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 FREMONT, Calif., Aug. 20 /PRNewswire/ -- Phoenix Laser Systems Inc. (AMEX: PXS) today announced it will incur an estimated net loss for the year ended Dec. 31, 1992 of $44,591,000 on net sales of $3,122,000. For the year ended Dec. 31, 1991, the company incurred a net loss of $41,142,891 on sales of $1,027,993. Phoenix is a research and development company engaged in the development of an ophthalmic laser system. The losses relate generally to the company's research and development, fundraising efforts and to write-downs of assets. During 1992 the company lost $28,500,000 from operations.
 The company wrote off an estimated $9,850,000 of assets related to its Hong Kong operations in 1992. This figure includes $1.35 million of the company's funds mis-appropriated by Sun-Sun Chan, a Hong Kong resident, in August 1992 to meet his personal obligations. The company wrote off this sum. In addition, the $9,850,000 includes $8,000,000 which the company wrote off representing the value of its minority interest in Phoenix Laser Systems (Hong Kong), Ltd., a Hong Kong company controlled by Chan. The company had made this investment based on Chan's ability to negotiate a joint venture between his company and the Fujian Institute for Research on the Structure of Matter ("Castech") and the Chinese Academy of Science to develop, manufacture and market advanced nonlinear materials. In November 1992, Castech sued Sun-Sun Chan to void the joint venture on the basis of misrepresentation and fraud. Because the company believes that Castech will prevail against Chan and because the promised scientific projects were never undertaken, the company has written off its investment in Phoenix Laser Systems (Hong Kong), has sued Chan for damages, recission of its purchase of a minority interest in Phoenix Laser Systems (Hong Kong), Ltd., and restitution of the $1.35 million mis-appropriated by Chan. Following an evaluation of Chan's activities by a law enforcement consultant who had formerly held a senior position with Scotland Yard's Serious Fraud Squad, who concluded that Chan's activities constituted "a prima facia case of misappropriation," the company also filed criminal charges in Hong Kong against Chan.
 The company also wrote off $7,112,000 (of which $6,441,000 were non- cash expenses) related to costs of unsuccessful offerings. During 1992, the company sought to complete a $50 million public offering to be underwritten by Nomura Securities and Josephthal, Lyon & Ross during the fall of 1992. When the offering did not occur as planned, the company sought to raise funds through institutional private placement but the transaction was unsuccessful, in large part due to the activities of Sun- Sun Chan. This write-off and the $9,800,000 write-off of Hong Kong related assets were the primary cause of the company's large fourth- quarter loss.
 Total operating expenses in 1992 declined $13,000,000 from the previous year due primarily to downsizing of operations and a significant decrease in non-cash expenditures (primarily common stock which the company issued instead of using cash in certain situations in satisfaction of obligations of the company). Since inception, the company has financed a major part of its operations through the sale of securities. In connection with such capital raising activities and in order to conserve the company's cash resources, the company has paid substantial consulting fees for technical consulting and financial advisory services with securities in lieu of cash. Consequently, the company has often issued blocks of securities at a significant discount below market price. As a result of payments for services in securities, the company may have paid more for such services than would have been paid in cash. It is presently anticipated that the full development and testing of the company's laser systems will require substantial amounts of additional capital and there is no assurance that such funding will be available when required. Due to uncertainties respecting the timing of revenues from sales of its laser systems and the availability and timing of FDA approvals, the company is presently unable to estimate the amount of additional capital that will be required once its current financial resources are exhausted. The company is currently seeking additional financing from private and public sources but, at the present time, the company has no commitment for such additional financing, if required, and there is no assurance that the company will be successful in obtaining additional financing or that such financing, if required, will be on terms acceptable to the company. If suitable additional funding is not obtained by Dec. 31, 1993, the company will be required to substantially reduce its operating expenses and limiting its research and development and business activities. The results of its operations to a date may not be indicative of the results of operations to be expected in the future.
 For the quarter ended March 31, 1993, the company estimates it will incur a net loss of $2,299,000 on sales of $826,000 compared to $5,018,000 and $1,072,000 respectively during the same period in 1992. For the quarter ended June 30, 1993, the company estimates it will incur a net loss of $4,101,000 on sales of $783,000 compared to $4,103,000 and $797,000 respectively during the same period in 1992. At June 30, 1993, shareholder's equity is estimated to be $16,000,000.
 On June 6, 1993 the company sold its manufacturing subsidiary DGR Inc. as part of a plan of restructuring its business. Almost all of the company's revenues reported on a consolidated basis above came from the operations of DGR. The increase in second quarter losses in 1993 over the same period in 1992 was primarily due to the sale of DGR Inc. The accounting for this transaction has not yet been finalized and the loss, if any, to be expected from this divestiture cannot be estimated at this time. For the quarter ended June 30, 1992, DGR Inc. had a net loss of approximately $1.4 million on sales of $1.8 million.
 Phoenix has not yet filed its annual report on Form 10-K for the year ending Dec. 31, 1992, nor has it filed quarterly reports on Form 10- Q for the quarters ending March 31 and June 30, 1993. The company's auditors have not yet completed their review of its financial statements for the year ending Dec. 31, 1992 because of delays relating to the evaluation of certain of the company's foreign investments and to completion of an investigation by independent counsel of allegations against certain of the company's officers by Sun-Sun Chan and allegations against Sun-Sun Chan and his associates by the company. Accordingly, the company's independent accountants, BDO Seidman, have not yet completed their audit of fiscal year 1992. It is expected that the company will file its annual report on Form 10-K by Aug. 31, 1993 and the first and second quarter 10-Q reports shortly thereafter. The company's auditors have not yet issued their report on the company's financial statements dated Dec. 31, 1992.
 The company is engaged in a controversy with Sun-Sun Chan and his associates. In addition to the company's lawsuit against Chan for restitution of $1.35 million in misappropriated funds and recission of the company's purchase of 44 percent of Phoenix Laser Systems (Hong Kong) Ltd., the company has also sued Chan for a number of other torts against the company including his efforts to depress the company's stock price to prevent the company from raising funds and engaging in acquisitions and to injure unlawfully the company's business relationships. Chan and his associates have made allegations and brought litigation against the company. In this litigation, Chan and his associates allege that the company's officers and directors had breached their fiduciary duty by (a) after filing this litigation transferring certain Phoenix assets to a newly formed, 70 percent owned subsidiary corporation, Advanced Medical Lasers Inc.; (b) by acquiring Refractive Laser Research Inc., a laser research and development company; and (c) raising capital on terms allegedly too expensive. After filing this litigation the Chan Group thereafter announced that they would undertake a proxy fight to replace current management. The company believes that Chan's allegations are without merit and have been brought in order to pressure the company to abandon its effort to recover the misappropriated funds and other damages from Chan. Nonetheless, the company's Board of Directors engaged independent legal counsel to evaluate the allegations made by both sides. Notwithstanding receiving notice of a special meeting of the Board of Directors to consider the demand, the Chan Group brought a shareholder's derivative lawsuit.
 Phoenix Laser Systems Inc. is a developer of integrated laser workstations primarily for use by the medical community. The company's initial efforts have been focused on the design, development and testing of its first product, the Phoenix Ophthalmic Laser Workstation. The company's technology permits surgery designed to correct nearsightedness, farsightedness, and astigmatism, as well as a large number of eye disorders which are untreatable or only partially treatable with current technology.
 -0- 8/20/93
 /CONTACT: John Solow of Phoenix Laser Systems, 510-249-0300/

CO: Phoenix Laser Systems Inc. ST: California IN: MTC CPR SU: ERP

TB-SG -- SF002 -- 4713 08/20/93 14:18 EDT
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Publication:PR Newswire
Date:Aug 20, 1993

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