFS executive while acting within the scope of his
employment at Westinghouse. The lawsuit seeks injunctive relief and compensatory
damages. In October 1995, the federal action was stayed by order of the court in
favor of the California state court action, in which the pleadings have been
amended to include all claims asserted by the Company in the federal action. No
trial date has been set.

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MANAGEMENT

The following table sets forth certain information regarding the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Colette Cozean, Ph.D............... 38 Chairman of the Board, Chief Executive Officer, President
and Director of Research
T. Daniel Caruso, Jr............... 53 Senior Vice President, Sales and Marketing
Ronald E. Higgins.................. 54 Vice President, Regulatory Affairs and Quality Assurance,
and Secretary
James S. Polentz................... 52 Vice President, Finance and Chief Financial Officer
Richard Roemer..................... 62 Vice President, Operations and Industrial Lasers
Patrick J. Day..................... 69 Director (1)
Grace Ching-Hsin Lin............... 46 Director (1)(2)
E. Donald Shapiro.................. 64 Director (1)(2)
</TABLE>

- ------------------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.

DIRECTORS AND OFFICERS

COLETTE COZEAN, PH.D. is a founder of the Company and has been Chairman of
the Board of Directors, President and Director of Research of the Company since
it began operations in August 1991 and became the Chief Executive Officer in
1994. From April 1987 to August 1991, Dr. Cozean served as Director of Research
and Development, Regulatory Affairs and Clinical Programs at Pfizer Laser and in
such capacities managed the development of the laser technologies which were
acquired by the Company from Pfizer Laser. Prior to April 1987, Dr. Cozean held
various research positions at Baxter Edwards, a division of Baxter Healthcare
Corporation ("Baxter"), and American Technology and Ventures, a division of
American Hospital Supply Company ("American Hospital"). Baxter and American
Hospital are manufacturers and suppliers of advanced medical products. Dr.
Cozean holds several patents, has published many articles and has served as a
member of the National Institutes of Health grant review committee. Dr. Cozean
holds a Ph.D. in biomedical engineering and an M.S. in Electrical Engineering
from Ohio State University, a B.S. in biomedical engineering from the University
of Southern California, and a B.A. in physical sciences from Westmont College.

T. DANIEL CARUSO, JR. has been Vice President, Sales and Marketing of the
Company since July 1992 and became a Senior Vice President in May 1996. From
July 1989 to April 1992, Mr. Caruso was Vice President, Sales and Marketing at
Hycor Biomedical, a laboratory diagnostics company. From March 1988 to July
1989, Mr. Caruso was President and Chief Executive Officer of Physicians Home
Infusion Care, a home health care company. Mr. Caruso has a B.S. in Biology and
Chemistry and an M.B.A. in marketing from the University of Southern California.

RONALD E. HIGGINS is a founder and the Vice President, Regulatory Affairs
and Quality Assurance of the Company, a position he has held since January 1995.
From the founding of the Company in August 1991 to January 1995, Mr. Higgins was
Vice President, Operations. From September 1989 to August 1991, Mr. Higgins was
Manager of Regulatory Affairs and Quality Assurance at Pfizer Laser. From
January 1987 to September 1989, Mr. Higgins was Director of Regulatory Affairs
at Cardio Pulmonics, a medical device company. Mr. Higgins holds a B.S. in
Zoology from the University of Utah and has completed post graduate work in the
areas of biochemistry, educational training, regulatory affairs, manufacturing
and engineering.

44
<PAGE>
JAMES S. POLENTZ joined the Company as Chief Financial Officer in April
1994. From October 1992 to April 1994, Mr. Polentz served as the Chief Financial
Officer with Spector Entertainment Group, a telecommunications service company.
From March 1991 through July 1992, Mr. Polentz served as the Vice President,
Finance and Chief Financial Officer for Commstruct International, Inc., a
telecommunications company. A subsidiary of Commstruct International, US
Commstruct, Inc., filed a petition under Chapter 11 of the United States
Bankruptcy Code within six months after the date Mr. Polentz left the employ of
Commstruct International, Inc. Mr. Polentz is a certified public accountant and
has a B.S. in Accounting from the University of Southern California and an
M.B.A. from California State University.

RICHARD ROEMER has been Vice President, Operations and Industrial Lasers of
the Company since February 1995. From 1994 to 1995, Mr. Roemer was an
independent consultant for the Company. From 1988 to 1994, Mr. Roemer was a
consultant to and general manager of California Labs, JMED, Inc. and Pineridge
Capital, which are manufacturers of laser-based medical products. Prior to 1988,
Mr. Roemer founded the laser group of Melles Griot and served as the Chief
Operating Officer of the laser division of Hughes Aircraft Corporation. Mr.
Roemer holds a B.S. degree in Mechanical Engineering from Rutgers University.

PATRICK J. DAY has served as a director of the Company since August 1991.
Mr. Day is a Certified Public Accountant and owns a CPA firm which he
established in 1967. He has served as a director for several organizations
including the First Presbyterian Church of Hollywood and many private companies.
Mr. Day is the father of Dr. Cozean, the Company's Chairman of the Board, Chief
Executive Officer and President. Mr. Day has a B.A. in accounting from the
University of Idaho.

GRACE CHING-HSIN LIN has served as a director of the Company since February
1992, representing a group of original investors in the Company. Ms. Lin has
been an agent providing real estate consulting services for Security Trust
Realty since April 1988 and an owner of South Pacific Investment, an investment
management company, since 1989.

E. DONALD SHAPIRO joined the Board of Directors in August 1994. Since 1983,
Mr. Shapiro has served as the Joseph Solomon Distinguished Professor of Law at
New York Law School where he served as both Dean and Professor of Law from 1973
to 1983. He is Supernumerary Fellow of St. Cross College at Oxford University,
England. Mr. Shapiro received a J.D. degree at Harvard Law School. He currently
serves on the Boards of Directors for several public companies including Loral
Space and Communications, Ltd., Eyecare Products PLC, Kranzco Realty Trust,
Group Health Incorporated, Vasomedical Corporation, MacroChem Corporation,
United Industrial, Telepad, Inc. and Food Entertainment, Inc. He also serves on
the Board of Directors of Bank Leumi NY. Mr. Shapiro is special counsel to the
law firm of Herzfeld and Rubin, which firm is representing the Company in the
litigation described in "Business -- Legal Proceedings." Mr. Shapiro is not a
partner of such firm and receives no compensation calculated by reference to
such firm's profits.

KEY CONSULTANTS

ROBERT J. FREIBERG, PH.D. is currently a Technical Advisor to the Company
and from August 1991 has provided consulting services to the Company. From 1986
to 1991, Dr. Freiberg served in various capacities for Pfizer Laser, most
recently holding the position of Director of Engineering and Manufacturing
Operations. From 1983 to 1986, Dr. Freiberg was Director of Minimally Invasive
Surgery Products for American Technology and Ventures, a division of American
Hospital. Dr. Freiberg has also managed projects/departments at Hughes Research
Laboratory, United Technologies and TRW. In addition to holding several patents,
Dr. Freiberg identified and developed emerging medical technologies for American
Hospital. Dr. Freiberg holds a Ph.D., M.S. and B.S. in physics from the
University of Illinois and Rensselaer Polytechnic Institute. The Company pays
Mr. Freiberg $85 per hour for services rendered to the Company.

RICHARD P. KRATZ, M.D. became affiliated with the Company in April 1994 as a
Medical Director. Dr. Kratz is a clinical professor of ophthalmology at the
University of California, Irvine and a clinical professor emeritus at the
University of Southern California. Dr. Kratz is on the Board of Directors for

45
<PAGE>

the University of California, Irvine, Beckman Laser Institute & Medical Clinic
and a member of the Board of Directors of the American Board of Eye Surgeons,
and is on the editorial boards for OCULAR SURGERY NEWS, OCULAR SURGERY NEWS
INTERNATIONAL and the EUROPEAN JOURNAL OF IMPLANT AND REFRACTIVE SURGERY. Dr.
Kratz received a M.D. from the University of Southern California. Dr. Kratz has
published numerous papers and frequently lectures on topics in ophthalmology,
including cataract surgery. Other than stock options granted at fair market
value to Dr. Kratz from time to time at the discretion of the Company's Board of
Directors, Dr. Kratz does not receive any other compensation for services
rendered to the Company.

MEDICAL ADVISORY BOARDS

The Company is advised by three Medical Advisory Boards (the "Advisory
Boards") covering ophthalmology, dentistry and surgery, respectively. Each of
the Advisory Boards is comprised of up to fifteen members who are active
primarily in the Company's target markets and who are selected to provide a
balance of university deans, researchers and clinicians, different
subspecialties, and laser users of multiple wavelengths, users of the Company's
systems and users who do not use lasers in their practice at all. The Advisory
Board's function is to review clinical, regulatory, new product development and
marketing programs and proposals for the Company. Members of these boards often
serve as clinical investigators, course lecturers and perform research resulting
in published papers. Other than stock options granted at fair market value from
time to time at the discretion of the Company's Board of Directors, the Chairmen
of the Medical Advisory Boards do not receive any other compensation for
services rendered to the Company. Each Advisory Board is headed by a Chairman.
Currently, the Chairmen of the Company's Advisory Boards are as follows:

D. MICHAEL COLVARD, M.D., OPHTHALMOLOGY. Dr. Colvard is the founder of the
Center for Ophthalmic Surgery in Encino, California, and has been responsible
for its Outpatient Surgery Center for the past ten years. Dr. Colvard has also
been a clinical faculty member at the University of Southern California since
1991 and has published widely in the field of ophthalmology. Dr. Colvard
maintains a medical practice and is engaged by a major ophthalmic company to
review its clinical trials, procedures and results. Dr. Colvard also served as
the Medical Director for the Company during its first two years. The Company has
entered into an Assignment Agreement with Dr. Colvard, pursuant to which Dr.
Colvard assigned to the Company certain technology relating to the Er:YAG laser
for use on ocular structures. While this agreement provides for the payment of
royalties under certain circumstances to Dr. Colvard of 1.0% to 2.5% on sales of
the Er:YAG intraocular and refractive lasers, fiberoptic intraocular catheters
and intraocular probes, no royalties have been earned as of the date of this
Prospectus.

G. LYNN POWELL, D.D.S., DENTISTRY. Dr. Powell has been on the faculty at
the University of Utah since 1982, where he currently serves as the Assistant
Dean for Dental Education in the School of Medicine and Professor in the
Department of Pathology. He is a patent holder who has performed extensive
research in the field of dentistry serving as primary investigator on several
funded grants and is author or co-author of over 45 papers in journals, a
majority of which relate to the use of lasers in dentistry. He serves as a
reviewer for three dental and laser journals, has lectured nationally as well as
internationally and routinely presents his work at research meetings. Dr. Powell
is the current President of the International Society for Lasers in Dentistry.
Dr. Powell received his D.D.S. from the University of Washington and was on the
full time faculty in Restorative Dentistry for ten years.

WARREN SCOTT GRUNDFEST, M.D., GENERAL SURGERY. Dr. Grundfest, a Fellow of
the American College of Surgeons, has been the Director, Laser Research and
Technology Development Program at Cedars-Sinai Medical Center in Los Angeles
since 1985. He is also the holder of the Dorothy and E. Phillip Lyon Chair in
Laser Research at such hospital, as well as being an Assistant Director of
Surgery. In addition, he is an Assistant Clinical Professor of Surgery at the
UCLA School of Medicine, and the co-editor of the Journal of Laparoendoscopic
Surgery. Dr. Grundfest has published more than 100 papers, 30 book chapters and
conducted multiple courses in the fields of laser applications in medicine,
microendoscopy and minimally invasive surgery. His laboratory has been involved
in the development

46
<PAGE>
of minimally invasive surgery, from angioscopy to laparoscopic transcystic duct
common bile duct exploration. Dr. Grundfest consults for a variety of
governmental agencies including the FDA and the National Institutes of Health.

BOARD COMMITTEES AND DESIGNATED DIRECTORS

The Board's Audit Committee consists of Ms. Lin and Messrs. Day and Shapiro.
The Audit Committee meets periodically with management and the Company's
independent accountants to review the results and scope of the audit and other
services provided by the Company's independent auditors and the need for
internal auditing procedures and the adequacy of internal controls.

The Compensation Committee of the Board of Directors consists of Ms. Lin and
Mr. Shapiro. The Compensation Committee establishes salaries, incentives and
other forms of compensation for officers, directors and certain key employees
and consultants (including the Chairmen of the Advisory Boards), administers the
Company's various incentive compensation and benefit plans, including the
Company's 1992 Employee Stock Option Plan, 1995 Employee Stock Option Plan and
the 1996 Stock Option Plans and recommends policies relating to such plans.

The representative of the underwriters for the Company's IPO has certain
rights to designate one nominee to the Board of Directors. Until November 1999,
the Company has agreed, if requested by such underwriter, to nominate a designee
of such underwriter to the Company's Board of Directors. Such underwriter has
designated Mr. Shapiro, a current director of the Company, pursuant to this
provision.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual
compensation paid by the Company for the fiscal years indicated to the Chief
Executive Officer and executive officers of the Company whose compensation
exceeded $100,000 during the fiscal year ended March 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION (1) SECURITIES
FISCAL ----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------- --------- -------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Colette Cozean, Ph.D. ............... 1996 $ 112,200 $ --(3) 140,000 $ 19,800(5)
Chairman of the Board, 1995 $ 97,500 $ 37,500 358,650(4) $ 4,800(6)
Chief Executive Officer, President 1994 $ 97,500(2) $ -- -- $ 5,376(6)
and Director of Research
T. Daniel Caruso, Jr. ............... 1996 $ $ --(3) 109,522 $ --
Senior Vice President, 90,625
Sales and Marketing
Ronald E. Higgins ................... 1996 $ 92,625 $ --(3) 90,000 $ --
Vice President, Regulatory
Affairs and Quality
Assurance and Secretary
</TABLE>

- ------------------------
(1) Excludes perquisites and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for each
of the named persons did not exceed the lesser of either $50,000 or 10% of
the total annual salary reported for such person. Each of the named
executive officers entered into a Termination Agreement in May 1996 which
provides that in the event of a termination of employment following a change
in control of the Company, as defined in such agreement, the named executive
officer will receive (i) a lump sum cash payment equal to two times the
highest annual level of total cash compensation paid to that officer during
the three calendar years prior to the termination; (ii) immediate vesting of
all previously granted

47
<PAGE>

stock options, and (iii) continuing health benefits for a period of 24
months. The Company has also entered into Employment Agreements with each of
the named persons which provide for two to four months of severance benefits
upon their termination of employment. Based upon salary levels as of June
25, 1996, such severance benefits range from approximately $15,000 to
$33,000 for each of the named persons.

(2) Includes $19,500 which was deferred until January 1995.

(3) Bonuses for fiscal 1996 have not yet been determined, but the Company
anticipates paying such bonuses in July 1996. The Company estimates that
such bonuses will be between approximately $8,000 and $16,000.

(4) The exercise price for these options is $5.00 per share. One-half of such
options will vest in five equal annual installments commencing on August 8,
1995. The remaining options will vest on the earlier of August 8, 2005, or
when the Company attains certain financial criteria. Vesting of these
options is accelerated in the event of certain acquisitions of the Company.

(5) Represents the full amount of premiums paid by the Company ($15,000) for a
split-dollar life insurance policy in the amount of $2 million on the life
of Dr. Cozean, and an auto allowance for Dr. Cozean ($4,800).

(6) Represents an auto allowance for Dr. Cozean.

OPTIONS GRANTED IN LAST FISCAL YEAR

The following table sets forth certain information concerning stock options
granted to the named executive officers during the fiscal year ended March 31,
1996:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF TOTAL
COMMON STOCK OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS DURING 1996 PER SHARE (1) DATE
- ------------------------------------------- -------------- ------------------- ------------- ----------
<S> <C> <C> <C> <C>
Colette Cozean, Ph.D....................... 140,000(2) 19.6% $ 4.625 02/23/06
T. Daniel Caruso, Jr....................... 60,000(3) 13.3% $ 4.625 02/23/06
35,000(4) $ 5.625 06/01/05
Ronald E. Higgins.......................... 45,000(3) 11.2% $ 4.625 02/23/06
35,000(4) $ 5.625 06/01/05
</TABLE>

- ------------------------
(1) The options were granted at an exercise price at least equal to the fair
market value of the Common Stock on the date of grant. The exercise price
may be paid by delivery of cash or already owned shares, subject to certain
conditions.

(2) Such options vest in four equal annual installments commencing March 31,
1996.

(3) Such options vest in three equal annual installments commencing March 31,
1997.

(4) 15,000 of the options held by each of Messrs. Caruso and Higgins vest on
September 21, 1997. The remaining 20,000 options held by each of Messrs.
Caruso and Higgins vest on the earlier of June 1, 2005, or when the Company
attains certain financial criteria.
>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information regarding stock options
exercised by the named executive officers during the fiscal year ended March 31,
1996, as well as the number of exercisable and unexercisable in-the-money stock
options and their values at fiscal year end. An option is in-the-money if the
fair market value for the underlying securities exceeds the exercise price of
the option.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES MARCH 31, 1996 AT MARCH 31, 1996 (1)
ACQUIRED ON VALUE ----------------------- ------------------------
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------- ----------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Colette Cozean, Ph.D......... -- -- 70,865/427,785 $270,011/$1,654,653
T. Daniel Caruso, Jr......... -- -- 2,500/102,500 $9,063/$372,188
Ronald E. Higgins............ -- -- 2,500/87,500 $9,063/$312,188
</TABLE>

- ------------------------
(1) Represents the last sale price of underlying securities at fiscal year end
as reported by the Nasdaq National Market, less the exercise price of the
options.

48
<PAGE>

DIRECTOR COMPENSATION

All directors are elected annually and hold office until the next annual
meeting of the shareholders and until their successors are duly elected and
qualified. The Company pays to all nonemployee directors $1,000 per Board
meeting attended, $1,000 per committee meeting attended which is not in
conjunction with a Board meeting, $500 per committee meeting attended in
conjunction with a Board meeting, and $500 per telephonic Board or committee
meeting. Directors are also reimbursed for their out-of-pocket expenses
incurred in attending meetings of the Board of Directors and its committees.
Mr. Shapiro also receives a fee of $1,000 per month as compensation for
additional consulting services relating to the Company's pending litigation
matter and to new business issues. The Company may also periodically award
options or warrants to its Directors. On November 30, 1994, the Company
granted to each nonemployee director warrants to purchase, at an exercise
price of $5.00 per share, (i) 45,000 shares of Class A Common Stock, which
warrants vest on the earlier of August 8, 2005 or when the Company attains
certain financial conditions (subject to earlier vesting upon certain
acquisitions of the Company, and subject to the requirement that the director
remains on the Board through the vesting date); and (ii) 20,000 shares of
Class A Common Stock, which warrants vested immediately upon grant. On
February 23, 1996, the Company also granted to Mr. Day, the only nonemployee
director of the Company not on the Board's Compensation Committee, an option
to purchase 10,000 shares at an exercise price of $4.63 per share.

The Company's 1996 Stock Option Plan provides that each person who was or
is a member of the Compensation Committee of the Board on February 23, 1996,
February 23, 1997 and February 23, 1998 will be issued on each such date,
under that plan, options to purchase 10,000 shares of the Company's Class A
Common Stock. These options will have an exercise price equal to the fair
market value of the Company's Class A Common Stock on the trading day prior
to the grant date and a term of ten years. These options are issued subject
to approval by the Company's shareholders at the 1996 Annual Meeting of
Shareholders, and will terminate if such approval is not given.

The Company's Articles of Incorporation and indemnification agreements
entered into between the Company and certain of the Company's directors and
officers require the Company to indemnify such officers and directors to the
fullest extent permitted by applicable law against liabilities incurred in
connection with their duties as officers and directors of the Company. Such
indemnification rights may extend to liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable.

49
<PAGE>
STOCK OPTION PLANS

Each of the Company's Stock Option Plans is administered by the Board of
Directors which has sole discretion and authority, consistent with the
provisions of the plans, to determine which eligible participants will receive
options, the time when options will be granted, the terms of options granted and
the number of shares which will be subject to options. The Board may also
appoint a committee (the "Committee") to administer the plans and, subject to
applicable law, to exercise all of the powers of the Board under the plans.

1992 STOCK OPTION PLAN AND 1995 STOCK OPTION PLAN

The Company's 1992 Stock Option Plan and 1995 Stock Option Plan each
provide for the granting of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive
Stock Options"), and nonstatutory options. Under the 1992 Stock Option Plan,
options covering an aggregate of 54,264 shares of the Company's Class A
Common Stock may be granted and under the 1995 Stock Option Plan options
covering an aggregate of 225,000 shares of the Company's Class A Common
Stock may be granted, in each case to directors, employees and consultants
of the Company, except that Incentive Stock Options may not be granted to
nonemployee directors or nonemployee consultants. The 1992 Stock Option
Plan terminates in August 2002, and the 1995 Stock Option Plan terminates
in 2005. As of July 5, 1996 there were options to purchase an aggregate
of 31,952 shares of Class A Common Stock and 1,728 shares of each of
Class E-1 and Class E-2 Common Stock outstanding under the 1992 Stock
Option Plan, at an exercise price ranging from $1.00 to $11.06, which were
held by 18 former and current employees, and 179,250 options outstanding
under the 1995 Stock Option Plan at an exercise price of $5.625 per share,
held by 31 employees and consultants.

50
<PAGE>

FEBRUARY 1996 STOCK OPTION PLAN AND 1996 STOCK OPTION PLAN

In February 1996, the Board of Directors adopted two option plans, the
February 1996 Stock Option Plan and the 1996 Stock Option Plan which provide
for the grant of options covering an aggregate of 550,000 shares and 500,000
shares, respectively, of the Company's Class A Common Stock to employees and
directors of, and consultants to the Company. Both plans terminate in
February 2006. The 1996 Stock Option Plan provides for the granting of
Incentive Stock Options and nonstatutory stock options. The 1996 Stock Option
Plan provides that each person who was or is a member of the Company's
Compensation Committee of the Board of Directors on February 23, 1996,
February 23, 1997 and February 23, 1998 will be issued on each such date,
options to purchase 10,000 shares of the Company's Class A Common Stock.
These options will have a term of ten years and an exercise price equal to
the fair market value of the Company's Class A Common Stock on the trading
day prior to the grant date. As of July 5, 1996, there were options to
purchase an aggregate of 499,200 shares of Common Stock outstanding under the
February 1996 Stock Option Plan, at an exercise price of $4.625 per share,
which options were held by 52 employees, directors and consultants. As of
July 5, 1996, there were options to purchase an aggregate of 20,000 shares of
the Company's Common Stock, at an exercise price of $4.625 per share, which
options were held by two directors of the Company.

The exercise price of Incentive Stock Options must be not less than the
fair market value of a share of Class A Common Stock on the date the option
is granted (110% with respect to optionees who own at least 10% of the
outstanding Class A Common Stock). Except for formula grants under the 1996
Stock Option Plan the Board of Directors has the authority to determine the
time or times at which options granted under the Stock Option Plans become
exercisable, provided that options expire no later than ten years from the
date of grant (five years with respect to optionees who own at least 10% of
the outstanding Class A Common Stock). Options are nontransferable, other
than by will and the laws of descent and distribution, and generally may be
exercised only by an employee while employed by the Company or within 60 days
after termination of employment (one year for termination resulting from
death or disability).

51
<PAGE>

CERTAIN TRANSACTIONS

As of September 30, 1994, the Company owed an aggregate of approximately
$226,000 to its officers for unreimbursed expenses and deferred salaries.
Included in that amount was $52,000 owed to an immediate family member of an
officer of the Company for consulting services rendered to the Company. All of
these amounts were paid in December 1994 and January 1995. In addition, between
June and September 1994, the Company borrowed an aggregate of $55,000 and
$25,000 from Messrs. Patrick J. Day (a director) and Irving M. Frankman (a
former director), respectively, pursuant to short-term promissory notes bearing
interest at 10% per annum (18% upon the occurrence of an event of a default).
These loans have been repaid in full.

In March 1994, the Company's Board of Directors agreed to extend Mr.
Day's outstanding warrants to purchase 100,000 shares of Series A Preferred
Stock for two years. In December 1994, the Company exchanged these warrants
for warrants to purchase 9,044 shares of Class A Common Stock, and 8,008
shares of each of Class E-1 and Class E-2 Common Stock for an aggregate
purchase price of $100,000. In May 1996, the Company's Board of Directors
agreed to extend such warrants until March 31, 1997.

In connection with the Company's private placement in August 1994, Mr.
Shapiro, a director of the Company, purchased $100,000 principal amount of
promissory notes and 70,000 warrants (which converted by their terms in December
1994 into Class A Warrants) for an aggregate purchase price of $100,000. These
promissory notes were repaid in full in December 1994.

52
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 5, 1996, and as
adjusted to reflect the exercise of all of the Class A Warrants and Class B
Warrants and the Class B Warrants issuable upon exercise of the Class A
Warrants (excluding the Investors' Class A Warrants and the Remaining Selling
Shareholders' Warrants) by: (i) all persons known by the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each
director and executive officer of the Company, and (iii) all directors and
executive officers as a group. The following table treats the Class A Common
Stock, the Class E-1 Common Stock and the Class E-2 Common Stock as a single
class.

<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
AMOUNT AND STOCK OWNED
NATURE OF ------------------------------
BENEFICIAL BEFORE AS
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNERSHIP OFFERING ADJUSTED
- --------------------------------------------------------------------- ----------- --------------- -------------
<S> <C> <C> <C>
Colette Cozean, Ph.D. (2)............................................ 247,320 3.4% 1.4%
Patrick J. Day (3)................................................... 232,981 3.2 1.3
E. Donald Shapiro (4)................................................ 108,000 1.5 *
Ronald E. Higgins (5)................................................ 97,820 1.3 *
Grace Chin-Hsin Lin (6).............................................. 52,801 * *
T. Daniel Caruso, Jr. (7)............................................ 48,876 * *
James S. Polentz (8)................................................. 2,500 * *
Richard Roemer....................................................... -- * *
All directors and executive officers
as a group (8 persons) (9).......................................... 790,298 10.4% 4.4%
</TABLE>

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

* Less than 1%.

(1) The address of each of Dr. Cozean, Ms. Lin and Messrs. Day, Caruso, Higgins
and Shapiro is 3 Morgan, Irvine, California 92718. Unless otherwise noted,
the Company believes that all persons named in the table have sole
investment and voting power with respect to all shares of Common Stock
beneficially owned by such person, subject to community property laws where
applicable.

(2) Includes 49,144 shares of Class A Common Stock, 43,514 shares of
Class E-1 Common Stock and 43,514 shares of Class E-2 Common Stock held
by Dr. Cozean and 1,594 shares of Class A Common Stock, 1,412 shares of
Class E-1 Common Stock and 1,412 shares of Class E-2 Common Stock held
by Dr. Cozean as custodian for her two minor children. Also includes
106,730 shares of Class A Common Stock issuable upon exercise of
options which become exercisable within 60 days.

(3) Includes 54,263 shares of Class A Common Stock, 48,047 shares of
Class E-1 Common Stock and 48,047 shares of Class E-2 Common Stock.
Also includes 48,992 shares of Class A Common Stock, 16,816 shares of
Class E-1 Common Stock and 16,816 shares of Class E-2 Common Stock
subject to warrants and options exercisable within 60 days.

(4) Includes 108,000 shares of Class A Common Stock subject to Class A
Warrants and other warrants and options exercisable within 60 days.

(5) Includes 34,400 shares of Class A Common Stock, 30,460 shares of
Class E-1 Common Stock and 30,460 shares of Class E-2 Common Stock.
Also includes 2,500 shares of Class A Common Stock subject to options
exercisable within 60 days.

(6) Includes 6,330 shares of Class A Common Stock, 5,605 shares of Class
E-1 Common Stock and 5,605 shares of Class E-2 Common Stock held by
Linco Investments, a limited partnership in which Ms. Lin's husband
serves as a general partner, and 1,899 shares of Class A Common Stock,
1,681 shares of Class E-1 Common Stock and 1,681 shares of Class E-2
Common Stock held by the pension plan for Ms. Lin's husband. Also
includes 30,000 shares of Class A Common Stock subject to warrants and
options exercisable within 60 days.

53
<PAGE>

(7) Includes 13,722 shares of Class A Common Stock, 12,150 shares of
Class E-1 Common Stock and 12,150 shares of Class E-2 Common Stock.
Also, includes 5,514 shares of Class A Common Stock, 2,670 shares of
Class E-1 Common Stock and 2,670 shares of Class E-2 Common Stock
subject to options exercisable within 60 days.

(8) Includes 2,500 shares of Class A Common Stock subject to options
exercisable within 60 days.

(9) Includes 161,352 shares of Class A Common Stock, 142,869 shares of
Class E-1 Common Stock and 142,869 shares of Class E-2 Common Stock.
Also includes 304,236 shares of Class A Common Stock, 19,486 shares of
Class E-1 Common Stock and 19,486 shares of Class E-2 Common Stock
subject to warrants and options exercisable within 60 days.

<PAGE>

CONCURRENT OFFERING BY SELLING SECURITYHOLDERS

The registration statement of which this Prospectus forms a part also
relates to the Remaining Selling Securityholders' Warrants and to the Class A
Common Stock and the Class B Warrants underlying such Remaining Selling
Securityholders' Warrants. An aggregate of 1,085,000 warrants were originally
issued in connection with the Private Placement in August 1994 as warrants to
purchase 1,085,000 shares of Class A Common Stock, and were automatically
converted into 1,085,000 Class A Warrants at the closing of the IPO. Of that
amount, an aggregate of 1,006,000 Class A Warrants have been sold by the
respective holders thereof. Exercise of the Remaining Selling Securityholders'
Warrants by the persons named below is further subject to the existence of an
exemption from registration applicable to the issuance of the underlying
securities by the Company to the Remaining Selling Securityholders. It is
likely that sales of the Remaining Selling Securityholders' Warrants or the
underlying Class B Warrants and Class A Common Stock, or even the potential of
such sales at any time, could have an adverse effect on the market prices of the
Class A Common Stock and the Warrants. The Company has been informed by Blair
that there are no agreements between Blair and any Remaining Selling
Securityholder regarding the distribution of the Remaining Selling
Securityholders' Warrants or the underlying securities.

The following table sets forth certain information with respect to each
Remaining Selling Securityholder for whom the Company is registering securities
for resale to the public. The Company will not receive any of the proceeds from
the sale of these securities. Except as described below, there are no material
relationships between any of the Remaining Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years.

Number of Class A Warrants Beneficially
Selling Securityholder Owned and Maximum Number to be Sold(1)
- ---------------------- ---------------------------------------

Joan M. Hurley 7,500
Loki Limited Partnership 17,500
Ludlow Management, Inc. 5,000
Albert Milstein 10,000
E. Donald Shapiro (2) 39,000
------
Total 79,000
__________________________

(1) Does not reflect shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants.

(2) Mr. Shapiro is a director of the Company.

The sale of the securities by the Remaining Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Remaining Selling Securityholders) in the over-the-
counter market or in negotiated transactions, a combination of such methods of
sale or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices.

The Remaining Selling Securityholders may effect such transactions by
selling their securities directly to purchasers, through broker-dealers acting
as agents for the Remaining Selling Securityholders or to broker-dealers who may
purchase securities as principals and thereafter sell the securities from time
to time in the over-the-counter market, in negotiated transactions or otherwise.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Remaining Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom

55
<PAGE>

they may sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Remaining Selling Securityholders' Warrants
may not simultaneously engage in market making activities with respect to any
securities of the Company for a period of at least two (and possibly nine)
business days prior to the commencement of such distribution. Accordingly, in
the event Blair or Blair & Co. is engaged in a distribution of the Remaining
Selling Securityholders' Warrants, neither of such firms will be able to make a
market in the Company's securities during the applicable restrictive period.
However, neither Blair nor Blair & Co. have agreed to nor are either of them
obliged to act as broker/dealer in the sale of the Remaining Selling
Securityholders' Warrants and the Remaining Selling Securityholders may be
required, and in the event Blair is a market maker, will likely be required, to
sell such securities through another broker/dealer. In addition, each Remaining
Selling Securityholder desiring to sell Warrants will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of the purchases and sales of shares of the
Company's securities by such Remaining Selling Securityholders.

The Remaining Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.

56
<PAGE>

DESCRIPTION OF SECURITIES

The following description of the Company's capital stock and selected
provisions of its Articles of Incorporation and Bylaws is a summary and is
qualified in its entirety by the Company's Articles of Incorporation and
Bylaws, copies of which have been filed with the Securities and Exchange
Commission as exhibits to the Registration Statement of which this Prospectus
is a part.

COMMON STOCK

The Company is authorized to issue 35,600,000 shares of Class A
Common Stock, no par value, 2,200,000 shares of Class E-1 Common Stock, no
par value, and 2,200,000 shares of Class E-2 Common Stock. The Common Stock,
Class E-1 Common Stock and the Class E-2 Common Stock have equal voting
rights and are entitled to share equally in dividends from sources available
therefor when, as and if declared by the Board of Directors subject to
certain escrow conditions pertaining to dividends declared with respect to
the Class E-1 and Class E-2 Common Stock. See "Dividend Policy."
Shareholders have no preemptive rights and no right to convert their Class A
Common Stock into any other securities. The holders of Class A Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders, except that holders of Class A
Common Stock are entitled to cumulative voting with respect to the election
of directors upon giving notice as required by law. In cumulative voting, the
holders of Class A Common Stock are entitled to cast for each share held the
number of votes equal to the number of directors to be elected. In the event
of a liquidation, dissolution or winding up of the Company, holders of Class
A Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
Preferred Stock. There are no redemption or sinking fund provisions
applicable to the Class A Common Stock. All outstanding shares are, and all
shares to be sold and issued as contemplated hereby will be, fully paid and
nonassessable and legally issued. The Board of Directors is authorized to
issue additional shares of Class A Common Stock within the limits authorized
by the Company's charter and without shareholder action. As of July 5,
1996, there were 4,748,758 shares of Class A Common Stock outstanding.

CLASS E-1 COMMON STOCK

The Company is authorized to issue 2,200,000 shares of Class E-1 Common
Stock, no par value. As of July 5, 1996, there were outstanding 1,256,818
shares of Class E-1 Common Stock and 1,256,818 shares of Class E-2 Common
Stock (the "Escrow Shares"). The Escrow Shares are not transferrable (but
may be voted), and each Escrow Share will automatically convert into one
share of Class A Common Stock and be released to the owners thereof upon the
achievement of the objectives described below. On June 30, 2000, all Escrow
Shares not previously converted into Class A Common Stock will be cancelled.
This arrangement was required by the representative of the underwriters for
the Company's initial public offering as a condition of such offering.

All of the shares of Class E-1 Common Stock will be automatically
converted into Class A Common Stock in the event that: (a) the Company's net
income before provision for income taxes, including earnings from joint
ventures, distribution agreements and licensing agreements, but exclusive of
any other earnings that are classified as an extraordinary item, and
exclusive of any charges to income that may result from the conversion of the
Escrow Shares into Class A Common Stock (as stated in the Company's financial
statements audited by the Company's independent accountants) ("Minimum Pretax
Income") amounts to at least $5,500,000 for the fiscal year ending March 31,
1997; (b) the Minimum Pretax Income amounts to at least $6,850,000 for the
fiscal year ending March 31, 1998; (c) the Minimum Pretax Income amounts to
at least $8,425,000 for the fiscal year ending March 31, 1999; (d) the
Minimum Pretax Income amounts to at least $9,900,000 for the fiscal year
ending March 31, 2000; or (e) the Closing Price of the Company's Class A
Common Stock for any 30 consecutive business days shall average in excess of
$19.25 during the period commencing June 1996 and ending in November 1997
(subject to adjustment in the event of any reverse stock splits or similar
events). The Closing Price shall be the closing sale price as reported by the
Nasdaq National Market. In the event additional shares are issued, all of the
Minimum Pretax Income amounts will be increased proportionately.

<PAGE>

CLASS E-2 COMMON STOCK

The Company is authorized to issue 2,200,000 shares of Class E-2 Common
Stock, no par value. All of the shares of Class E-2 Common Stock will be
automatically converted into Class A Common Stock in the event that: (a) the
Minimum Pretax Income amounts to at least $11,800,000 for the fiscal year
ending March 31, 1997; (b) the Minimum Pretax Income amounts to at least
$14,750,000 during the fiscal year ending March 31, 1998; (c) the Minimum
Pretax Income amounts to at least $20,475,000 during the fiscal year ending
March 31, 1999; (d) the Minimum Pretax Income amounts to at least $26,750,000
during the fiscal year ending March 31, 2000; or (e) the Closing Price of the
Company's Class A Common Stock for any 30 consecutive business days shall
average in excess of $24.00 during the period commencing June 1996 and ending
November 1997. In the event any additional shares are issued, all of the
Minimum Pretax Income amounts referenced above will be proportionately
increased.

Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution or total or partial
liquidation of the Company, shall be held by the Company in escrow until
conversion of the Escrow Shares. If none of the foregoing earnings or market
price levels are attained, the Escrow Shares, as well as any dividends or
other distributions made with respect thereto, will be cancelled. The
earnings and market price levels set forth above were determined by
negotiation between the Company and the representative of the underwriter in
the Company's initial public offering and should not be construed to imply or
predict any future earnings by the Company or any increase in the market
price of its securities. There can be no assurance that such earnings and
market price levels will be attained or that any or all of the Escrow Shares
will be converted into Class A Common Stock. However, the conversion to Class
A Common Stock of all or any portion of the Escrow Shares may result in a
charge to earnings to the extent that such shares are held by management or
employees. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Potential Future Charge to Income."

PREFERRED STOCK

The Company's authorized preferred stock consists of 20,000,000 shares,
no par value (the "Preferred Stock"), of which 11,150,000 shares have been
cancelled or already designated. The Board of Directors has the authority,
without further action by the shareholders, to issue from time to time up to
8,850,000 shares of Preferred Stock in one or more series and to fix the
dividend rights and terms, conversion rights, voting rights (whole, limited
or none), redemption rights and terms, liquidation preferences, sinking funds
and any other rights, preferences, privileges and restrictions applicable to
each series of Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a shareholder vote on specific issuances. The issuance of
the Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Class A Common Stock and,
under certain circumstances, could make it more difficult for a third party
to gain control of the Company. Such issuance of Preferred Stock could also
adversely affect the distributions on and liquidation preference of the Class
A Common Stock by creating more series of Preferred Stock with distribution
or liquidation preferences senior to the Class A Common Stock. The Company has
sno present plan to issue any shares of Preferred Stock.

REDEEMABLE WARRANTS

The Company has outstanding redeemable Class A Warrants and Class B
Warrants (collectively, the "Warrants") which are currently listed on the
Nasdaq National Market. These Warrants are in fully registrable form under a
Warrant Agreement (the "Warrant Agreement") between the Company and American
Stock Transfer and Trust Company, and are evidenced by Warrant certificates.
These Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the respective expiration dates (or earlier redemption dates),
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrants are being exercised. Holders of the Warrants do not have
any voting or other

<PAGE>
rights of a shareholder of the Company. Upon notice to the holders of the
Warrants, the Company has the right to unilaterally reduce the exercise price
or extend the expiration date of the Warrants. The Warrants provide for the
adjustment of the exercise price and for a change in the number of shares
issuable upon exercise to protect the holders of the Warrants against
dilution in the event of a stock dividend, stock split, combination or
reclassification of the Class A Common Stock or upon issuance of additional
shares of Class A Common Stock at prices lower than the market price then in
effect other than issuances upon exercise of options granted to employees,
directors and consultants to the Company.

CLASS A WARRANTS

Each Class A Warrant entitles the registered holder to purchase one share
of Common Stock and one redeemable Class B Warrant at an exercise price of
$6.50 at any time prior to November 30, 1999. As of July 5, 1996, the Company
has outstanding 4,120,149 Class A Warrants. The Company has the right to
redeem all of the Class A Warrants at a price of $0.05 per Class A Warrant
upon not less than 30 days' prior written notice at any time after November
30, 1997, provided that before any such redemption can take place, the last
sale price of the Company's Common Stock in the over-the-counter market shall
have averaged in excess of $9.10 per share for 30 consecutive business days
ending within 15 days of the date of the notice of redemption. During the 30-
day notice period, a holder shall have the option to exercise his Class A
Warrants. This right of redemption shall not apply to the Class A Warrants
that are components of the IPO Unit Purchase Options.

CLASS B WARRANTS

Each Class B Warrant entitles the registered holder to purchase one
share of Common Stock at an exercise price of $8.00 per share at any time
prior to November 30, 1999. As of July 5, 1996, the Company had outstanding
3,127,049 Class B Warrants. The Company has a right to redeem all of the
Class B Warrants at a price of $.05 per Class B Warrant upon not less than 30
days' prior written notice at any time after November 30, 1997, provided
that before any such redemption can take place, the last sale price of the
Company's Class A Common Stock in the over-the-counter market shall have
averaged in excess of $11.20 per share for 30 consecutive business days
ending within 15 days prior to the date of the notice of redemption. During
the 30-day notice period, a holder shall have the option to exercise his
Class B Warrants. This right of redemption shall not apply to the Class B
Warrants that are components of the IPO Unit Purchase Options.

IPO UNITS

The Company also has outstanding IPO Units which are currently listed on
the Nasdaq SmallCap Market. Each IPO Unit consists of (i) one share of Class
A Common Stock, (ii) one Class A Warrant and (iii) one Class B Warrant. The
Class A Common Stock, Class A Warrants and Class B Warrants were separately
transferable immediately upon issuance.

IPO UNIT PURCHASE OPTIONS

In connection with the Company's IPO, the Company granted to Blair and
three finders IPO Unit Purchase Options to purchase up to an aggregate of
240,000 Units. The IPO Unit Purchase Options are exercisable at any time
prior to November 30, 1999 at an exercise price of $7.00 per Unit (140% of
the initial public offering price) subject to adjustment in certain events to
protect against dilution. These units will be identical to the publicly
traded Units except that the Class A Warrants and the Class B Warrants
included in the IPO Unit Purchase Options will not be subject to redemption
by the Company, except if at the time the Warrants are called for redemption,
the IPO Unit Purchase Options have been exercised and the underlying warrants
are outstanding. The IPO Unit Purchase Options cannot be transferred, sold,
assigned or hypothecated until November 30, 1997, except in the case of a
transfer to any officer of the underwriter for the IPO or a member of that
selling group.

LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS

The Company's Bylaws provide that the Company will indemnify its
directors and officers to the fullest extent permitted by California law. The
Company is also empowered under its Bylaws to enter

<PAGE>

into indemnification contracts with its directors and officers and certain
others and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered
into indemnity agreements with each of its directors and executive officers
and certain key consultants.

In addition, the Company's Articles of Incorporation provides that, to
the fullest extent permitted by California law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company or its shareholders. This provision in the
Articles of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under California law. Each
director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company, for acts or omissions involving
intentional misconduct or knowing and culpable violations of law, for acts or
omissions that the absence of good faith on the part of the director, for
any transaction from which the director derived an improper personal
benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its shareholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its shareholders, for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Company or its shareholders, for improper transactions between the director
and the Company, for improper distributions to shareholders and loans to
directors and officers or for acts or omissions by the director as an
officer. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.

There is no pending litigation or proceeding involving a director or
officer of the Company concerning which indemnification is being sought, nor
is the Company aware of any pending or threatened litigation that may result
in claims for indemnification by any director or officer.

The Company believes the foregoing provisions are necessary to attract
and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

The Company has agreed, if requested by Blair, to nominate a designee of
Blair to the Company's Board of Directors during the five year period ending
November 30, 1999. Blair has designated Dr. Donald Shapiro, a current director
of the Company, pursuant to this provision, but has not determined whether it
will continue to exercise this right in the future.

TRANSFER AND WARRANT AGENT

The Transfer and Warrant Agent for the Company's securities is American Stock
Transfer & Trust Company, New York, New York.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

As of July 5, 1996, the Company had outstanding 4,748,758 shares of
Class A Common Stock (excluding approximately 2,388,705 shares of Class A
Common Stock issuable upon exercise of outstanding stock options and
warrants, and approximately 11,367,347 shares of Class A Common Stock
issuable upon exercise in full of the Class A Warrants and the Class B
Warrants). Of these shares, the 2,760,000 shares of Class A Common Stock sold
by the Company in its IPO are freely tradeable without restriction or
further registration under the Securities Act.

Of the remaining 1,988,758 shares of outstanding Class A Common Stock,
993,811 are "restricted securities" (the "Restricted Shares") within the
meaning of Rule 144 under the Securities Act and may not be sold in the
absence of a registration under the Securities Act unless an exemption from
registration is available, including an exemption contained in Rule 144. In
general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated for purposes of Rule 144) who has beneficially owned
"restricted securities," as that term is defined in Rule 144, for at least
two years (including, in the case of a nonaffiliate holder, any period of
ownership of preceding nonaffiliate holders) is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock of the Company, or (ii)
the average weekly trading volume in Common Stock during the four calendar
weeks preceding such sale, provided that certain public information about the
Company, as required by Rule 144, is then available and the seller complies
with the manner of sale and notification requirements of the rule. A person
who is not an affiliate and has not been an affiliate within three months
prior to the sale and has, together with any previous owners who were not
affiliates, beneficially owned restricted securities for at least three years
is entitled to sell such shares under Rule 144(k) without regard to any of
the volume limitations described above. Approximately 961,836 of the
Restricted Shares are presently eligible for sale upon compliance with Rule
144(k).

The issuance of shares of Class A Common Stock upon exercise of the Class
A Warrants or Class B Warrants has been registered under the Securities Act,
and 720,499 shares of Class A Common Stock are issuable upon exercise of the
remaining options and warrants and may be resold pursuant to Rule 701 under
the Securities Act. Rule 701 under the Securities Act provides an exemption
from the registration requirements of the Securities Act for offers and sales
of securities issued pursuant to certain compensatory benefit plans or
written contracts of a company not subject, at the time of issuance, to the
reporting requirements of Section 13 or 15(d) of the Exchange Act of 1934.
Securities issued pursuant to Rule 701 are defined as restricted securities
for purposes of Rule 144. However, 90 days after the issuer becomes subject
to the reporting provisions of the Exchange Act, the Rule 144 resale
restrictions, except for the broker's transaction requirements, are
inapplicable for nonaffiliates. Affiliates are subject to all Rule 144
restrictions after this 90-day period, but without the Rule 144 holding
period requirement.

No predictions can be made of the effect, if any, that future sales of
shares of Class A Common Stock, and grants of options to acquire shares of
Class A Common Stock, or the availability of shares for future sale, will
have on the market price of the Class A Common Stock prevailing from time to
time. Sales of substantial amounts of Class A Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
the prevailing market prices of the Class A Common Stock. See "Principal
Shareholders" and "Description of Securities."

61
<PAGE>

PLAN OF DISTRIBUTION

The securities offered hereby are being offered directly by the Company
pursuant to the terms of the Warrants. No underwriter is being utilized in
connection with this offering.

The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised, if (i) the market
price of the Class A Common Stock on the date the Warrant is exercised is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the NASD; (iii) the Warrant is not held in
a discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrants was not in violation of Rule
10b-6 as promulgated under the Exchange Act or respective state blue sky laws.
Any costs incurred by the Company in connection with the exercising of the
Warrants shall be borne by the Company.

Blair acted as the underwriter of the Company's IPO in November and
December 1994. Other than the securities underlying the IPO Unit Purchase
Options granted to Blair in connection with the IPO, the Company is not aware
of any other securities of the Company owned by Blair. In connection with
the IPO, the Company and Blair agreed to indemnify each other against certain
liabilities in connection with the IPO and this offering including
liabilities under the Act.

In connection with the IPO, the Company sold to Blair and its designees,
for nominal consideration, the IPO Unit Purchase Options (the "Blair Unit
Purchase Option") to purchase up to 216,000 IPO Units at an exercise price of
$7.00 per IPO Unit. The Blair Unit Purchase Option and the underlying
securities may not be sold, assigned or transferred for three years from the
date of issuance except to officers of Blair or to any NASD member
participating in the IPO and is exercisable during the period commencing
November 30, 1995 and ending November 30, 1999. Subject to certain
limitations and exclusions, the Company has agreed, upon request, to register
the Blair Unit Purchase Option and the underlying securities under the Act on
two occasions (the first at the Company's expense, and the second at the
expense of the holders of the Unit Purchase Option), during the four-year
period beginning on November 30, 1995. The Company has also granted certain
"piggyback" registration rights to holders of the Blair Unit Purchase Option.

The Company entered into an agreement with Blair providing for the payment
of a fee to Blair, in the event that Blair is responsible for a merger or other
acquisition transaction to which the Company is a party. The fee is based on a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2-1/2% of any consideration in excess of $9,000,000.

Unless granted an exemption by the Commission from Rule 10b-6, Blair will
be prohibited from engaging in any market making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that Blair may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, Blair may be unable to continue to make a market in the Company's
securities during certain periods while the Warrants are exercisable.

The exercise prices and other terms of the Warrants have been determined by
negotiation between the Company and Blair and are not necessarily related to the
Company's asset value, net worth or other established criteria of value.

62
<PAGE>

Blair acted as placement agent in connection with the Private Placement of
the Bridge Notes and warrants completed in August 1994.

Blair has informed the Company that the Commission is conducting an
investigation concerning various business activities of Blair. The
investigation appears to be broad in scope, involving numerous aspects of
Blair's compliance with the federal securities laws. The Company has been
advised by Blair that the investigation has been ongoing since at least 1989 and
that they are cooperating with the investigation. Blair cannot predict whether
this investigation will ever result in any type of formal enforcement action
against Blair, or, if so, whether any such action might have an adverse effect
on Blair or the securities offered hereby. Blair makes a market in the
Company's securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting Blair's ability to make a market
in the Company's securities, which could affect the liquidity and price of such
securities.

63
<PAGE>

EXPERTS

The financial statements of the Company as of March 31, 1996 and for each
of the two years in the period ended March 31, 1996 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 4 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

<PAGE>
PREMIER LASER SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet at March 31, 1996............................................................................ F-3
Statement of Operations for the Years Ended March 31, 1995 and 1996........................................ F-4
Statement of Shareholders' Equity for the Years Ended March 31, 1995 and 1996.............................. F-5
Statement of Cash Flows for the Years Ended March 31, 1995 and 1996........................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of
Premier Laser Systems, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Premier Laser Systems, Inc. at March 31,
1996, and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 4. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

PRICE WATERHOUSE LLP

Costa Mesa, California
May 17, 1996, except as to
Note 18, which is as
of June 25, 1996

F-2
<PAGE>
PREMIER LASER SYSTEMS, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31,
1996
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 35,463
Short-term investments (Note 6)................................................................. 4,547,377
Accounts receivable, net of allowance for doubtful accounts of $154,677......................... 508,315
Inventories (Note 7)............................................................................ 2,185,355
Prepaid expenses and other current assets....................................................... 419,504
--------------
Total current assets........................................................................ 7,696,014
Property and equipment, net (Note 8)............................................................ 493,942
Intangibles, net (Note 9)....................................................................... 7,353,462
Other assets (Note 6)........................................................................... 131,150
--------------
$ 15,674,568
--------------
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................ $ 1,208,219
Accrued liabilities (Note 10)................................................................... 188,108
Notes payable to related party (Notes 11 and 12)................................................ 481,195
--------------
Total current liabilities................................................................... 1,877,522
--------------
Commitments and contingencies (Note 14)
Shareholders' equity (Notes 5 and 16):
Preferred stock -- 8,850,000 shares authorized, no shares issued and outstanding
Common stock -- Class A -- no par value, 35,600,000 shares authorized;
4,702,203 shares issued and outstanding........................................................ 16,317,376
Common stock -- Class E-1 -- no par value, 2,200,000 shares authorized;
1,256,818 shares issued and outstanding........................................................ 4,769,878
Common stock -- Class E-2 -- no par value, 2,200,000 shares authorized;
1,256,818 shares issued and outstanding........................................................ 4,769,878
Class A warrants................................................................................ 2,321,057
Class B warrants................................................................................ 376,774
Warrants to purchase Class A common stock....................................................... 192,130
Unrealized holding gain on short-term investments............................................... 3,666,367
Accumulated deficit............................................................................. (18,616,414)
--------------
Total shareholders' equity.................................................................. 13,797,046
--------------
$ 15,674,568
--------------
--------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>
PREMIER LASER SYSTEMS, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Net sales......................................................................... $ 1,249,403 $ 1,704,390
Cost of sales..................................................................... 1,298,420 3,324,757
-------------- --------------
Gross (loss)...................................................................... (49,017) (1,620,367)
Selling and marketing expenses.................................................... 1,035,863 1,308,767
Research and development expenses................................................. 1,035,705 1,213,471
General and administrative expenses............................................... 1,747,090 1,709,327
-------------- --------------
Loss from operations.......................................................... (3,867,675) (5,851,932)

Interest income (expense), net.................................................... (322,540) 99,037
-------------- --------------
Loss before extraordinary items............................................... (4,190,215) (5,752,895)
Extraordinary gain from extinguishment of indebtedness............................ 381,730
-------------- --------------
Net loss...................................................................... $ (3,808,485) $ (5,752,895)
-------------- --------------
-------------- --------------
Loss per share:
Net loss........................................................................ $ (1.26)
--------------
--------------
Weighted average number of shares outstanding................................... 4,556,959
--------------
--------------
Pro forma loss per share (unaudited):
Loss before extraordinary items................................................. $ (1.59)
Extraordinary gain from extinguishment of indebtedness.......................... .15
--------------
Net loss........................................................................ $ (1.44)
--------------
--------------
Weighted average number of shares outstanding................................... 2,584,722
--------------
--------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
PREMIER LASER SYSTEMS, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
CLASS A CLASS E-1 CLASS E-2
---------------------- ---------------------- ----------------------- CLASS A CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS WARRANTS
--------- ----------- --------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994.... 1,432,636 $ 5,372,022 1,268,488 $ 4,756,528 1,268,488 $ 4,756,528
Exercise of common stock
options................. 4,936 2,848 3,011 1,081 3,011 1,081
Common stock issued in
lieu of cash payments... 1,635 13,046 1,447 11,552 1,447 11,552
Common stock forfeited
due to cessation of
employment.............. (7,798) (20,124) (6,905) (17,818) (6,905) (17,818)
Warrants issued in
connection with private
placement units.........
Repurchase of common
stock................... (17,681) (6,910) (15,752) (6,119) (15,752) (6,119)
Initial public offering
of units, net
proceeds................ 2,400,000 7,633,504 $1,622,222 $ 286,274
Conversion of warrants... 186,000
Conversions of certain
related party notes and
associated accrued
interest................ 7,072 28,448 6,260 24,596 6,260 24,596
Conversion of debentures
and associated accrued
interest................ 321,099 1,284,397 272,934 48,165
Exercise of over-
allotment option........ 360,000 1,128,947 239,901 42,335
Net loss.................
--------- ----------- --------- ----------- ---------- ----------- ---------- ----------
Balance, March 31, 1995.. 4,501,899 15,436,178 1,256,549 4,769,820 1,256,549 4,769,820 2,321,057 376,774
Common stock issued for
investment in Mattan
(Note 6)................ 200,000 881,010
Exercise of stock
options................. 304 188 269 58 269 58
Unrealized holding gain
on short-term
investments.............
Net loss.................
--------- ----------- --------- ----------- ---------- ----------- ---------- ----------
Balance, March 31, 1996.... 4,702,203 $16,317,376 1,256,818 $ 4,769,878 1,256,818 $ 4,769,878 $2,321,057 $ 376,774
--------- ----------- --------- ----------- ---------- ----------- ---------- ----------
--------- ----------- --------- ----------- ---------- ----------- ---------- ----------

COMMON UNREALIZED
STOCK HOLDING ACCUMULATED
WARRANTS GAIN DEFICIT TOTAL
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, March 31, 1994.... $ 192,130 $ (9,055,034) $ 6,022,174
Exercise of common stock
options................. 5,010
Common stock issued in
lieu of cash payments... 36,150
Common stock forfeited
due to cessation of
employment.............. (55,760)
Warrants issued in
connection with private
placement units......... 186,000 186,000
Repurchase of common
stock................... (19,148)
Initial public offering
of units, net
proceeds................ 9,542,000
Conversion of warrants... (186,000)
Conversions of certain
related party notes and
associated accrued
interest................ 77,640
Conversion of debentures
and associated accrued
interest................ 1,605,496
Exercise of over-
allotment option........ 1,411,183
Net loss................. (3,808,485) (3,808,485)
--------- ---------- ------------ ------------
Balance, March 31, 1995.. 192,130 (12,863,519) 15,002,260
Common stock issued for
investment in Mattan
(Note 6)................ 881,010
Exercise of stock
options................. 304
Unrealized holding gain
on short-term
investments............. $3,666,367 3,666,367
Net loss................. (5,752,895) (5,752,895)
--------- ---------- ------------ ------------
Balance, March 31, 1996.... $ 192,130 $3,666,367 $(18,616,414) $ 13,797,046
--------- ---------- ------------ ------------
--------- ---------- ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PREMIER LASER SYSTEMS, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (3,808,485) $ (5,752,895)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................. 812,196 814,401
Extraordinary gain from extinguishment of debt................................ (381,730)
Amortization of debt discount................................................. 119,230
Exchange of product for clinical studies...................................... (158,250)
Amortization of clinical program expense...................................... 227,000 31,367
Issuance of stock options and stock in lieu of consulting payments............ 36,150
Common stock forfeited upon cessation of employment........................... (55,760)
Provision for doubtful accounts receivable.................................... (151,751)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.................................... 142,591 (92,716)
Increase in inventories....................................................... (21,880) (14,665)
Decrease (increase) in prepaid expenses and other current assets.............. (320,569) 22,468
(Increase) decrease in other assets........................................... 230,793 (6,150)
Increase (decrease) in accounts payable....................................... (411,197) 594,654
(Decrease) increase in accrued liabilities.................................... 28,907 (598,847)
-------------- --------------
Net cash used in operating activities....................................... (3,402,754) (5,312,384)
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment............................................. (45,785) (219,723)
Note receivable pursuant to strategic alliance agreement (Note 6)............... (125,000)
Patent expenditures............................................................. (204,838) (195,971)
-------------- --------------
Net cash used in investing activities......................................... (250,623) (540,694)
-------------- --------------
Cash flows from financing activities:
Proceeds from exercise of common stock options.................................. 304
Proceeds from issuance of common stock prior to initial public offering......... 5,010
Proceeds from issuance of common stock warrants................................. 186,000
Proceeds from initial public offering and exercise of over-allotment option..... 10,953,183
Cash paid for repurchase of common stock........................................ (19,148)
Proceeds from issuance of notes payable......................................... 1,519,000
Cash paid for repurchase of mandatorily redeemable warrants..................... (285,000)
Principal payments on notes payable............................................. (3,126,195)
-------------- --------------
Net cash provided by financing activities..................................... 9,232,850 304
-------------- --------------
Net (decrease) increase in cash................................................... 5,579,473 (5,852,774)
-------------- --------------
Cash and cash equivalents, beginning of period.................................... 308,764 5,888,237
-------------- --------------
Cash and cash equivalents, end of period.......................................... $ 5,888,237 $ 35,463
-------------- --------------
-------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-6

<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS
Premier Laser Systems, Inc. (the Company) was incorporated in July 1991 and
commenced operations in August 1991 after acquiring substantially all of the
assets and certain liabilities of Pfizer Laser Systems (Pfizer), a division of
Pfizer Hospital Products Group, Inc. The Company designs, develops, manufactures
and markets several lines of lasers for surgical and other medical purposes,
laser waveguides and fiber optic devices, disposables and associated accessory
products for the medical market.

The financial statements as of March 31, 1996 and for each of the two years
in the period ended March 31, 1996 give effect to the Company's recapitalization
and reverse stock splits discussed in Note 16.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of product to customers, and
when no significant contractual obligations remain outstanding.

CASH EQUIVALENTS

Cash equivalents represent short-term, highly liquid investments that have
original maturities of three months or less and are readily convertible to cash.
Such investments consist primarily of U.S. Treasury Notes and commercial paper.
Cost of such investments is equal to the related fair value at March 31, 1996.

SHORT-TERM INVESTMENTS

In fiscal 1995, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS 115, the Company's
investments are classified as "available-for-sale" securities and are reported
at fair market value. Any unrealized holding gains or losses are reported as a
separate component of stockholders' equity. Realized gains and losses are
reported on the specific identification method and are reported in income. The
Company's marketable securities portfolio at March 31, 1996 consists of its
investments in the common stock of Mattan Corporation (see Note 6).

INVENTORIES

Inventories are stated at the lower of cost or market and include material,
labor, and related manufacturing overhead. The Company determines cost using the
first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Expenditures for replacements and
improvements are capitalized and expenditures for repairs, maintenance and
routing replacements are charged to operating expense as incurred. When assets
are sold or otherwise disposed of, the cost and related accumulated depreciation
are eliminated from the accounts and any resulting gain or loss is included in
operations.

Depreciation of furniture, machinery and equipment is calculated on a
straight-line basis over the estimated useful lives of the assets ranging from
three to eight years.

INTANGIBLES

Intangible assets consists primarily of patents, technology rights and
license agreements. The costs assigned to acquired intangible assets, based in
part upon independent appraisals, are being amortized on a straight-line basis
over the estimated useful lives of the assets ranging from 2 to 15 years.
Periodically, the Company evaluates the recoverability of intangibles based on
estimated undiscounted future cash flows from operating activities compared with
the carrying values of the intangibles.

F-7
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. A substantial
portion of the research and development expense is related to developing new
products, improving existing products or processes, and clinical research
programs.

The Company enters into agreements with certain doctors to exchange a
portion of a product's sales price for completion of certain portions of
clinical studies necessary for obtaining product approval by the U.S. Food and
Drug Administration. Typically, the amounts consist of a portion of the product
sales price which is equal to the fair value of the services to be rendered by
the doctor. Pursuant to the agreements, in the event the doctor is unable to
complete the agreed upon clinical study, the doctor is required to remit cash
payment for the entire amount. The amounts are capitalized as prepaid research
and development expense and amortized upon completion of certain milestones of
the clinical study. These studies are generally completed within one year.
Research and development expenses included in prepaid expenses totaled $204,000
at March 31, 1996.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), ACCOUNTING FOR INCOME TAXES.
SFAS 109 requires the liability method for accounting for income taxes. This
method mandates the recognition of deferred tax liabilities and assets for
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities.

NET LOSS PER SHARE

Net loss per share was computed based on the weighted average number of the
Company's common shares outstanding during fiscal 1996 and excludes all shares
of Class E-1 and Class E-2 Common Stock, discussed in Note 16, outstanding, or
subject to option, because all such shares of stock are subject to escrow and
the conditions for the release of shares from escrow have not been satisfied.
Common stock equivalents were not considered in the net loss per share
calculation because the effect on the net loss would be antidilutive.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Net loss per common share was computed based on the weighted average number
of the Company's common shares outstanding during the fiscal year ended March
31, 1995 after giving retroactive adjustment for the recapitalization discussed
in Note 16 and the conversion of the Company's debentures into units (as defined
in Note 5) which occurred upon completion of the Company's initial public
offering (see Note 5). The effect on net loss per common share of the conversion
of the Company's debentures was to reduce historical net loss by $67,995 and to
increase weighted average shares outstanding by 321,099 shares for the fiscal
year ended March 31, 1995. Class E-1 and E-2 common stock shares, discussed in
Note 16, were excluded from the net loss per share calculation because the
conditions for release of shares from escrow have not been satisfied. Other
common stock equivalents were not considered in the net loss per share
calculation because the effect on the net loss per share would be antidilutive.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
all stock options and warrants granted and common shares issued within one year
of the Company's initial public offering and not in escrow have been included as
outstanding for the six months ended September 30, 1994 (the date of the most
recent financial statements included in the Company's initial public offering
prospectus) using the treasury stock method.

F-8
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), effective for years beginning after December 15, 1995, which establishes
a fair value-based method of accounting for stock-based compensation plans. The
statement allows companies to continue to use the intrinsic value-based
approach, supplemented by footnote disclosure of the pro forma net income and
earnings per share of the fair value-based approach. The Company intends to
follow this method allowed by SFAS 123.

USE OF ESTIMATES BY MANAGEMENT

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Significant estimates and assumptions include those made surrounding
inventory valuation and the realizability of certain intangible assets. The
Company's inventory and intangibles largely relate to technologies which have
yet to gain wide spread market acceptance. Management believes no loss will be
incurred on the disposition of its inventory and that the remaining economic
life of the Company's tangible assets is reasonable. If wide spread market
acceptance of the Company's products is not achieved, the carrying amount of
inventory and intangible assets could be materially reduced.

3. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flows information:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
----------- ---------
<S> <C> <C>
Cash paid for:
Interest................................................. $ 550,962 $ 52,129
Income taxes............................................. 800 800
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

In fiscal 1996, the Company issued 200,000 shares of Class A Common Stock in
connection with the acquisition of 1,150,000 shares of Mattan Corporation's
common stock. The value of the Mattan Corporation common stock shares was
$881,010 on the date of the transaction (see Note 6).

Concurrent with the completion of the Company's initial public offering,
certain notes payable to shareholders totaling $66,500 and convertible
debentures totaling $1,500,000, plus related accrued interest, were converted
into 7,072 shares of Class A Common Stock and 6,260 shares of each Class E-1 and
E-2 Common Stock, and 321,099 Units, respectively.

4. BASIS OF PRESENTATION
The Company has suffered recurring losses from operations and may continue
to incur losses for the foreseeable future due to the significant costs
anticipated to be incurred in connection with manufacturing, marketing and
distributing its laser products. In addition, the Company intends to conduct
continuing research and development activities, including regulatory submittals
and clinical trials to develop additional applications for its laser technology.
The Company operates in a highly competitive environment and is subject to all
of the risks inherent in a new business enterprise. The Company is presently
attempting to borrow funds and/or complete a public offering of its common stock
to provide working capital for operations in the near term. The outcome of such
efforts to raise

F-9
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. BASIS OF PRESENTATION (CONTINUED)
working capital cannot be assured. The ultimate timeframe in which a sufficient
level of product or market acceptance can be achieved is uncertain. As such,
there is substantial doubt about the Company's ability to continue as a going
concern.

The Company's financial statements have been prepared on the basis of
accounting principles applicable to a going concern. Accordingly, they do not
purport to give effect to adjustments, if any, that may be necessary should the
Company be required to realize its assets and liquidate its liabilities,
contingent liabilities and commitments in other than the normal course of
business at amounts different from those disclosed in the financial statements.

5. INITIAL PUBLIC OFFERING
On December 7, 1994, the Company completed an initial public offering
consisting of 2,400,000 Units of the Company's securities, each unit consisting
of one share of Class A Common Stock, one redeemable Class A Warrant and one
redeemable Class B Warrant (the "Units"). The Company realized net proceeds of
$9,542,000 from this offering. Each Class A Warrant consists of the right to
purchase one share of Class A Common Stock and one Class B Warrant at any time
through the fifth anniversary date of the initial public offering at an exercise
price of $6.50. Each Class B Warrant consists of the right to purchase one share
of Class A Common Stock from the date of issuance through the fifth anniversary
date of the initial public offering's effective date at an exercise price of
$8.00.

On January 12, 1995, the underwriter in the initial public offering
exercised its over-allotment option to purchase 360,000 Units at the initial
public offering price, resulting in net proceeds of $1,411,183 to the Company.

6. STRATEGIC ALLIANCES

In December 1995, the Company entered into a strategic marketing
alliance with Mattan Corporation (Mattan), a Canadian corporation whose stock
is publicly traded on the Alberta Stock Exchange. The purchasing agreement
(the Agreement) stipulates that the Company will supply all laser
equipment and associated disposables for all laser surgery centers to be
designed and opened by Mattan in Canada and the United States. It is
anticipated that these surgery centers will be operated under the name of
Medical Laser Institute of America. In connection with this alliance, the
Company also entered into a share exchange agreement pursuant to which the
Company issued 200,000 shares of the Company's Class A Common Stock to
certain parties affiliated with Mattan, who purchased 1,150,000 shares of
Mattan's common stock representing approximately 12% of Mattan's common
stock, for approximately $881,010 on the Company's behalf. Prior to March
31, 1996, the Mattan affiliates sold the 200,000 shares of the Company's
Class A Common Stock and released the shares of the Mattan common stock to
the Company. The Company accounts for this investment as an
available-for-sale security pursuant to SFAS 115 (See Note 2). At March 31,
1996, the fair value of this investment totaled approximately $4,547,377
and the related unrealized holding gain totaled approximately $3,666,367.

In October 1995, the Company entered into a strategic business alliance with
International Biolaser Corporation (IBC). This agreement specifies that the
Company will manufacture IBC's CO(2) and argon lasers and that such products
will be jointly marketed by the two companies. Pursuant to the agreement, the
Company advanced $125,000 to IBC in exchange for a convertible note payable due
in October 1997, bearing interest at 10% per annum and secured by substantially
all of IBC's intangible assets. This note payable is convertible, at the
Company's sole option, into an 80% ownership interest in IBC only after IBC has
repaid certain pre-existing indebtedness.

F-10
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INVENTORIES
Inventories at March 31, 1996 consist of the following:

<TABLE>
<S> <C>
Raw materials.................................. $ 938,560
Work-in-progress............................... 276,998
Finished goods................................. 969,797
----------
$2,185,355
----------
----------
</TABLE>

8. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1996 consist of the following:

<TABLE>
<S> <C>
Machinery, equipment, molds and tooling........ $1,032,188
Furniture, fixtures and office equipment....... 433,286
----------
1,465,474
Less: accumulated depreciation............... 971,532
----------
$ 493,942
----------
----------
</TABLE>

9. INTANGIBLES
Intangibles at March 31, 1996 consist of the following:

<TABLE>
<S> <C>
Patents and technology rights.................. $9,413,088
License agreements............................. 255,000
Other.......................................... 201,000
----------
9,869,088
Less: accumulated amortization................. 2,515,626
----------
$7,353,462
----------
----------
</TABLE>

10. ACCRUED LIABILITIES
Accrued liabilities at March 31, 1996 consist of the following:

<TABLE>
<S> <C>
Accrued payroll, vacation and related taxes.... $ 96,132
Accrued other.................................. 91,976
----------
$ 188,108
----------
----------
</TABLE>

11. RELATED PARTY TRANSACTIONS
As discussed in Note 1, the Company commenced operations after acquiring
substantially all of the assets and certain liabilities of Pfizer in August
1991. At March 31, 1996, notes payable to Pfizer totaled $481,195 (see Note 12).

Consulting fees aggregating $12,000 and $26,000 for the fiscal years ended
March 31, 1996 and 1995, respectively, were paid to a consultant of the Company,
directly related to an officer of the Company.

12. NOTES PAYABLE TO RELATED PARTY AND EXTRAORDINARY GAIN
Prior to the completion of the initial public offering described in Note 5,
the Company's notes payable to Pfizer amounted to $2,517,390. Pursuant to an
agreement between the Company and Pfizer, the Company paid $1,386,195 of the
notes payable to Pfizer immediately subsequent to the closing of the initial
public offering and Pfizer forgave $650,000 of the total indebtedness. The
remaining balance of $481,195, bearing interest at 10% per annum at March 31,
1996, and related

F-11
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. NOTES PAYABLE TO RELATED PARTY AND EXTRAORDINARY GAIN (CONTINUED)
accrued interest are payable in quarterly installments commencing July 8, 1996
with the first principal payment totaling $240,598, plus accrued interest, and
the remaining two quarterly principal payments totaling $120,299, plus accrued
interest. If the Company completes a private or public equity offering which
raises net proceeds of at least $3 million, the note payable balance outstanding
at the time of that offering becomes immediately due and payable. The note
payable to Pfizer is secured by substantially all of the tangible assets and
certain patents of the Company.

In June 1994, notes payable to third parties of $1,500,000 were converted
into convertible debentures. These debentures and related accrued interest were
converted into 321,099 Units concurrent with the closing of the initial public
offering. Also concurrent with the close of the offering, notes payable to
shareholders totaling $66,500 plus related accrued interest were converted into
7,072 shares of Class A Common Stock and 6,260 shares of each Class E-1 and E-2
Common Stock.

In August 1994, the Company completed a private placement of debt units,
whereby $1,550,000 of notes payable bearing interest at 10% per annum (the
"Bridge Notes") and warrants to purchase 1,085,000 shares of Class A common
stock were issued. In connection with this private placement, the Company
incurred placement costs of $201,500 and issued the notes at a discount totaling
$186,000. These notes payable were also paid in full in December 1994.

In connection with the debt forgiven by Pfizer and the extinguishment of the
bridge notes, the Company recognized a net extraordinary gain on extinguishment
of debt totaling $381,730.

13. GRANTS
In September, 1995, the Company obtained a Small Business Innovative
Research Grant totaling approximately $750,000 for the study of laser
emulsification. Pursuant to the terms of the grant, the Company is eligible to
receive reimbursement for research and development costs incurred in connection
with the laser emulsification study up to $750,000 upon the achievement of
certain deliverables, as defined. During fiscal 1996, the Company received
approximately $250,000 under the grant. The amounts received under the grant
were offset against research and development costs incurred in the study.

14. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company leases its facilities and certain equipment under noncancellable
operating leases. Total rental expense for operating leases was $348,059 and
$387,055 for the fiscal years ended March 31, 1996 and 1995, respectively. At
March 31, 1996, future minimum lease payments under noncancellable operating
leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- -----------------------------------------------------------
<S> <C>
1997................................................... $ 241,536
1998................................................... 244,634
1999................................................... 247,811
2000................................................... 252,448
2001................................................... 250,488
-------------
$ 1,236,917
-------------
-------------
</TABLE>

Pursuant to the Company's facility lease, effective January 1997, the
Company becomes guarantor of a lease agreement between the Company's lessor and
a third party lessee. The guaranteed future minimum lease payments relating to
the third party are $108,456, $111,624, and $85,500 for the years ended March
31, 1997, 1998 and 1999, respectively.

F-12
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company entered into employment agreements with three members of its
executive management team. These agreements provide for two to four months of
severance benefits upon termination of employment. Based upon salary levels as
of March 31, 1996, such severance benefits range from approximately $15,000 to
$33,000 for each of the above members of management.

CONTINGENCIES

The Company entered into an agreement with Infrared Fiber Systems, Inc.
(IFS), as a supplier of certain fiberoptics that expires in the fiscal year
ending March 31, 2002 and requires the supplier to sell exclusively to the
Company fiberoptics for medical and dental applications as long as the Company
purchases defined minimum amounts.

In March 1994, the Company initiated litigation against IFS. The Company's
complaint alleges that IFS and two of its officers misrepresented IFS' ability
to supply optical fibers, and that IFS breached its supply agreement and certain
warranties. In April 1994, IFS filed a cross-complaint alleging breach of
contract and intentional interference with prospective economic advantage,
seeking declaratory relief that the contract has been terminated and that IFS is
free to market its fibers to others. In July 1994, Coherent, Inc., a major
shareholder of IFS and a manufacturer of medical lasers which employ IFS optical
fibers, joined the lawsuit for the express purpose of defending their rights to
the IFS optical fibers. In May 1995, the Company instituted litigation
concerning this dispute in the Orange County, California Superior Court against
Coherent, Westinghouse Electric Corporation ("Westinghouse") and an individual
employee of Westinghouse who was an officer of IFS from 1986 to 1993, when the
events involved in the federal action against IFS took place and while
Westinghouse owned a substantial minority interest in IFS. The complaint charges
that Coherent conspired with IFS in the wrongful conduct which is the subject of
the federal lawsuit and interfered with the Company's contracts and relations
with IFS and with prospective contracts and advantageous economic relations with
third parties. The complaint asserts that Westinghouse is liable for its
employee's wrongful acts as an IFS executive while acting within the scope of
his employment at Westinghouse. The lawsuit seeks injunctive relief and
compensatory damages. In October 1995 the federal action was stayed by order of
the court in favor of the California state court action, in which the pleadings
have been amended to include all claims asserted by the Company in the federal
action. No trial date has been set. The Company believes that the likely
liability of the Company, if any, arising from this litigation would not have a
materially adverse impact upon the Company.

The Company is involved in various disputes and other lawsuits from time to
time arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation, disputes
and other lawsuits may adversely affect the Company. It is the opinion of
management, that the outcome of such matters will not have a material adverse
impact on the Company's financial position, results of operations, or cash
flows.

15. INCOME TAXES
The Company incurred losses totaling $5,752,895 and $3,808,485 for fiscal
years ended March 31, 1996 and 1995, respectively. As a result, no provision for
income taxes has been charged to continuing operations during these periods.

F-13
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. INCOME TAXES (CONTINUED)
Deferred tax assets at March 31, 1996 are comprised as follows:

<TABLE>
<S> <C>
Accounts receivable reserves........................... $ 62,084
Research and development expenditures capitalized for
tax purposes.......................................... 410,247
Research and development federal tax credits........... 187,436
Depreciation of property and equipment................. 40,289
Net operating loss carryforwards....................... 6,033,150
Other.................................................. 852,876
-----------
Gross deferred tax assets.............................. 7,586,082
Deferred tax asset valuation allowance................. (7,586,082)
-----------
$ --
-----------
-----------
</TABLE>

The net change in the valuation allowance for deferred tax assets was an
increase of approximately $2,634,142 from the balance at March 31, 1995. The
change primarily relates to additional net operating loss carryforwards
generated as well as changes in other deferred assets in fiscal 1996, which were
fully reserved for at March 31, 1996.

At March 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $16,319,249 which begin to
expire in fiscal 2007. Operating loss carryforwards for state income tax
purposes totaling approximately $7,895,167 at March 31, 1996 begin to expire in
fiscal 1998. Pursuant to provisions in the Tax Reform Act of 1986, the net
operating loss carryforwards and research and development credits available for
use in any given year may be limited as a result of the significant changes in
stock ownership attributable to the initial public offering.

16. SHAREHOLDERS' EQUITY

COMMON STOCK AND RECAPITALIZATION

On June 11, 1994, the Company effected a recapitalization pursuant to an
Amendment of its Articles of Incorporation. In this recapitalization: (i) the
Company authorized for issuance three new classes of Common Stock, designated as
Class A Common Stock, Class E-1 Common Stock and Class E-2 Common Stock, of
which 35,600,000 shares of Class A Common Stock were authorized, 2,200,000
shares of Class E-1 Common Stock were authorized and 2,200,000 shares of Class
E-2 Common Stock were authorized; (ii) the Company authorized for issuance a new
class of Preferred Stock (having rights, preferences and privileges to be
determined in the future) of which 8,850,000 shares were authorized for
issuance; (iii) the Common Stock outstanding immediately prior to the
recapitalization was reclassified as Class A Common Stock; and (iv) each share
of Common Stock outstanding immediately prior to the recapitalization was
converted, through a reverse stock split, into 0.1292 shares of Class A Common
Stock.

Following the above Amendment of the Articles of Incorporation, the Company
declared a stock split effected as a stock dividend to the holders of its Common
Stock, providing for the issuance of approximately 0.1144 shares of Class E-1
Common Stock and 0.1144 shares of Class E-2 Common Stock for each share of
Common Stock held immediately prior to the recapitalization.

As a result of this recapitalization and stock split, each share of the
Company's outstanding Series A Preferred Stock and Series B Preferred Stock was
converted into 0.1292 shares of Class A Common Stock, 0.1144 shares of Class E-1
Common Stock and 0.1144 shares of Class E-2 Common Stock. Conversion of Series A
and Series B Preferred Stock into Class A Common Stock, Class E-1 Common Stock
and Class E-2 Common Stock was effected upon the closing of the Company's
initial public offering.

F-14
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

16. SHAREHOLDERS' EQUITY (CONTINUED)
On October 20, 1994, the Company voted to effect a 7:1 reverse stock split
pursuant to an amendment of its Articles of Incorporation. As a result thereof,
the shares of Series A Common Stock, E-1 Common Stock, and E-2 Common Stock,
discussed above, were reduced in number by a factor of 0.7.

STOCK OPTION PLANS AND WARRANTS

The Company has adopted several stock option plans that authorize the
granting of options to employees, officers and/or consultants to purchase shares
of the Company's Class A Common Stock. The stock option plans are administered
by the Board of Directors or a committee appointed by the Board of Directors,
which determines the terms of the options, including the exercise price, the
number of shares subject to option and the exercisability of the option. The
options are generally granted at the fair market value of the shares underlying
the options at the date of the grant and expire within ten years of the grant
date.

In addition to options granted pursuant to the stock option plans, the
Company has issued to certain Board of Directors members, consultants and former
notes payable holders warrants to purchase shares of the Company's Class A
Common Stock.

A summary of the activity related to stock options and warrants for the
fiscal years ended March 31, 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
WARRANT/OPTION
PRICE PER
SHARES SHARE
----------- --------------
<S> <C> <C>
Outstanding at March 31, 1994......................... 228,590 $ 1.00-17.69
Granted............................................... 1,733,650 5.00- 6.50
Exercised............................................. (1,535) 1.00- 1.77
Cancelled............................................. (50,872) 8.85
----------- --------------
Outstanding and exercisable at March 31, 1995......... 1,909,833 1.00-17.69
Granted............................................... 705,700 4.63- 5.63
Exercised............................................. (304) 1.00
Cancelled............................................. (31,236) 1.00-11.06
----------- --------------
Outstanding at March 31, 1996......................... 2,583,993 $ 1.00-17.69
----------- --------------
----------- --------------
</TABLE>

Warrants to purchase 89,357 shares of the Company's common stock issued in
connection with the acquisition of certain patents and technology rights during
fiscal 1994 will expire by December 31, 1998 and the warrants to purchase 9,044
shares of common stock issued to a related party will expire by March 31, 1997.

Effective December 30, 1993, the Company issued warrants to purchase 50,872
shares of common stock, under the 1993 Limited Warrant Plan, with an exercise
price of $8.85 per share for services rendered by consultants in connection with
the acquisition of technology rights. In January 1995, the warrant holders
exercised their right to receive a cash payment of $285,000, an amount equal to
the liability owed to the consultants on the date of issuance in exchange for
and cancellation of the warrants.

In connection with the initial public offering in December, 1994 and
exercise of the underwriter's over-allotment option, the Company issued
2,760,000 of each of Class A Warrants and Class B Warrants. Both the Class A and
Class B Warrants will expire in November 1999.

F-15
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

16. SHAREHOLDERS' EQUITY (CONTINUED)
The Company has the right, commencing three years from the November 30,
1994, the effective date of the initial public offering, to redeem the Class A
and Class B Warrants at a price of $.05 per warrant subject to certain
conditions regarding the bid price of the Class A Common Stock.

CLASS E-1 AND CLASS E-2 COMMON STOCK

The Company's Class E-1 Common Stock and Class E-2 Common Stock are held in
escrow, are not transferable, can be voted and will be converted into Class A
Common Stock only upon the occurrence of specified events. All the Class E-1
Common Stock shares will be automatically converted into Class A Common Stock
shares in the event that: (1) the Company's net income before provision for
income taxes, as defined, amounts to at least $4,800,000 for the years ending
March 31, 1995 or 1996, or at least $5,500,000, $6,850,000, $8,425,000,
$9,900,000 for the fiscal years ending March 31, 1997 through 2000,
respectively, provided that if additional shares are issued earnings must
increase proportionately; or (2) the closing price, as defined, of the Company's
Class A Common Stock shall average in excess of $15.00 for any 30 consecutive
trading days during the 18 months following the November 30, 1994 effective date
of the Company's initial public offering or average in excess of $19.25 for any
30 consecutive trading days during the period commencing with the nineteenth
month after November 30, 1994 and ending 36 months from that date. If none of
the above events occur, the Class E-1 Common Stock shares will be cancelled by
the Company on June 30, 2000. All of the Class E-2 Common Stock shares will be
automatically converted into Class A Common Stock shares in the event that: (1)
the Company's net income before provision for income taxes, as defined, amounts
to at least $8,625,000 for the years ending March 31, 1995 or 1996 or at least
$11,800,000, $14,750,000, $20,475,000 or $26,750,000 for the years ending March
31, 1997 through 2000, respectively, provided that if additional shares are
issued earnings must increase proportionally; or (2) the closing price, as
defined, of the Company's Class A Common Stock shall average in excess of $19.75
for any 30 consecutive trading days during the 18 months following the November
30, 1994 effective date of the Company's initial public offering or average in
excess of $24.00 for any 30 consecutive trading days during the period
commencing with the nineteenth month after November 30, 1994 and ending 36
months from November 30, 1994. If none of the above events occur, the Class E-2
Common Stock shares will be cancelled by the Company on June 30, 2000.

The Company will, in the event of the release of the Class E-1 Common Stock
and Class E-2 Common Stock, recognize during the period in which the earnings
thresholds are met or such minimum bid prices are achieved, a substantial
noncash charge to earnings equal to the fair value of such shares on the date of
their release, which would have the effect of significantly increasing the
Company's loss or reducing or eliminating earnings, if any, at such time.

17. CONCENTRATION OF CREDIT RISK AND FOREIGN SALES
The Company generates revenues principally from sales in the medical field.
As a result, the Company's accounts receivable are concentrated primarily in
this industry. In addition, sales to one customer represented 10% of the
Company's sales in fiscal 1996 and 11% to a different customer in

F-16
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

17. CONCENTRATION OF CREDIT RISK AND FOREIGN SALES (CONTINUED)

fiscal 1995. Sales in foreign countries accounted for approximately 63% and 40%
of the Company's total sales in fiscal 1995 and 1996, respectively. A summary of
sales in geographic locations for the fiscal years ended March 31, 1995 and 1996
is as follows:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
United States................................................... $ 465,400 $ 1,014,327
Europe.......................................................... 210,386
Asia............................................................ 583,500 190,458
Other Foreign................................................... 200,503 289,219
------------- -------------
$ 1,249,403 $ 1,704,390
------------- -------------
------------- -------------
</TABLE>

The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Generally, letters of credit are obtained
on international sales. The Company maintains reserves for potential credit
losses and such losses have been within management expectations.

18. SUBSEQUENT EVENTS

On June 3, 1996, the Company entered into a loan agreement with a bank which
allows the Company to borrow the lesser of $1 million or 40% of the market value
of the 1,150,000 shares of Mattan Corporation common stock (the Mattan shares)
held by the Company. Borrowings outstanding under this loan agreement bear
interest at the bank's prime rate (8.25% at June 3, 1996) plus 1%, are secured
by the Mattan shares and are due and payable in December 1996. The loan
agreement also provides for the issuance of warrants to purchase 9,756 shares of
the Company's Class A Common Stock at $10.25 per share to the bank.

F-17

<PAGE>

No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or the solicitation of any offer to buy any security other than the
securities offered by this prospectus, nor does it constitute an offer to sell
or a solicitation of any offer to buy the securities by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information contained herein is
correct as of any time subsequent to the date hereof.
_____________________

TABLE OF CONTENTS
Page
----

Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Price Range of Class A Common Stock . . . . . . . . . . . . . . . . . . . . .16
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . .20
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Concurrent Offering by Selling Securityholders . . . . . . . . . . . . . . . .52
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . .55
Shares Eligible For Future Sale. . . . . . . . . . . . . . . . . . . . . . . .56
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1

____________________________________

Until ____________, 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

PREMIER LASER SYSTEMS, INC.

3,720,050 UNITS, EACH CONSISTING OF
ONE SHARE OF CLASS A COMMON STOCK AND
ONE REDEEMABLE CLASS B WARRANT,
ISSUABLE UPON THE EXERCISE OF
REDEEMABLE CLASS A WARRANTS
AND
6,526,000 SHARES OF CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE OF
REDEEMABLE CLASS B WARRANTS

________________

PROSPECTUS
________________

____________, 1996
<PAGE>

ALTERNATE

PROSPECTUS

SUBJECT TO COMPLETION - DATED JULY 10, 1996

PREMIER LASER SYSTEMS, INC.

79,000 REDEEMABLE CLASS A WARRANTS
158,000 SHARES OF CLASS A COMMON STOCK
AND 79,000 REDEEMABLE CLASS B WARRANTS

This Prospectus relates to 79,000 redeemable Class A Warrants (the "Class A
Warrants") of Premier Laser Systems, Inc., a California corporation (the
"Company"), issued to five investors upon conversion of certain warrants issued
to such investors (the "Selling Securityholders") in a private placement by the
Company in August 1994 (the "Private Placement"), together with the 79,000
redeemable Class B Warrants (the "Class B Warrants") issuable upon exercise of
the Class A Warrants, and 158,000 shares of Class A Common Stock, no par value,
of the Company (the "Class A Common Stock") underlying the Class A Warrants and
Class B Warrants. See "Selling Securityholders and Plan of Distribution." The
Class A Warrants offered hereby are sometimes referred to herein as the "Selling
Securityholders' Warrants." Each Class A Warrant entitles the holder to
purchase, at an exercise price of $6.50, subject to adjustment, a unit (a
"Unit") consisting of one Class B Warrant and one share of Class A Common Stock.
Each Class B Warrant entitles the holder to purchase, at an exercise price of
$8.00, subject to adjustment, one share of Class A Common Stock. The Class A
Warrants and the Class B Warrants (collectively, the "Warrants") are exercisable
at any time after issuance through November 30, 1999. Commencing November 30,
1997, the Warrants will be subject to redemption by the Company for $.05 per
Warrant, upon 30 days' written notice, if the average closing bid price of the
Class A Common Stock as reported by the Nasdaq National Market ("Nasdaq")
exceeds $9.10 per share with respect to the Class A Warrants and $11.20 per
share with respect to the Class B Warrants (subject to adjustment in each case)
for 30 consecutive business days ending within 15 days of the date the Warrants
are called for redemption. See "Description of Securities."

The Class A Common Stock is one of three classes of the Company's Common
Stock (which are collectively referred to herein as the "Common Stock"). See
"Description of Securities - Common Stock."

The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place on the over-the counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Securityholders.

The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Act"), with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Act.

The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event the Warrants offered
hereby are fully exercised, the Company will receive gross proceeds of
$1,145,500. See "Selling Securityholders and Plan of Distribution."

________________________________

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" AND "DILUTION."
________________________________

On September 14, 1994, the Company filed a registration statement under
the Act with respect to a public offering by the Company (the "IPO")
underwritten by D.H. Blair Investment Banking Corp. ("Blair") of 2,400,000
units (the "IPO Units"), each IPO Unit consisting of one share of Class A
Common Stock, one Class A Warrant and one Class B Warrant, with the
Securities and Exchange Commission (the "Commission"). The Company received
approximately $10,953,000 in net proceeds from the IPO after payment of
underwriting discounts and commissions and estimated expenses of the
offering. In December 1994, the Company also issued an additional 321,099
Class A Warrants and 321,099 Class B Warrants (the "Investor Warrants")
included in IPO Units issued upon conversion of outstanding debentures.

The Company has agreed to pay to Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise price in connection with the
exercise of Warrants under certain conditions. See "Selling Securityholders and
Plan of Distribution." The exercise price of the Warrants were determined by
negotiation between the Company and Blair, and are not necessarily related to
the Company's asset value, net worth or other criteria of value.

The date of this Prospectus is ________________, 1996

<PAGE>

ALTERNATE

CONCURRENT OFFERING

On September 14, 1994, the Company filed a Registration Statement under the
Securities Act with respect to an underwritten offering of the 2,400,000 IPO
Units by the Company (i.e., the IPO). The offering of the IPO Units has
subsequently been completed, but the Company may be deemed to continue to be
offering securities pursuant to the outstanding Warrants. Sales of securities
by the Selling Securityholders, or the potential of such sales, could have an
adverse effect on the market price of the Warrants and of the Class A Common
Stock purchasable upon exercise of the Warrants.

<PAGE>

ALTERNATE

SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION

An aggregate of up to 79,000 Class A Warrants, 79,000 shares Class A Common
Stock, 79,000 Class B Warrants issuable upon exercise of the Class A Warrants
and 79,000 shares of Class A Common Stock issuable upon exercise of the Class B
Warrants may be offered by certain security holders who received their Class A
Warrants in connection with the Private Placement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

Number of Class A Warrants Beneficially
Selling Securityholder Owned and Maximum Number to be Sold(1)
---------------------- ---------------------------------------

Joan M. Hurley 7,500
Loki Limited Partnership 17,500
Ludlow Management, Inc. 5,000
Albert Milstein 10,000
E. Donald Shapiro (2) 39,000
------

Total 79,000

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

(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants.

(2) Mr. Shapiro is a director of the Company.

<PAGE>

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Remaining Selling Securityholders' Warrants
may not simultaneously engage in market making activities with respect to any
securities of the Company for a period of at least two (and possibly nine)
business days prior to the commencement of such distribution. Accordingly, in
the event Blair or D.H. Blair & Co. Inc. ("Blair & Co.") is engaged in a
distribution of the Remaining Selling Securityholders' Warrants, neither of such
firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither Blair nor Blair & Co. have
agreed to nor are either of them obliged to act as broker/dealer in the sale of
the Remaining Selling Securityholders' Warrants and the Remaining Selling
Securityholders may be required, and in the event Blair & Co. is a market maker,
will likely be required, to sell such securities through another broker/dealer.
In addition, each Remaining Selling Securityholder desiring to sell Warrants
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Remaining Selling Securityholders.

The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised on or after
November 30, 1995, if (i) the market price of the Class A Common Stock on the
date the Warrant is exercised is greater than the then exercise price of the
Warrant; (ii) the exercise of the Warrant was solicited by a member of the NASD;
(iii) the Warrant is not held in a discretionary account; (iv) disclosure of
compensation arrangements was made both at the time of the offering and at the
time of exercise of the Warrant; and (v) the solicitation of exercise of the
Warrants was not in violation of Rule 10b-6 as promulgated under the Securities
Exchange Act of 1934 or respective state blue sky laws. Any costs incurred by
the Company in connection with the exercising of the Warrants shall be borne by
the Company.

<PAGE>

No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or the solicitation of any offer to buy any security other than the shares
of Common Stock offered by this prospectus, nor does it constitute an offer to
sell or a solicitation of any offer to buy the shares of Common Stock by anyone
in any jurisdiction in which such offer or solicitation is not authorized, or in
which the person making such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that information contained herein is
correct as of any time subsequent to the date hereof.

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

TABLE OF CONTENTS
Page
----

Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Price Range of Class A Common . . . . . . . . . . . . . . . . . . . . . . . 19
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . . 23
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Concurrent Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 55
Shares Eligible For Future Sale. . . . . . . . . . . . . . . . . . . . . . . 62
Selling Securityholders and Plan of Distribution . . . . . . . . . . . . . . 63
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1

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

PREMIER LASER SYSTEMS, INC.

79,000 Redeemable Class A Warrants
79,000 Redeemable Class B Warrants
158,000 Shares of Class A Common Stock

----------

PROSPECTUS

----------

____________, 1996

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Underwriting Agreement (Exhibit 1 hereto) provides for indemnification
by Blair of the Registrant and its officers and directors, and by the Registrant
of Blair, for certain liabilities arising under the Securities Act or otherwise.

The California General Corporations Laws provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involves the absence of
good faith on the party of the director (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the Registrant or its shareholders
in circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Registrant or its shareholders, (vi) any improper transaction
between a director and the Registrant in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. The Registrant's Articles of
Incorporation provide that the Registrant's directors are not liable to the
Registrant or its shareholders for monetary damages for breach of their
fiduciary duties to the fullest extent permitted by California law.

The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Registrant and its
shareholders. At present, there is no litigation or proceeding pending
involving a director of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any director.

The Registrant's Articles of Incorporation provide that the Registrant
shall indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. The Registrant has entered into
indemnification agreements with certain of its directors and officers that
require the Registrant to indemnify such directors and officers to the fullest
extent permitted by law. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable.

II-1

<PAGE>

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

It is estimated that the following expenses, in addition to Blair's
Solicitation Fee of 5% of the Warrant exercise price under certain
circumstances, will be incurred in connection with the proposed offering
hereunder. All of such expenses will be borne by the Company:
Amount
------

Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . . . . $10,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . $10,000
Printing expenses . . . . . . . . . . . . . . . . . . . . $20,000
-------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
-------
-------

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since May 20, 1993, the Registrant has sold and issued the following
unregistered securities:

1. During the period, the Registrant granted incentive stock options
(net of cancelled options) to employees, officers and consultants of the
Registrant under its 1992 Stock Option Plan to purchase an aggregate of
32,375 shares of the Registrant's Class A Common Stock at a weighted average
exercise price of $4.80 per share. Upon exercise of these options, the
holders will also receive 2,103 shares of each of Class E-1 Common Stock and
Class E-2 Common Stock. These options vest over a period of time following
their respective dates of grant. As of May 17, 1996, certain employees
exercised options to purchase an aggregate of 423 shares of Class A Common
Stock and 374 shares of each of Class E-1 and Class E-2 Common Stock.

2. Between October 1992 and April 1993, the Registrant issued
convertible promissory note agreements in the original principal amount of
$615,000 to five accredited investors. Effective June 30, 1993, $605,000 of
the principal amount was converted into 54,716 shares of Class A Common
Stock. The balance of the principal amount was repaid immediately following
the IPO.

3. In September 1993, the Registrant sold to two officers of and two
consultants to the Company an aggregate of 16,721 shares of Class A Common
Stock at an aggregate purchase price of $16,721 payable in cash or for the
cancellation of indebtedness, and 311 shares of Series A Preferred Stock at
an aggregate purchase price of $310. Also in September 1993, the Registrant
issued 904 shares of Class A Common Stock to a former director of the
Registrant upon exercise of outstanding stock options, at an aggregate
purchase price of $904.

4. In November 1993, the Registrant granted an officer an option to
purchase up to 4,522 shares of Class A Common Stock at an exercise price of
$11.06 per share.

5. In December 1993, the Registrant sold 18,992 shares of Class A
Common Stock and 70,000 shares of Series A Preferred Stock to three
accredited investors at an aggregate purchase price of $280,311.

6. In December 1993, the Registrant purchased certain technology rights
from Proclosure. As partial payment, the Registrant issued to Proclosure
227,898 shares of Class A Common Stock and warrants to purchase 89,356 shares
of Class A Common Stock at an average exercise price of $15.54 per share. The
Registrant issued to a consultant to Proclosure 5,217 shares of Class A
Common Stock in cancellation of outstanding indebtedness assumed by the
Registrant in the acquisition. In connection with the acquisition, the
Registrant issued secured promissory notes to three venture capital firms in
the original principal amount of $1,500,000. In June 1994, the Registrant
exchanged the promissory notes with the venture capital firms for Convertible
Debentures in an aggregate of $1,500,000. The Convertible Debentures
converted into 321,099 Units in December 1994.

II-2

<PAGE>

7. In December 1993, the Registrant issued warrants to purchase 50,872
shares of Class A Common Stock to two consultants to the Registrant at an
exercise price of $8.85 per share pursuant to the Company's 1993 Limited
Warrant Plan (which warrants have been subsequently cancelled).

8. Between February and June 1994, the Registrant issued convertible
notes to certain accredited or sophisticated investors in the original
principal amount of $66,500, which notes converted into an aggregate of 7,072
shares of Class A Common Stock, 6,260 shares of Class E-1 Common Stock and
6,260 shares of Class E-2 Common Stock at the closing of the IPO.

9. Between July 1993 and September 30, 1994, the Registrant sold and
issued shares of Series B Preferred Stock convertible into an aggregate of
8,175 shares of Class A Common Stock and 7,239 shares of each of Class E-1
and Class E-2 Common Stock to certain consultants to the Registrant
accredited or sophisticated investors for cash and forgiveness of
indebtedness in the aggregate amount of $180,894.

10. In March 1994, a former director of the Registrant and his employee
entered into an agreement pursuant to which they exchanged warrants to
purchase an aggregate of 318,918 shares of Series A Preferred Stock for an
aggregate of 14,420 shares of Class A Common Stock, 12,768 shares of Class
E-1 Common Stock and 12,768 shares of Class E-2 Common Stock pursuant to a
cashless exchange. No additional consideration was paid for the shares.

11. In June 1994, the Registrant effected a .1292 for 1 reverse stock
split. In October 1994, the Registrant effected a .7 for 1 reverse stock
split. All numbers of shares in this Item 14 have been adjusted to reflect
these reverse stock splits.

12. In June 1994, the Registrant's Board of Directors declared a stock
dividend of .1144 shares of each of Class E-1 Common Stock and Class E-2
Common Stock for each share of Class A Common Stock outstanding on the date
of the dividend.

13. In connection with the private placement by the Registrant in August
1994, the Registrant issued to certain accredited investors, for an aggregate
price of $1,550,000, $1,550,000 principal amount of 10% promissory notes and
warrants to purchase 1,085,000 shares of Class A Common Stock at an exercise
price equal to $6.64 per share. Upon consummation of the IPO, these warrants
were exchanged for 1,085,000 Class A Warrants. The representative of the
underwriters for the Registrant's IPO acted as placement agent for this
offering and received aggregate commissions in the amount of $155,000,
together with $46,500 as reimbursement for nonaccountable expenses.

14. In November 1994, the Registrant granted to a consultant of the
Registrant a warrant to purchase up to 3,165 shares of the Registrant's
Class A Common Stock at an exercise price of $7.00 per share. The Registrant
also granted to the Registrant's Chief Executive Officer an option to
purchase up to 358,650 shares of Class A Common Stock at an exercise price
of $5.00 per share.

15. In September 1995, the Registrant granted incentive stock options
(net of cancelled options) to employees and consultants of the Registrant
under its 1995 Stock Option Plan to purchase an aggregate of 179,250 shares
of Class A Common Stock at an exercise price of $5.625 per share.

16. In February 1996, the Registrant granted nonqualified stock options
under its February 1996 Stock Option Plan to purchase an aggregate of 499,200
shares of Class A Common Stock at an exercise price of $4.625 per share. In
addition, the Registrant granted to two nonemployee directors options to
purchase an aggregate of 20,000 shares of Class A Common Stock at an exercise
price of $4.625 per share pursuant to a formula granted under the
Registrant's 1996 Stock Option Plan. These options are subject to the
shareholders approval of this plan.

17. In December 1995, the Registrant issued 200,000 shares of Class A
Common Stock to two affiliates of Mattan Corporation pursuant to the Share
Exchange Agreement between the Registrant and Mattan as consideration for the
issuance to the Registrant of 1,150,000 shares of Mattan Corporation's Common
Stock.

II-3

<PAGE>

The issuances of securities described in paragraphs 11 and 12 above were
deemed to be exempt from registration under the Securities Act by virtue of
Section 2(3) thereof in that the securities were issued in transactions not
involving a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.

The sales and issuances of securities in the remaining transactions
described above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2), Regulation D or Rule 701
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the
stock certificates issued in such transactions.

ITEM 27. EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
1.1 Revised Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation as filed with the California Secretary of
State on November 23, 1994.*
3.2 Bylaws of the Registrant, as amended.*
4.1 Form of Class A Common Stock Certificate.*
4.2 Revised Form of Representative's Warrant.*
5.1 Opinion of Rutan & Tucker.*
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991 among the Registrant,
Patlex Corporation and Gordon Gould.*
10.2 Assignment Agreement dated July 27, 1992 between the Registrant and Michael Colvard, M.D.*
10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the Registrant and Optical
Engineering, Inc.*
10.4 Assignment and Modification Agreement dated July 26, 1991 among the Registrant, Pfizer
Hospital Products Group and Medical Laser Technologies Limited.*
10.5 Letter Agreement dated October 13, 1987 between Pfizer Laser Systems, Inc. and Duke
University, together with Patent Assignment as filed in the U.S. Patent and Trademark Office
on October 23, 1993.*
+ 10.6 Lead Generation/Distribution Agreement dated March 17, 1994 between the Registrant and
Burkhart Dental Supply Company.*
10.7 Form of International Distribution Agreement.*
10.8 Letter of Intent between the Registrant and Richard Leaderman, D.D.S., together with related
Patent Assignments as filed in the U.S. Patent and Trademark Office on February 22, 1994.*
+ 10.9 Exclusive Marketing Agreement dated July 26, 1994 between the Registrant, Proclosure, Inc.
and Nippon Shoji Kaisha, Ltd.*
10.10 Amended and Restated Registration Rights Agreement dated June 17, 1994 among the Registrant,
Onset Enterprise Associates, L.P., New Enterprise Associates IV Limited Partnership and
Franklin Capital Associates, LLP.*
10.11 Subordinated Note dated August 8, 1991 payable to Pfizer Hospital Products Group, Inc. in the
original principal amount of $1,343,658.*
10.12 Letter Agreement dated July 21, 1994 between the Registrant and Pfizer, Inc., as amended.**
10.13 Letter Agreement dated February 29, 1996 between the Registrant and Pfizer Hospital Products
Group.**
10.14 Form of Indemnification Agreement.*
10.15 Industrial Lease dated December 6, 1995 between the Registrant and Irvine Company.**
</TABLE>

II-4

EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
10.16 Use and Cost Sharing Agreement dated December 1, 1995 between the Registrant and Biopsys
Medical, Inc.**
10.17 Purchase/Supply Agreement dated January 13, 1987 between Infrared Fiber Systems, Inc. and
Pfizer Hospital Products Group, Inc., as amended.*
10.18 Security Agreement dated August 8, 1991 between the Registrant and Pfizer Hospital Products
Group, Inc.*
10.19 Letter of Intent dated October 19, 1995 between the Registrant and International Biolaser
Corporation, together with related Promissory Note dated October 19, 1995 payable to
Registrant in the original principal amount of $125,000, and Security Agreement dated October
19, 1995 between the Registrant and International Biolaser Corporation.***
10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant, 658994 Alberta Ltd.,
658997 Alberta Ltd. and Mattan Corporation.***
10.21 Purchasing Agreement dated December 20, 1995 between the Registrant and Mattan
Corporation.***
10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant and Quentin M.
Murphy, D.D.S.**
10.23 Distribution Agreement dated August 31, 1995 between the Registrant and Lasermed, Inc.***
10.24 Broker Agreement dated March 13, 1996 among the Registrant, First National Marketing
Services, Inc. and William F. Sullivan.**
10.25 Form of Consulting Agreement.**
10.26 Radiation Services Agreement dated January 10, 1994 between the Registrant and SteriGenics
International.**
10.27 Form of Nonstatutory Stock Option Agreement between the Registrant and Colette Cozean
(granting option to purchase 358,650 shares of Registrant's Common Stock).**
10.28 Form of Termination Agreement between the Registrant and certain of the Registrant's
Executive Officers.**
10.29 1996 Stock Option Plan.**
10.30 Form of Warrant Agreement (including forms of Class A and Class B Warrant Certificates).*
10.31 Form of Underwriter's IPO Unit Purchase Option.*
10.32 Form of Finders' IPO Unit Purchase Option.*
10.33 1992 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement
and form of Incentive Stock Option Agreement.*
10.34 1995 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement
and form of Incentive Stock Option Agreement.**
10.35 February 1996 Stock Option Plan, together with form of Nonqualified Stock Option
Agreement.**
10.36 Loan Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank, together
with Schedule to Loan Agreement dated June 3, 1996.****
10.37 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank.****
10.38 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley Bank.****
10.39 Registration Rights Agreement dated June 3, 1996 between the Registrant and Silicon Valley
Bank.****
10.40 Antidilution Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank.****
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Rutan & Tucker LLP (included in the opinion filed as Exhibit 5).
</TABLE>

II-5

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
24 Power of Attorney. Reference is made to page II-7.
</TABLE>

- ------------------------
+ Confidential treatment was granted with respect to portions of this
Exhibit.

* Previously filed.

** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1996.

*** Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1995.

**** Incorporated by reference from the Company's Registration Statement on
Form SB-2 (Registration No. 333-04219).

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) It will file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement to:

(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;

(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof), which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and

<PAGE>

(iii) Include any additional or changed material information
on the plan of distribution not previously disclosed in the
Registration Statement.

(4) It will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the termination of
the offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person thereof in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-6

<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Post Effective
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, California, on
July , 1996.

PREMIER LASER SYSTEMS, INC.

By: /s/ JAMES S. POLENTZ
------------------------------------------
James S. Polentz,
Vice President, Finance
and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------------- -------------------------------------- --------------

<S> <C> <C> <C>
* Chairman of the Board, President and
------------------------------------- Chief Executive Officer July , 1996
Colette Cozean, Ph.D. (Principal Executive Officer)

Vice President, Finance
/s/ JAMES S. POLENTZ and Chief Financial Officer
------------------------------------- (Principal Financial Officer and July , 1996
James S. Polentz Principal Accounting Officer)

*
------------------------------------- Director July , 1996
Patrick J. Day

*
------------------------------------- Director July , 1996
E. Donald Shapiro

*
------------------------------------- Director July , 1996
Grace Lin

*By: /s/ JAMES S. POLENTZ
--------------------------------
James S. Polentz,
ATTORNEY-IN-FACT
</TABLE>

II-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- --------------------------------------------------------------------------------------------- ------
<C> <S> <C>
1.1 Revised Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation as filed with the California Secretary of
State on November 23, 1994.*
3.2 Bylaws of the Registrant, as amended.*
4.1 Form of Class A Common Stock Certificate.*
4.2 Revised Form of Representative's Warrant.
5.1 Opinion of Rutan & Tucker.*
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991 among the Registrant,
Patlex Corporation and Gordon Gould.*
10.2 Assignment Agreement dated July 27, 1992 between the Registrant and Michael Colvard, M.D.*
10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the Registrant and Optical
Engineering, Inc.*
10.4 Assignment and Modification Agreement dated July 26, 1991 among the Registrant, Pfizer
Hospital Products Group and Medical Laser Technologies Limited.*
10.5 Letter Agreement dated October 13, 1987 between Pfizer Laser Systems, Inc. and Duke
University, together with Patent Assignment as filed in the U.S. Patent and Trademark Office
on October 23, 1993.*
+ 10.6 Lead Generation/Distribution Agreement dated March 17, 1994 between the Registrant and
Burkhart Dental Supply Company.*
10.7 Form of International Distribution Agreement.*
10.8 Letter of Intent between the Registrant and Richard Leaderman, D.D.S., together with related
Patent Assignments as filed in the U.S. Patent and Trademark Office on February 22, 1994.*
+ 10.9 Exclusive Marketing Agreement dated July 26, 1994 between the Registrant, Proclosure, Inc.
and Nippon Shoji Kaisha, Ltd.*
10.10 Amended and Restated Registration Rights Agreement dated June 17, 1994 among the Registrant,
Onset Enterprise Associates, L.P., New Enterprise Associates IV Limited Partnership and
Franklin Capital Associates, LLP.*
10.11 Subordinated Note dated August 8, 1991 payable to Pfizer Hospital Products Group, Inc. in the
original principal amount of $1,343,658.*
10.12 Letter Agreement dated July 21, 1994 between the Registrant and Pfizer, Inc., as amended.**
10.13 Letter Agreement dated February 29, 1996 between the Registrant and Pfizer Hospital Products
Group.**
10.14 Form of Indemnification Agreement.*
10.15 Industrial Lease dated December 6, 1995 between the Registrant and Irvine Company.**
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- --------------------------------------------------------------------------------------------- ------
<C> <S> <C>
10.16 Use and Cost Sharing Agreement dated December 1, 1995 between the Registrant and Biopsys
Medical, Inc.**
10.17 Purchase/Supply Agreement dated January 13, 1987 between Infrared Fiber Systems, Inc. and
Pfizer Hospital Products Group, Inc., as amended.*
10.18 Security Agreement dated August 8, 1991 between the Registrant and Pfizer Hospital Products
Group, Inc.*
10.19 Letter of Intent dated October 19, 1995 between the Registrant and International Biolaser
Corporation, together with related Promissory Note dated October 19, 1995 payable to
Registrant in the original principal amount of $125,000, and Security Agreement dated October
19, 1995 between the Registrant and International Biolaser Corporation.***
10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant, 658994 Alberta Ltd.,
658997 Alberta Ltd. and Mattan Corporation.***
10.21 Purchasing Agreement dated December 20, 1995 between the Registrant and Mattan
Corporation.***
10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant and Quentin M.
Murphy, D.D.S.**
10.23 Distribution Agreement dated August 31, 1995 between the Registrant and Lasermed, Inc.***
10.24 Broker Agreement dated March 13, 1996 among the Registrant, First National Marketing
Services, Inc. and William F. Sullivan.**
10.25 Form of Consulting Agreement.**
10.26 Radiation Services Agreement dated January 10, 1994 between the Registrant and SteriGenics
International.**
10.27 Form of Nonstatutory Stock Option Agreement between the Registrant and Colette Cozean
(granting option to purchase 358,650 shares of Registrant's Common Stock).**
10.28 Form of Termination Agreement between the Registrant and certain of the Registrant's
Executive Officers.**
10.29 1996 Stock Option Plan.**
10.30 Form of Warrant Agreement (including forms of Class A and Class B Warrant Certificates).*
10.31 Form of Underwriter's IPO Unit Purchase Option.*
10.32 Form of Finders' IPO Unit Purchase Option.*
10.33 1992 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement
and form of Incentive Stock Option Agreement.*
10.34 1995 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement
and form of Incentive Stock Option Agreement.**
10.35 February 1996 Stock Option Plan, together with form of Nonqualified Stock Option
Agreement.**
10.36 Loan Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank, together
with Schedule to Loan Agreement dated June 3, 1996.****
10.37 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank.****
10.38 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley Bank.****
10.39 Registration Rights Agreement dated June 3, 1996 between the Registrant and Silicon Valley
Bank.****
10.40 Antidilution Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank.*****
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Rutan & Tucker LLP (included in the opinion filed as Exhibit 5).
24 Power of Attorney. Reference is made to page II-7.
</TABLE>

- ------------------------
+ Confidential treatment was granted with respect to portions of this
Exhibit.

* Previously filed.

** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1996.

*** Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1995.

**** Incorporated by reference from the Company's Registration Statement on
Form SB-2 (Registration No. 333-04219).