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

                                   Form 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                           Commission File No. 0-28498


                       PARADIGM MEDICAL INDUSTRIES, INC.
                 (Name of small business issuer in its charter)

          DELAWARE                                               87-0459536
(State or other jurisdiction                                 IRS Identification
of incorporation or organization)                                  Number

2355 South 1070 West, Salt Lake City, Utah                      84119
  (Address of principal executive offices)                    (Zip Code)

       Registrant's  telephone  number,   including  Area  Code  (801)  977-8970
         Securities registered under Section 12(b) of the Exchange Act:

                                                   Name of each exchange on
       Title of each class                             which registered
       -------------------                             ----------------
              (None)                                         (None)

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

                   Common Stock, par value $.001 per share
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days
Yes [X]  No [ ]

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

Registrant's  revenues  for  the  fiscal  year  ended  December  31,  1999  were
$1,701,373.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  as of March  23,  2000 was  approximately  $96,372,000  based on the
closing price on that date on the Nasdaq SmallCap Market.

As of March 23, 2000,  Registrant  had  outstanding  9,884,330,shares  of Common
Stock,  8,077  shares of Series A  Preferred  Stock,  19,236  shares of Series B
Preferred  Stock,  no shares of Series C Preferred  Stock and 283,328  shares of
Series D Preferred Stock

                       DOCUMENTS INCORPORTED BY REFERENCE:

Additional documents set forth in Part IV hereof are incorporated by reference.


   Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>
                                     PART I

Item 1. Description of Business
-------------------------------

General

      The Company develops, manufactures,  sources, markets and sells ophthalmic
surgical and  diagnostic  equipment,  instrumentation  and related  accessories,
including disposable products.  The Company's surgical equipment is designed for
minimally  invasive  cataract  treatment.  The Company markets three  ultrasound
cataract  surgery systems with related  instruments,  accessories and disposable
products.  The Company's flagship  ultrasound  system,  the  Precisionist(TM),is
manufactured  as the base  surgery  system  for the  Company's  Precisionist(TM)
Ophthalmic Surgical Workstation(TM). The Company is currently developing a laser
cataract  surgery  system  as an  adjunct  to its  ultrasound  cataract  surgery
equipment.  This product is currently undergoing  investigational  trials in the
United  States.  If  successfully  developed and approved for medical uses,  the
Company  plans  to  market  the  laser  system  as  a  plug-in  module  for  its
Workstation(TM).   The  Company's  ultrasound   diagnostic  products  include  a
pachymeter, an A-Scan, an A/B Scan and the UBM biomicroscope, the technology for
which was acquired  from  Humphrey  Systems in 1998.  In  addition,  the Company
markets  its Blood Flow  Analyzer(TM).  This  product s a portable  computerized
system for which the  Company  has  secured a license  granting  it the right to
market the  product in the  United  States.  This  product is  designed  for the
measurement of intraocular  pressure and pulsatile  ocular blood flow volume for
detection  and  treatment  of  glaucoma.  The  Company is  currently  developing
additional applications for all of its diagnostic products.

      A cataract is a condition,  which largely affects the elderly  population,
in which  the  natural  lens of the eye  hardens  and  becomes  cloudy,  thereby
reducing  visual  acuity.  Treatment  consists of removal of the cloudy lens and
replacement with a synthetic lens implant which restores visual acuity. Cataract
surgery is the single largest volume and revenue producing  outpatient  surgical
procedure for ophthalmologists worldwide. The Health Care Finance Administration
reports  that in the United  States  approximately  2 million  cataract  removal
procedures are performed annually,  making this the largest outpatient procedure
reimbursed by Medicare.  Most cataract  procedures are performed  using a method
called phacoemulsification or "phaco", which employs a high frequency (40 kHz to
60  kHz)ultrasonic  probe needle device to fragment the cataract  while still in
the eye and remove it in pieces by suction through a small incision.

      The Company  manufactures and sells three phaco systems with  instruments,
accessories  and disposable  products.  The  Odyssey(TM) is a low-cost  portable
system intended primarily for the international market.

      The Paradigm  SIStem(TM) is the Company's  mid-range  ultrasonic phaco and
competes in the market  segment that wants an  ultrasonic  phaco only.  Paradigm
acquired both technologies from Mentor in October, 1999.

      The  Precisionist(TM)  Ocular  Surgery  Workstation(TM)  is the  Company's
newest  generation  system  which  is  the  base  for  its  expandable  surgical
"workstation"  platform.  The  Company's  Precisionist  model  includes  a newly
developed  proprietary  fluidics  panel  which is  completely  non-invasive  for
improved  sterility  and to  provide  a  surgical  environment  in the eye  that
virtually  eliminates  fluidic surge and chamber  maintenance  problems normally
associated  with phaco  cataract  surgery.  This new  fluidics  system  provides
greater  control for the surgeon  and allows the safe  operation  at much higher
vacuum settings by sampling changes in aspiration 100 times per second.  Greater
vacuum in phaco surgery means less use of ultrasound or laser energy to fragment
the cataract and less chance for surrounding tissue damage.

                                        1
<PAGE>


      Current  phaco systems can be difficult  for many  ophthalmic  surgeons to
master and are limited in their ability to be the most minimally invasive method
possible.  The Company is developing its  proprietary  patented laser system and
unique patented probe for laser cataract  removal which the Company believes can
address the  difficulties  associated with phaco systems.  The laser system is a
plug-in module for its Workstation(TM) which will be available as an up-grade if
and when cleared for market by the FDA. The  development  of the laser  cataract
system is being  done in  cooperation  with  ophthalmic  surgeons  in the United
States.  Additionally,  research and development  work is being conducted by the
Company's  engineering  group and with MEOS Photonics  through the University of
Utah Laser Laboratory.

      The Company believes that in certain surgical conditions, its laser system
will be easier to use and safer than present  phaco  systems.  The probe will be
smaller than typical  probes which employ an ultrasonic  needle and will deliver
laser energy directly to the desired tissue area by means of a smooth blunt end.
The laser probe has been shown to eliminate high-frequency vibrations in the eye
and to  significantly  reduce heat  build-up  which is one of the  complications
associated with ultrasound  phaco. In 1996, the Company received FDA approval to
conduct  clinical trials in the United States with the Photon(TM)  laser system.
During  these  Phase  I  clinical   trials  the  Company   discovered  that  the
Photon(TM)laser  system was effective in removing  softer grade  cataracts.  The
Company also  discovered  that the  Photon(TM)laser  System may not  effectively
remove harder grade  cataract,  although hard cataracts can be removed using the
already  existing  ultrasound  capability  of the  Workstation(TM).  The Company
completed  its Phase I clinical  trials in 1997,  and  received  FDA approval to
proceed to an expanded Phase II clinical trial to refine the laser system and to
provide the statistical data required to approve the Photon(TM) laser system for
laser cataract removal.  There is no assurance,  however,  that the Company will
successfully complete the Phase II clinical trials or be successful in improving
the laser system,  or that  additional  disadvantages  or problems unique to the
Photon(TM)  laser  system  will not be  discovered  during the Phase II clinical
trials or following FDA approval of the system.

      In addition to cataract surgery,  the Company believes that its Photon(TM)
laser system is capable of being  configured  with  specialty  probes for use in
other  ophthalmic  surgical  procedures.   These  potential  applications  could
represent  substantial  growth  opportunities   including  additional  sales  of
equipment,  instruments,  accessories and disposables.  However, there can be no
assurance that these  applications will be developed or approved.  Further there
is no guarantee that the laser will be accepted by the ophthalmic surgery market
in this capacity.

      In June 1997, the Company  received FDA clearance to market the Blood Flow
Analyzer(TM) for measurement of intraocular  pressure and pulsatile ocular blood
flow for the  detection of glaucoma and other retina  related  diseases.  Ocular
blood flow is  critical,  the  reduction  of which may cause nerve fiber  bundle
death through oxygen  deprivation thus resulting in visual field loss associated
with glaucoma.  The Company's  Blood Flow  Analyzer(TM)is  a portable  automated
in-office  system  that  presents  an  affordable  method for ocular  blood flow
testing for the ophthalmic and optometric practitioner.  The Company has secured
a license  granting it the exclusive right to private label,  package and market
the product in the United States, with full international marketing rights.

      On June 26, 1998,  the Company  entered into a  Co-Distribution  Agreement
with Pharmacia & Upjohn Company and MAXXIM Corporation which provides for the

                                        2

<PAGE>

marketing and sale of a range of ophthalmic products. Under the terms of the
Co-Distribution  Agreement, the Company,  Pharmacia & Upjohn MAXXIM will offer a
comprehensive  package of  products  to cataract  surgeons,  including  cataract
surgical  equipment,  intraocular  lens implants,  intraocular  pharmaceuticals,
surgical  instruments and sterile procedural packs. The Company will provide the
Precisionist(TM) for distribution and sale under the Co-Distribution  Agreement.
The Pharmacia & Upjohn products to be distributed as part of the Co-Distribution
Agreement  include  the  Healon(R)  and  Healon-GV(R),  and  Healon  V,  the new
visco-elastic  solution,  scheduled for introduction  mid-year 2000. Pharmacia &
Upjohn also  manufacture  the CeeOn line of  foldable,  small  intraocular  lens
implants, designed to replace the natural lens removed during cataract surgery.

      On July 23, 1998,  the Company  entered into an Agreement for Purchase and
Sale of Assets with the Humphrey Systems Division of Carl Zeiss, Inc. to acquire
the ownership and  manufacturing  rights to certain  assets of Humphrey  Systems
that  are  used  in  the   manufacturing   and   marketing   of  an   ultrasonic
microprocessor-based  line of ophthalmic diagnostic  instruments,  including the
Ultrasonic  Biometer  Model 820, the A/B Scan System  Model 837, the  Ultrasound
Pachymeter  Model 855,  and the  Ultrasound  Biomicroscope  Model  840,  and all
accessories, packaging and end-user collateral materials for each of the product
lines for the sum of $500,000,  payable in the form of 180,000  shares of Common
Stock which were issued to Humphrey  Systems and 26,316  shares of Common  Stock
which were issued to business broker Douglas Adams.

      The  rights  to the  ophthalmic  diagnostic  instruments  which  have been
purchased  from  Humphrey  Systems  under  the  Agreement  complement  both  the
Company's  cataract surgical  equipment and its ocular Blood Flow  Analyzer(TM).
The Ultrasonic  Biometer calculates the prescription for the intraocular lens to
be implanted during cataract surgery. The Ultrasound Pachymeter measures corneal
thickness for the new refractive  surgical  applications that eliminate the need
for eyeglasses and for optometric  applications including contact lense fitting.
The A/B Scan System combines the Ultrasonic  Biometer and ultrasound imaging for
advanced  diagnostic testing throughout the eye and is a viable tool for retinal
specialists.   The  Ultrasound   Biomicroscope   utilizes   microscopic  digital
ultrasound resolution for detection of tumors and improved glaucoma management.

      On October 21, 1999, the Company purchased Mentor's surgical product line,
consisting of the Phaco  SIStem(TM),  the Odyssey(TM)  and the  Surg-E-Trol(TM).
This  acquisition  rounds out the  Company's  cataract  surgery  product line by
adding   high-quality,   moderately-priced   cataract  surgery   products.   The
transaction was paid for with $1.5 million worth of Paradigm common stock.

Background

      Corporate  History:   The  Company's  business  originated  with  Paradigm
Medical,  Inc.,  a  California  corporation  formed in October  1989 "PMI".  PMI
developed  the  Company's  present  ophthalmic  business and was operated by its
founders Thomas F. Motter and Robert W. Millar. In May 1993, PMI merged with and
into the Company.  At the time of the merger,  the Company was a dormant  public
shell existing under the name French Bar Industries, Inc. ("French Bar"). French
Bar had operated a mining and tourist  business in Montana.  Prior to its merger
with PMI in 1993,  French Bar had disposed of its mineral and mining assets in a
settlement  of  outstanding  debt and had  returned  to the  status of a dormant
entity.  Pursuant to the merger,  the Company caused a 1-for-7.96  reverse stock
split of its shares of Common Stock. The Company then acquired all of the issued
and  outstanding  shares of Common  Stock of PMI using  shares of its own Common
Stock as consideration. As part of the merger, the Company changed its name from
French Bar  Industries,  Inc.  to  Paradigm  Medical  Industries,  Inc.  and the
management  of PMI assumed  control of the Company.  In April 1994,  the Company
caused a 1-for-5  reverse stock split of its shares of Common Stock. In February
1996, the Company re-domesticated to Delaware pursuant to a reorganization.


                                        3

<PAGE>



Overview

      Disorders  of the Eye:  The human eye is a complex  organ which  functions
much  like a  camera,  with a lens in front and a  light-sensitive  screen,  the
retina,  in the rear. The  intervening  space contains a transparent  jelly-like
substance,  the vitreous,  which  together with the outer layer,  the sclera and
cornea,  helps the  eyeball to  maintain  its shape.  Light  enters  through the
cornea,  a  transparent  domed  window at the front of the eye.  The size of the
pupil, an aperture in the center of the iris,  controls the amount of light that
is then focused by the lens onto the retina as an upside-down image. The lens is
the internal  optical  component  of the eye and is  responsible  for  adjusting
focus. The lens is enclosed in a capsule. The retina is believed to contain more
than 130 million  light-receptor  cells.  These cells  convert  light into nerve
impulses  that are  transmitted  right side up by the optic  nerve to the brain,
where they are interpreted. Muscles attached to the eye control its movements.

      Birth   defects,   trauma   from   accidents,   disease  and  age  related
deterioration  of the components of the eye can all contribute to eye disorders.
The most  common eye  disorders  are either  pathological  or  refractive.  Many
pathological  disorders of the eye can be corrected  by surgery.  These  include
cataracts  (clouded lenses),  glaucoma  (elevated  pressure in the eye), corneal
disorders  such as scars,  defects  and  irregular  surfaces  and  vitro-retinal
disorders such as the attachment of membrane growths to the retina causing blood
leakage  within  the  eye.  All of  these  disorders  can  impair  vision.  Many
refractive  disorders can be corrected through the use of eyeglasses and contact
lenses.  Myopia  (nearsightedness),  hyperopia  (farsightedness)  and presbyopia
(inability to focus) are three of the most common refractive disorders.

      Ultrasound Technology:  Ultrasound devices have been used in ophthalmology
since the late 1960's for diagnostic and surgical  applications when treating or
correcting eye disorders.  In  diagnostics,  ultrasound  instruments are used to
measure  distances  and shapes of various parts of the eye for  prescription  of
eyeglasses and contact lenses and for calculation of lens implant  prescriptions
for  cataract  surgery  treatment.  These  devices  emit sound  waves  through a
hand-held probe that is placed onto or near the eye with the sound waves emitted
being reflected by the targeted tissue. The reflection "echo" is computed into a
distance value that is presented as a visual image, or cross-section of the eye,
with  precise  measurements  displayed  and  printed for  diagnostic  use by the
surgeon.

      Surgical use of  ultrasound  in  ophthalmology  is limited to treatment of
cataractous lenses in the eye through a procedure called  phacoemulsification or
"phaco."  A primary  objective  of  cataract  surgeries  is the  removal  of the
opacified  (cataractous)  lens through an incision that is as small as possible.
The opacified lens is then replaced by a new synthetic lens intraocular  implant
("IOL").  Phaco technology involves a process by which a cataract is broken into
small pieces using ultrasonic shock waves delivered through a hollow, open-ended
metal needle attached to a hand-held probe. The fragments of cataractous  tissue
are then removed  through  aspiration.  Phaco systems were first designed in the
late 1960's after various attempts by surgeons to use other techniques to remove
opacified lens,  including crushing,  cutting,  freezing,  drilling and applying
chemicals to the cataract.  By the  mid-1970's,  ultrasound had proven to be the
most effective technology to fragment cataracts.  Industry sources indicate that
phaco cataract treatment is the technology for cataract removal used in over 80%
of surgeries in the United States and over 20% of all foreign surgeries.

      Laser Technology:  The term "laser" is an acronym for Light  Amplification
by  Stimulated  Emission  of  Radiation.  Lasers have been  commonly  used for a
variety of medical and ophthalmic 4

<PAGE>

procedures  since the 1960's.  Lasers emit photons into a highly intense beam of
energy that typically  radiates at a single wavelength or color. Laser energy is
generated and intensified in a laser tube or solid-state  cavity by charging and
exciting  photons of energy  contained within material called the lazing medium.
This stored light energy is then delivered to targeted  tissue through  focusing
lenses by means of optical mirrors or fiber optics. Most laser systems use solid
state crystals or gases as their lazing medium.  Differing  wavelengths of laser
light are produced by the selection of the lazing  medium.  The medium  selected
determines  the  laser  wavelength  emitted,  which in turn is  absorbed  by the
targeted tissue in the body.  Different tissues absorb different  wavelengths or
colors of laser light.  The degree of  absorption by the tissue also varies with
the choice of  wavelength  and is an  important  variable  in  treating  various
tissue.  In a surgical laser,  light is emitted in either a continuous stream or
in a series of short duration "pulses," thus interacting with the tissue through
heat and shock waves, respectively. Several factors, including the wavelength of
the laser and the frequency and duration of the pulse or exposure, determine the
amount of energy that interacts  with the targeted  tissue and, thus, the amount
of surgical effect on the tissue.

      Lasers are widely  accepted in the  ophthalmic  community for treatment of
certain eye disorders and are popular for surgical applications because of their
relatively  non-invasive  nature. In general,  ophthalmic lasers, such as argon,
Nd:YAG  and  excimer  (argon-fluoride)  are  used to  coagulate,  cut or  ablate
targeted  tissue.  The argon laser is used to treat leaking blood vessels on the
retina  (retinopathy)  and retinal  detachment.  The excimer  laser was recently
tested in clinical  trials for limited use in corneal  refractive  surgery.  The
Nd:YAG pulsed laser is used to perforate clouded posterior  capsules  (posterior
capsulotomy)  and to  relieve  glaucoma-induced  elevated  pressure  in the  eye
(iridotomy,  trabeulorplasty,  transcleral cyclophotocoqulation).  Argon, Nd:YAG
and excimer lasers are primarily used for one or two clinical applications each.
In contrast to these conventional laser systems,  the Company's Photon(TM) laser
cataract  system is designed to be used for  multiple  ophthalmic  applications,
including  certain new applications that may be made possible with the Company's
proprietary  technology.  Such new  applications,  however,  must be  tested  in
clinical trials and be approved by the FDA.

Products

      The Company's  principal  surgical product is an ultrasonic system for use
by  ophthalmologists   to  perform  surgical  treatment   procedures  to  remove
cataracts.  In 1990,  the Company  received  clearance  from the FDA pursuant to
Section  510(k)  of the Food,  Drug and  Cosmetics  Act (the  "FDC  Act") on its
Precisionist  3000(TM)  phaco  system for  cataract  surgery,  which  system was
upgraded to the  Precisionist  3000 Plus(TM) in 1994. The Company also completed
its  preclinical in vitro and in vivo  (animal)testing  of its Photon(TM)  laser
cataract surgical system and submitted a Section 510(k)Premarket Notification to
the FDA for the  Photon(TM)  laser  cataract  system in September  1993,  with a
follow-up  Investigational  Device Exemption  ("IDE")  application  submitted in
October 1994 to provide additional  clinical data through human cases to support
its earlier  filing.  The IDE was approved in May 1995.  Phase I clinical trials
were begun in April 1996 with  surgeries  completed  in December  1996.  Patient
follow-up examinations as mandated by the FDA study were completed in July 1997,
and the Company  submitted  its final report to the FDA  thereafter.  During the
Phase I  clinical  trials the  Company  discovered  that the Nd:YAG  (Neodymium:
Yttrium-Aluminum-Garnet)  laser system is most effective on soft cataracts. Hard
cataracts can be removed using the already existing ultrasound capability of the
Workstation(TM). The FDA approved Phase II trials on soft cataracts in May 1998.
Seven laser  systems are now  installed in the United  States and  surgeries are
being performed with trial completion expected in the first half of 2000.

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      The  Odyssey(TM):  The  Odyssey(TM)  replaced  the  Precisionist  3000 and
Precisionist 3000 Plus. The Odyssey(TM) is a reliable,  portable, low-cost phaco
system,  with a very low operating  cost. The primary market for the Odyssey(TM)
is in foreign  countries where phaco technology is emerging and price-points are
relatively  low. The Odyssey(TM) is also a reliable  back-up system.  The system
features a simple analog  presentation of the ultrasound  power, and aspiration.
The  Odyssey(TM)   provides  the  basic  standard  features  for  phaco  surgery
including:  continuous  ultrasound  tuning,  ultrasound  energy  regulation  and
anterior vitrectomy.

      The   SIStem(TM):   The  SIStem(TM)  is  the  Company's   state-of-the-art
phacoemulsification  system,  bridging the gap between the  Odyssey(TM)  and the
Precisionist(TM).   The   SIStem(TM)   is  designed   to  be  a   full-featured,
cost-effective, reliable phaco machine. The competitive feature package includes
automated  priming and  tuning,  error  detection,  audible  feedback,  patented
fluidics system,  pneumatic vitrectomy and bipolar electrosurgical  coagulation.
With both reusable and single-use consumables,  the SIStem(TM) is positioned for
the world's  primary  ultrasonic  phaco  markets,  including the United  States,
Europe and Asia.

      Precisionist ThirtyThousand(TM):  The Precisionist ThirtyThousand(TM) (the
"Precisionist(TM)") is the Company's core phaco surgical technology and the base
system   for  its   Precisionist(TM)   Ocular   Surgery   Workstation(TM).   The
Precisionist(TM)  was  placed  into  production  and  sale in  1997.  As a phaco
cataract surgery system, the Company believes the Precisionist(TM)  with its new
fluidics  panel is equal or superior to the present  competitive  systems in the
United  States.   The  system  features  a  graphic  color  display  and  unique
proprietary  on-board  computer  and graphic user  interface  linked to soft-key
membrane  panel  for  flexible  programmable  operation.   The  system  provides
real-time  "on-the-fly"  adjustment  capabilities  for each  surgical  parameter
during the surgical  procedure for high-volume  applications.  In addition,  the
Precisionist(TM)  provides one hundred  pre-programmable surgery set-ups, with a
second level of  sub-programmed  custom modes within each major surgical  screen
(i.e., ultrasound phaco and  irrigation/aspiration  modes). The Precisionist(TM)
features the  Company's  newly  developed  proprietary  fluidics  panel which is
completely  non-invasive  for  improved  sterility  and to  provide  a  surgical
environment  in the eye that  virtually  eliminates  fluidic  surge and  chamber
maintenance  problems normally associated with phaco cataract surgery.  This new
fluidics  system  provides  greater  control for the surgeon and allows the safe
operation at much higher vacuum  settings by sampling  changes in aspiration 100
times per second.  Greater  vacuum in phaco surgery means less use of ultrasound
or laser energy to fragment the cataract and less chance for surrounding  tissue
damage.  In  addition  to the full  complement  of  surgical  modalities  (e.g.,
irrigation,  aspiration,  bipolar coagulation and anterior  vitrectomy),  system
automation  includes  "dimensional"  audio  feedback of vacuum  levels and voice
confirmation for major system functions,  providing an intuitive  environment in
which the advanced  phaco  surgeon can  concentrate  on the  surgical  technique
rather than the equipment.

      Photon Workstation:  The Precisionist(TM)  Ocular Surgery  Workstation(TM)
(the  Workstation(TM))  which comprises the base system for the Precisionist(TM)
is the first  system to the  knowledge of the Company  which uses the  expansive
capabilities  of today's  advanced  computer  technology to offer  seamless open
architecture  expandability  of the system  hardware and software  modules.  The
Workstation  utilizes  an  embedded  computer  developed  for  the  Company  and
controlled  by a  proprietary  software  system  developed  by the Company  that
interfaces with all components of the system: ultrasound, fluidics (irrigation),
aspiration,  venting,  coagulation  and anterior  vitrectomy  (pneumatic).  Each
component is  controlled  as a peripheral  module  within this fully  integrated
system.  This  approach  allows for seamless  expansion  and  refinement  of the
Workstation(TM)  with the ability to add other  hardware and software  features.
Expansion such as the Company's  Photon(TM)  laser system,  when approved by the
FDA, and hardware for additional surgical applications are easily 6

<PAGE>


implemented by means of a pre-existing  expansion rack which resides in the base
of the Workstation.  These expanded capabilities could include, but would not be
limited to: laser  systems,  video  surgical  fiber optic  imaging,  cutting and
electrosurgery   equipment.   However,   there   is  no   guarantee   that   the
Workstation(TM) will be accepted in the market place.

      Photon(TM) Laser System:  The Photon(TM)  laser cataract system,  which is
still subject to FDA approval, is designed to be installed as a seamless plug-in
upgrade   or   add-on  to  the   Company's   Precisionist(TM)   Ocular   Surgery
Workstation(TM).  The  plug-in  platform  concept  is unique  in the  ophthalmic
surgical  market for  systems of this  magnitude  and  presents a unique  market
opportunity  for the  Company.  The main  elements  of the laser  system are the
Nd:YAG laser  module,  Photon(TM)  laser  software  package and  interchangeable
disposable  hand-held  fiber  optic  laser  Photofragmentation   Probe(TM)  (the
"LCP"(TM). The Photon(TM) laser utilizes the on-board microprocessor computer of
the  Workstation(TM)  to generate short pulse laser energy developed through the
patented  LCP  (TM)  to  targeted   cataract   tissue  inside  the  eye,   while
simultaneously  irrigating the eye and aspirating the diseased  cataract  tissue
from the eye.  The probe is smaller in  diameter  than  conventional  ultrasound
phaco  needles and presents no damaging  vibration or heat  build-up in the eye.
The Company's  Phase I clinical trials  demonstrated  that this probe can easily
reduce  the size of the  cataract  incision  from 3.0 mm to under 2.0 mm thereby
reducing surgical trauma and complementing  current foldable intraocular implant
technology.  The laser probe may also eliminate any possibility for burns around
the incision or at the cornea and may  therefore be used with  cataract  surgery
techniques  which  utilize  a more  delicate  clear  cornea  incision  which can
eliminate sutures and be conducted with topical anesthesia. However, this system
may not effectively remove harder grade cataracts. Harder grade cataracts can be
removed using the already existing ultrasound capability of the Workstation(TM).
The  Company  intends to refine  the laser  delivery  system and laser  cataract
surgical technique used on soft cataracts through expanded research and clinical
studies.  As far as the  Company  can  determine,  no  integrated  single  laser
photofragmenting  probe is  presently  available  on the market  that uses laser
energy directly,  contained in an enclosed probe, to plasmatize  cataract tissue
at a  precise  location  inside  the eye  while  simultaneously  irrigating  and
aspirating the site.

      The  Company's  laser  system is based upon the concept  that pulsed laser
energy produced with the micro-processor controlled Nd:YAG laser system provides
ophthalmic  surgeons  with a more  precise  and less  traumatic  alternative  in
cataract surgery.  Although conventional ultrasonic surgical systems have proven
effective  and  reliable  in  clinical  use for many  years,  their  use of high
frequency  shock waves and  vibration  to  fragment  the  cataract  can make the
procedure  difficult and can present risk of complication  both during and after
surgery.  In  contrast,   the  Company's  laser  system,  which  utilizes  short
centralized  energy  bursts,  should  permit the delivery of the laser beam with
less trauma to adjacent tissue.  Therefore,  unlike  ultrasonic  systems,  whose
vibrations and shock waves affect(and can damage) non-cataractous tissues within
the eye, the  Company's  Photon(TM)  laser  cataract  system  should only affect
tissues it comes into direct contact with.

      Surgical  Instruments,  Accessories  and  Disposables:  In addition to the
cataract surgery equipment, the Company is aggressively pursuing development and
product   introductions  for  a  range  of  cataract  surgery   instruments  and
accessories  that will be sold with its  surgical  systems  and will  complement
other  competitive  systems.  In January 1998,  the Company  received FDA 510(k)
clearance  for a line  of  proprietary  titanium  ultrasonic  phaco  needles  it
produces at its Salt Lake City  facility.  The needles were released for sale in
May 1998 in a sterile  Phaco PAK (TM).  In May 1998,  the Company  received  FDA
510(k) clearance for a line of  irrigation/aspiration  probes and tips.  Product
release occurred in

                                        7

<PAGE>



October 1998. These products and additional  instruments were previously sourced
from  third-party  vendors.  The Company  believes  that by  developing  its own
instruments  and  accessories  it can  improve  product  performance,  introduce
innovative  differentiation  and improve sales margins.  The Company's  surgical
systems utilize or will utilize accessory  instruments and disposables,  some of
which are proprietary to the Company. These include replacement ultrasound tips,
sleeves,  tubing sets and fluidics packs,  instrument  drapes and laser cataract
probes.  The Company intends to expand its disposable  accessories as it further
penetrates the cataract  surgery  market and expands the treatment  applications
for its Workstation.

      Diagnostic Eye Care Products:  Glaucoma is a leading cause of blindness in
the world.  Glaucoma  is  described  as a partial or total loss of visual  field
resulting from certain progressive disease or degeneration of the retina, macula
or nerve fiber bundle.  The cause and mechanism of the glaucoma pathology is not
completely  understood.  Present  detection  methods focus on the measurement of
intraocular  pressure in the eye to determine the  possibility of pressure being
exerted upon the retina, and optic nerve fiber bundle, which can diminish visual
field. Recently, retinal blood circulation has been indicated as a key component
in the presence of glaucoma.  Several  companies produce color Doppler equipment
in the $150,000 price range intended to provide measurement of ocular blood flow
activity in order to diagnose and treat glaucoma at an earlier stage.

      In June 1997, the Company  received FDA clearance to market the Blood Flow
Analyzer(TM) for early detection and treatment  management of glaucoma and other
retina related diseases.  The device measures not only intraocular  pressure but
also  pulsatile  ocular blood flow, the reduction of which may cause nerve fiber
bundle death  through  oxygen  deprivation  thus  resulting in visual field loss
associated with glaucoma.  The Company's  Blood Flow  Analyzer(TM) is a portable
automated  in-office system that presents an affordable  method for ocular blood
flow testing for the  ophthalmic and  optometric  practitioner.  The Company has
secured a license granting it the exclusive right to private label,  package and
market the  product  in the United  States,  with full  international  marketing
rights.

      Blood Flow Analyzer(TM):  This was the Company's first diagnostic eye care
device.  The device is manufactured for the Company and is being marketed by the
Company pursuant to a license agreement. The device is a portable desktop system
that  utilizes  a  proprietary   patented  pneumatic  Air  Membrane  Applanation
Probe(TM) (the "AMAP TM") which is attached to any model of standard examination
slitlamp  which is then placed on the cornea of the patient's eye to measure the
intraocular  pressure  within  the eye.  The device is unique in that it reads a
series of intraocular pressure pulses over a short period of time (approximately
five to ten seconds) and  generates a wave form profile  which can be correlated
to blood flow volume  within the eye. The blood flow volume is  calculated  by a
proprietary  software  algorithm  developed by David M. Silver,  Ph.D., at Johns
Hopkins. The device presents a numerical  intraocular pressure reading and blood
flow  analysis  rating in a concise  printout  which is affixed  to the  patient
history file. In addition, the data generated by the device can be downloaded to
a personal computer system for advanced database development and management. The
Company markets the Blood Flow  Analyzer(TM) as a stand-alone Model 100 SE unit,
and packaged with a custom built computer  system as the Model 100 LE. The Blood
Flow  Analyzer(TM)  utilizes  a  single-use  disposable  cover for its AMAP (TM)
corneal  probe  which is shipped in  sterile  packages.  The AMAP (TM) probe tip
cover  provides  accurate  readings and acts as a  prophylactic  barrier for the
patient.  The device has been issued a patent in the European Economic Community
and the United  States and has a patent  pending in Japan.  The FDA  cleared the
Blood Flow  Analyzer(TM)  for  marketing in June 1997 and the Company  commenced
selling the system in September 1997. In addition to the Humphrey 8

<PAGE>



products,  this diagnostic  product will permit the Company to expand its market
to approximately 35,000 optometry practitioners in the United States in addition
to the approximately  18,000 ophthalmic  practitioners who currently perform eye
surgeries and are candidates for the Company's  surgical systems.  International
sales of the Blood Flow Analyzer(TM) will be further expanded in 1999.

      Pachymetric   Analyzer  and  LASIK   Pachymeter:   Paradigm  produces  two
Ultrasonic Pachymeters used for measurement of corneal thickness.  The Model P55
is positioned as a standard  office  pachymeter.  In November  1999, the Company
introduced the Model P55L LASIK  Pachymeter,  with its enhanced dynamic range to
measure  thinner  corneas.  This device is targeted  to the  refractive  surgery
market.

      Ultrasonic  A Scan:  The  Ultrasonic  A Scan was and remains the  industry
standard for axial length eye  measurement,  which is a  prerequisite  procedure
reimbursed  by Medicare and is performed  before every  cataract  surgery.  Over
5,000 A-Scan systems have been installed in the worldwide market, representing a
substantial  market  opportunity  for software  upgrades  and extended  warranty
contract sales.

      Ultrasonic  A/B Scan: The A/B Scan is used by retinal  sub-specialists  to
identify foreign bodies in the posterior  chamber of the eye and to evaluate the
structural  integrity of the retina.  The A/B Scan is  attractive to the general
ophthalmic community at large because of its lower price point.

      Ultrasonic  Biomicroscope  ("UBM"):  The UBM  was  developed  by  Humphrey
Systems in conjunction  with the New York Eye and Ear Infirmary in Manhattan and
the University of Toronto.  The UBM creates a high-resolution  computer image of
the unseen parts of the eye that is a "map" for the glaucoma surgeon. The UBM is
an  "enabling  technology"  for the  ophthalmologist,  one that the  Company has
repositioned  for  broader  market  sales  penetration.  Formerly  sold  only to
glaucoma  sub-specialty  practitioners,  the Company  reintroduced  the UBM at a
price-point  targeted  for the  average  practitioner  seeking  to add  glaucoma
filtering surgical  procedures and income to his/her cataract surgical practice.
The UBM related surgical filtering procedures are fully reimbursable by Medicare
and insurance  providers.  This  untapped new market  positions the Company as a
leader in the rapidly expanding glaucoma imaging and treatment segment.

Marketing and Sales

      Ophthalmologists  are mainly  office-based  and perform their surgeries in
local  hospitals  or  surgical  centers  that  provide  the  necessary  surgical
equipment and  supplies.  Ophthalmologists  are generally  involved in decisions
relating to the  purchase of equipment  and  accessories  for their  independent
ambulatory   surgical  centers  and  for  the  hospitals  with  which  they  are
affiliated.  This  provides  the  opportunity  for  direct,  targeted,  personal
selling,  responsive  high quality  customer  service and short buying cycles to
achieve a product  sale in the office or  hospital.  Hospitals  also  comprise a
significant  market as recent demand for ultrasonic  surgery  technology has put
pressure on the  ophthalmologist,  who in turn persuades the hospital to install
the latest technology system so that they

                                        9

<PAGE>



can offer this procedure to their patients and the community.

      Industry analysts report that the United States ophthalmic surgical device
market  has been  characterized  by  slower  growth in  recent  years.  This has
apparently been caused by the uncertainty and potential reforms  associated with
the health care  industry.  Further,  hospitals have been inclined to keep their
older  phaco  machines  longer  than  expected  as they have been forced to mind
budgets  more  carefully  and have  become  less  willing  to invest in  capital
equipment  until more  information  on health  care  reform  becomes  available.
However,  analysts  predict that the ophthalmic  surgical device market will see
renewed growth in the coming years as the health care environment stabilizes and
as the  growing  elderly  population  produces an  increased  number of cataract
surgeries.  As a consequence of these  factors,  the market should see a greater
rate of  replacement  of older  machines  that  hospitals and surgeons have been
postponing for longer than usual.

      Current Market Acceptance and Potential:  The Company's  distribution base
includes  over  200  of  the  Precisionist  3000,  Precisionist  3000  Plus(TM),
Odyssey(TM),  and SIStem(TM) phaco systems. Fourteen of the new Precisionist(TM)
Ocular Surgery  Workstation(TM)s and eleven Photon(TM)  Precisionist(TM)  Ocular
Surgery  Workstations(TM)s  have also been placed. The principal purchasers have
been  ophthalmologists  and clinics in many countries  throughout the world. The
Company  believes  that the market for its  products is being driven by: (i) the
aging of the  population,  which is evidenced by the domestic and  international
cataract surgery volume growth trend over the past ten years,  (ii) the entry by
emerging  countries  (including  China,  Russia,  and other  countries  in Asia,
Eastern  Europe  and  Africa)into  advanced  technology  medical  care for their
populations, (iii)increased awareness worldwide of the benefits of the minimally
invasive  phaco  cataract  procedure  and (iv) the  introduction  of  technology
improvements such as the Company's laser system.


      Marketing Organization:  The Company markets its products  internationally
through  a  network  of  dealers   and   domestically   through   direct   sales
representatives.  As of December 31, 1999, the Company had seven direct domestic
sales  representatives in the United States and twenty-one foreign dealers. This
is  in  addition  to  the  fifty-three  Paradigm  Pharmacia  &  Upjohn  Alliance
representatives  and eighty  MAXXIM  representatives  domestically.  These sales
representatives  are  assigned  exclusive  territories  and  have  entered  into
contracts  with the Company that contain  performance  quotas.  The Company also
plans to  continue  to market its  products  by  identifying  customers  through
internal market research, trade shows and direct marketing programs. The Company
also utilizes a Clinical Advisory Board comprised of leading ophthalmic surgeons
in the United States and Europe who speak at conventions, train ophthalmologists
and visit foreign doctors and dealers to promote the Company's products.

      The Company, when marketing its surgical  Workstation(TM),  will emphasize
the expandable features of the Workstation(TM). The Company's marketing approach
will be to focus on the upgradeability of the Workstation(TM) and to develop the
image  of the  Workstation(TM)  as the  most  versatile,  upgradeable  and  cost
effective surgical equipment  available.  The Company will continue to focus its
sales  efforts  towards  ophthalmic  hospital  and  surgical  center  facilities
specializing in cataract surgery. However, as systems are installed, the Company
will  expand  its focus to  provide  additional  ophthalmic  and  non-ophthalmic
surgical  applications  as  part  of its  Workstation(TM).  Additional  surgical
applications  will  expand  the  market  for  the  Workstation(TM)  as  well  as
associated sales of disposable surgical products.

      The Company  disseminated  the  innovative  capabilities  of its  products
through advertisement and

                                       10

<PAGE>



printed  materials  at the  Company's  exhibition  at the annual  meeting of the
American Academy of Ophthalmology in Orlando, Florida in October 1999. The theme
of the Company's  advertisement for its Ocular Surgery  Workstation(TM) was "The
Future of Phaco is Laser  Cataract  Surgery."  The Company  will expand upon the
concept of the  "Workstation(TM)"  with  additional  advanced laser and surgical
capabilities.  The Company has also  continued  its  campaign for the Blood Flow
Analyzer(TM).  The product was introduced to the  ophthalmic  marketplace at the
American Academy of Ophthalmology  meeting in October 1997 and to the Optometric
marketplace at the California  Optometric  Association  and Vision Expo Easy New
York  meetings.  The theme of the  Company's  advertisement  for its Blood  Flow
Analyzer is "Don't Miss Half of Your  Glaucoma  Patients...  A Fast,  Clinically
Proven Test For Ocular Blood Flow".

      Product  advertising is focused in the three  industry  trade  newspapers,
Ocular Surgery News, Ophthalmology Times and the American Optometric Association
News. Most of the  ophthalmologists or optometrists in the United States receive
one or more of these magazines through professional  subscription  programs. The
media has shown strong  interest in the Company's  technology  and products,  as
evidenced by several recent front page articles in these publications.

      Manufacturing and Raw Materials:  Currently,  the Company is moving into a
29,000 square foot facility in Salt Lake City.  This facility  accommodates  the
Company's expanded manufacturing,  marketing and engineering  capabilities.  The
Company manufactures under system of quality control and testing, which complies
with the Quality System Requirements (QSR) guidelines established by the FDA, as
well as similar guidelines established by foreign governments, including CE Mark
and IS0-9001.

      The laser cavity,  optical train and power source for the Photon(TM) laser
cataract  system  are  supplied  by  Sunrise  Technologies,   Inc.  in  Fremont,
California  ("Sunrise").  The Company has established an internal laser cataract
probe  manufacturing  facility and performs  all probe  production  in Salt Lake
City. The remaining  operating elements of the Photon(TM) laser cataract system,
the  computer   controller,   fluidics  and   ancillary   surgical   modalities,
manufactured at the Company's new facility.  Although  substantial  reliance has
been  placed  with  Sunrise,  the  Company  believes  it  would  be able to find
alternative laser sources, including eventual in-house manufacture.

      The  Company  subcontracts  the  manufacturing  of some  of its  ancillary
instruments, accessories and disposables through specified vendors in the United
States. These products are contracted in quantities

                                       11

<PAGE>



and at costs consistent with the Company's financial purchasing capabilities and
pricing needs.  The Company  manufactures  the LCP (TM) laser cataract probe and
some of its surgical instruments,  accessories and fluidics surgical tubing sets
at its facility in Salt Lake City.

      The Blood Flow  Analyzer(TM)  is manufactured by OBF Labs. The analyzer is
repackaged  by the Company  using a module cover  designed by the Company and is
also being  marketed  under the  Company's  trade name and mark.  The  Company's
License and Manufacturing Agreement with OBF Labs continues through December 31,
2000 and is  automatically  renewable for successive one year additional  terms,
unless  either  party gives  written  notice to the other party at least 90 days
prior to the  expiration  of the term.  Service  for the  Company's  products is
overseen  from its Salt Lake City,  Utah  headquarters  and is  augmented by its
international  dealer network,  which dealers also provide technical service and
repair.  Installation,  on-site  training  and  a 12 to 18  month  warranty  are
included as the standard terms of sale. The Company provides  distributors  with
replacement  parts at no charge during the warranty period. To date, the Company
has  incurred  minimal  expenses  under  this  warranty  program.  International
distributors are responsible for installation, repair and other customer service
to  installed  systems  in  their  territory.   All  system  parts  are  modular
sub-components  that are easily removed and replaced.  The Company  maintains an
adequate parts inventory and provides 24 hour replacement  parts shipment to its
dealers.  After the warranty period expires, the Company offers one year service
contracts  to its  domestic  customers  and  will  continue  to  sell  parts  to
international  dealers  who in turn create  their own  service  plans with their
customers.

      Product  Service  and  Support:  Service  for the  Company's  products  is
overseen  from its Salt Lake City,  Utah  headquarters  and is  augmented by its
international   dealer  network  who  provide   technical  service  and  repair.
Installation,  on-site  training and a limited product  warranty are included as
the standard terms of sale. The Company provides  distributors  with replacement
parts at no charge during the warranty period. To date, the Company has incurred
minimal  expenses under this warranty  program.  International  distributors are
responsible  for  installation,  repair and other customer  service to installed
systems in their territory.  All systems parts are modular  sub-components  that
are easily  removed and  replaced.  The  Company  maintains  an  adequate  parts
inventory  and provides  overnight  replacement  parts  shipment to its dealers.
After the warranty  period  expires,  the Company offers one year and three year
service  contracts to its domestic  customers and will continue to sell parts to
international  dealers  who in turn create  their own  service  plans with their
customers.

      Third-Party Reimbursement: It is expected that the Company's laser systems
and  diagnostic  systems will  generally be  purchased by  ophthalmologists  and
hospitals as well as optometrists who will then bill various  third-party payors
for the health care services  provided to their  patients.  These payors include
Medicare, Medicaid and private insurers. Government agencies generally reimburse
at a  fixed  rate  based  on the  procedure  performed.  Some  of the  potential
procedures for which the Photon(TM)  laser cataract  systems may be used, may be
determined to be elective in nature,  and third-party  reimbursement  may not be
available  for  such  procedures,  even if  approved  by the FDA.  In  addition,
third-party  payors may deny  reimbursement if they determine that the procedure
was unnecessary,  inappropriate, not cost-effective,  experimental or used for a
non-approved  indication.  There can be no  assurance  that  reimbursement  from
third-party payors will be available,  or if available,  that reimbursement will
not be  limited,  thereby  having a  material  adverse  effect on the  Company's
ability to develop new products on a profitable basis, its operating results and
financial condition.

                                       12

<PAGE>


      Co-Distribution  Agreement with Pharmacia & Upjohn Company and MAXXIM: The
Company has entered  into a  Co-Distribution  Agreement as of June 26, 1998 with
Pharmacia & Upjohn Company and MAXXIM, which provides for the marketing and sale
of a range of  ophthalmic  products.  Under  the  terms  of the  Co-Distribution
Agreement, the Company, Pharmacia & Upjohn and MAXXIM will offer a comprehensive
package of products to cataract surgeons, including cataract surgical equipment,
intraocular lens implants, intraocular pharmaceuticals, surgical instruments and
sterile  procedural  packs.  The Company will provide the  Precisionist(TM)  for
distribution  and sale under the  Co-Distribution  Agreement.  The  Pharmacia  &
Upjohn  products to be  distributed  as part of the Co-  Distribution  Agreement
include  Healon(R) and HealonGV(R)  viscoelastic  solution and the CeeOn line of
foldable, small intraocular lens implants,  designed to replace the natural lens
removed during cataract surgery.  It is too soon to determine the full effect of
these agreements on the Company.  However,  some possible  benefits may be lower
marketing costs for the Company's products and a greater appeal of the Company's
products  to  hospitals  and other  buyers who prefer a  comprehensive  and more
cost-effective package.

Research and Development

      The  Company's  primary  market for its surgical  products is the cataract
surgery  market.  However,  the  Company  believes  that its laser  systems  may
potentially  have broader  ophthalmic  applications.  Consequently,  the Company
believes that a strong research and development  capability is important for the
Company's   future.   In  addition  to  the  Company's   expanded  in-house  R&D
capabilities,  it has enlisted several recognized and respected  consultants and
other technical  personnel to act in technical and medical advisory  capacities.
Several of these consultants  serve on the Company's  clinical Advisory Board to
provide expert and technical support for current and proposed products, programs
and services of the Company. In addition,  the Company is conducting research in
conjunction  with MEOS  Photonics  through the  University of Utah Medical Laser
Laboratory.  The research is aimed at improving the laser  system's  performance
for cataract surgery and exploring additional surgical applications.

      The Company believes its research and development  capabilities provide it
with the ability to respond to regulatory developments,  including new products,
new  product  features  devised  from its  users  and new  applications  for its
products on a timely and  proprietary  basis.  The  Company  intends to continue
investing in research and  development  and to strengthen its ability to enhance
existing products and develop new products. The Company spent $540,148 in fiscal
year ended December 31, 1997,  $298,187 in the year ended December 31, 1998, and
$677,225 in the fiscal year ended December 31, 1999.

Competition

      General.  The Company is subject to  competition  in the  cataract and the
glaucoma surgery markets,  and the glaucoma diagnostic market from two principal
sources:  (i) manufacturers of competing ultrasound systems used when performing
cataract   treatments  and  (ii)  developers  of  technologies   for  ophthalmic
diagnostic and surgical  instruments used for treatment.  The surgical equipment
industry is dominated by a few large companies that are well  established in the
marketplace,  have  experienced  management,  are well  financed  and have  well
recognized trade names and product

                                       13

<PAGE>



lines. The Company believes that the combined sales of five entities account for
over 90% of the ophthalmic  surgery market.  The remaining  market is fragmented
among  emerging  smaller  companies,  some of which are foreign.  The ophthalmic
diagnostic market has a similar composition.

      Most major  competitors  either  entered or expanded  into the cataract or
glaucoma   markets   through  the   acquisition   of  smaller,   entrepreneurial
high-technology manufacturing companies. Therefore, because existing competitors
or other entities desiring to enter the market could conceivably acquire current
entrepreneurial  enterprises with small market activity, any and all competitors
must be considered to be formidable.

      The Cataract Surgical System Industry.  Presently,  products  currently in
use are  offered by the major  manufacturers  utilizing  ultrasonic  technology.
Those systems rely on accessories  including single-use cassette packs and other
ancillary surgical disposables such as saline solution,  sutures and intraocular
lenses for their  profits.  The cassette packs are required for fluid and tissue
collection  during the  surgical  procedure.  The cassette  packs are  generally
unique and  proprietary to their  respective  systems and represent a barrier to
entry for third-party, lower-cost after-market suppliers. While there is growing
market  resistance  in the  United  States  and  internationally  to  single-use
cassettes,  the Company  anticipates that manufacturers of ultrasound  equipment
will continue to develop and enhance their present ultrasound  products in order
to protect their  investments  in system and cassette  technology and to protect
their  profits from sales of these  cassettes  and  accessories.  The  Company's
Precisionist Thirty Thousand(TM)  ultrasonic phaco system has the ability to use
either  reusable or  single-use  disposable  components.  The  Photon(TM)  laser
cataract  system will utilize  probes and cassette packs designed for single-use
and semi-disposable instruments priced at a level consistent with the demands of
health  care cost  containment.  This will allow the  health  care  providers  a
substantial  measure of cost  containment,  while providing the Company with the
quality control and income capability of cassette sales.

      The typical list price of a competitive  advanced ultrasonic system ranges
from approximately $60,000 to $100,000.  Lower cost models generally have a list
price  ranging  from  approximately  $30,000 to $60,000.  The list price for the
Precisionist Thirty Thousand(TM) ocular surgery system is $89,900. The Company's
Photon(TM)  Laser Phaco(TM) will be sold at a price of  approximately  $129,000.
The international market, with significantly lower medical budgets, has not been
able  to  justify  the  expense  of  using  disposable   components.   Budgetary
constraints have limited current  manufacturers from gaining a significant share
of the international  ultrasound  equipment market, and has provided a niche for
the emerging smaller companies discussed above.

      Ultrasound  Equipment  Manufacturers.  As a relatively recent entrant into
the cataract surgical  equipment market with a newer equipment line, the Company
is  establishing  itself and, as yet, does not hold a  significant  share of the
market. The Company currently recognizes Bausch & Lombe, Alcon Laboratories, and
Allergan  Medical  Optics as its primary  competitors  in the  ultrasound  phaco
cataract equipment market.

      Laser  Equipment  Manufacturers.  To the  Company's  knowledge,  there are
several  other  companies  attempting  to develop  laser  equipment for cataract
surgery.  Based on the  information  currently  available to the Company,  these
competitive laser companies appear to offer a less viable

                                       14

<PAGE>



means of treating  cataracts using laser  technology.  The Company believes that
there is presently no directly competing Nd:YAG laser-assisted cataract surgical
system  available in the market.  The Company also  believes that its product is
sufficiently  distinctive and, if properly  marketed,  can capture a significant
share of the cataract  surgical  device market.  However,  there are substantial
risks  in  undertaking  a new  venture  in an  established  and  already  highly
competitive industry. In the short-term, the Company is seeking to exploit these
opportunities.  Depending upon further developments,  the Company may ultimately
exploit  those  opportunities  through a merger with a stronger  entity  already
established or one that desires to enter the medical industry.

      The Company believes that its ability to compete  successfully will depend
on  its  capability  to  create  and  maintain  advanced   technology,   develop
proprietary products, attract and retain scientific personnel,  obtain patent or
other proprietary protection for its products and technologies,  obtain required
regulatory approvals and manufacture,  assemble and successfully market products
either alone or through third parties.

      The Retinal Diagnostic Market. The Glaucoma Research  Foundation  suggests
that with the aging of the  so-called  baby boom  generation,  there  will be an
increase of macular  degeneration and glaucoma in the United States, the leading
causes of adult  blindness  worldwide.  The damage  caused by these  diseases is
irreversible.  The  preconditions  for the  onset  of  macular  degeneration  or
glaucoma are low ocular blood flow and/or high intraocular pressure.  Diagnostic
screening is important for individuals susceptible to these diseases.  People in
high  risk  categories  include:  African  Americans  over 40 years of age,  all
persons  over 60 years of age,  persons  with a family  history of  glaucoma  or
diabetes, and the very near sighted. The Glaucoma Research Foundation recommends
that these high risk  individuals  be tested once every two years for  glaucoma.
According to the U.S.  Census Bureau,  in 1995 there were over 30 million adults
65 years of age and older and 8 million  African  Americans  45 years of age and
older. The Glaucoma Research Foundation reports that glaucoma currently accounts
for more than 7 million visits to physicians annually.

      The Company is subject to intense competition in the ophthalmic diagnostic
market from well-financed,  established  companies with recognizable trade names
and product lines and new and developing technologies. The industry is dominated
by several large entities which the Company believes account for the majority of
diagnostic equipment sales. The Company expects to derive revenues from the sale
of its newly acquired ultrasound  diagnostic  equipment and blood flow analyzer.
The blood flow analyzer is designed to detect  glaucoma in an earlier stage than
is presently possible. In addition, the device performs tonometry and blood flow
analysis.  The blood flow analyzer has a list price  ranging from  approximately
$13,500 and $20,000.  Other  ophthalmic  diagnostic  devices which do not detect
glaucoma  in the early  stages of the  disease  as does the  Company's  analyzer
retail at  comparable  prices.  The Company thus believes that it can compete in
the diagnostic  market place based upon the lower price and improved  diagnostic
functions of the analyzer.

      The Glaucoma  Surgery  Market.  The glaucoma  surgery market is similar in
composition to the retinal diagnostic market. The market is dominated by several
large companies.  Because there are existing glaucoma and laser surgery products
in the  market,  the  Company  hopes to be able to enter the  market  relatively
quickly  through FDA Section  510(k)  clearance of its new systems and products.
The Company believes that it can compete in this established  marketplace  since
it  will  be  offering  its  glaucoma   surgery  system  as  an  add-on  to  its
Workstation(TM).  The Company  believes that its  Workstation(TM)  will give the
Company a competitive advantage to gain a position in the marketplace.

                                       15

<PAGE>




Intellectual Property Protection

      The  Company's  cataract  surgical  products  are  proprietary  in design,
engineering and  performance.  The Company's  ultrasonic  products have not been
patented  to  date  because  the  primary   technology  for  ultrasonic   tissue
fragmentation,  as available to all competitors in the market,  is mainly in the
public domain.

      The Photon(TM)  laser  cataract  probe is protected  under a United States
patent issued in 1987 to Daniel M. Eichenbaum, M.D. and subsequently assigned by
Photomed  International,  Inc. ("Photomed") and a Japanese patent issued in 1997
to the Company for the utility  and methods of laser  ablation,  aspiration  and
irrigation of tissue through a hand-held  probe of a unique design.  The Company
secured the exclusive  worldwide  right to this patent  shortly after its issue,
and to the  international  patents pending,  from Photomed by means of a license
agreement  (the  "License  Agreement").  The  License  Agreement  was amended on
December 5, 1997 to allow  Photomed the right to conduct  research,  development
and marketing utilizing the patent in certain medical sub-specialties other than
ophthalmology  for which the Company would receive royalty  payments equal to 1%
of the  proceeds  from the net  sales of  products  utilizing  the  patent.  See
"Management" and "Certain Relationships and Related Transactions."

      OBF Labs, the manufacturer of the Blood Flow Analyzer(TM) that the Company
markets in the United States under a non-exclusive  license agreement,  has been
granted a patent in the European  Economic  Community  and the United States and
has a patent pending in Japan.

      Although the Company's trademarks are important to its business, it is not
the  Company's  policy  to pursue  trademark  registrations  for its  trademarks
associated  with its products.  Consequently,  the Company  relies on common law
trademark  rights to protect its  unregistered  trademarks,  although common law
trademark rights do not provide the Company with the same level of protection as
would U.S.  federal  registered  trademarks.  Common law  trademark  rights only
extend to the  geographical  area in which the  trademark is actually used while
U.S.  federal  registration  prohibits  the use of the  trademark  by any  party
anywhere in the United States.

      The Company also relies on trade secret law to protect some aspects of its
intellectual  property.  All of the Company's  key  employees,  consultants  and
advisors  are  required  to  enter  into a  confidentiality  agreement  with the
Company.  Most of the Company's  third-party  manufacturers  and formulators are
also bound by confidentiality agreements with the Company.

Regulation

      The  Company's  surgical and  diagnostic  systems are regulated as medical
devices by the FDA under the FDC Act. As such,  these devices require  Premarket
clearance  or  approval  by the FDA  prior to their  marketing  and  sale.  Such
clearance or approval is premised on the  production of evidence  sufficient for
the Company to show reasonable  assurance of safety and effectiveness  regarding
its  products.  Pursuant  to the FDC Act,  the FDA  regulates  the  manufacture,
distribution  and  production  of medical  devices in the United  States and the
export of medical devices from the United States.  Noncompliance with applicable
requirements  can  result  in fines,  injunctions,  civil  penalties,  recall or
seizure  of  products,  total or partial  suspension  of  production,  denial of
Premarket clearance or

                                       16

<PAGE>



approval for devices, recommendations by the FDA that the Company not be allowed
to enter into government contracts, and criminal prosecution.

      Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA began classifying  medical devices in commercial  distribution
into one of three classes:  Class I, II or III. This  classification is based on
the controls that are perceived to be necessary to reasonably  ensure the safety
and  effectiveness  of medical devices.  Class I devices are those devices,  the
safety and  effectiveness  of which can  reasonably be ensured  through  general
controls,  such as adequate labeling,  advertising,  Premarket  notification and
adherence to the FDA's Quality System Requirements (QSR) regulations. Some Class
I devices  are exempt from some of the  general  controls.  Class II devices are
those devices the safety and  effectiveness  of which can  reasonably be assured
through the use of special controls,  such as performance standards,  postmarket
surveillance,  patient  registries  and FDA  guidelines.  Class III  devices are
devices that must receive  Premarket  approval by the FDA to ensure their safety
and effectiveness.  Generally, Class III devices are limited to life-sustaining,
life- supporting or implantable  devices, or to new devices that have been found
not to be substantially equivalent to legally marketed devices.

      There are two principal methods by which FDA approval may be obtained. One
method is to seek FDA  approval  through a Premarket  notification  filing under
Section  510(k) of the FDC Act. 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 Section 510(k)  Premarket  clearance for the device by
filing a Section 510(k) Premarket notification.  The Section 510(k) notification
and the claim of  substantial  equivalence  will likely have to be  supported by
various  types  of data  and  materials,  possibly  including  clinical  testing
results,  obtained  under  an  IDE  granted  by the  FDA.  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.  There can be no
assurance that the Company will obtain Section  510(k)  Premarket  clearance for
any of the future devices for which the Company seeks such  clearance  including
the Photon(TM) Laser.

      The FDA may determine  that the device is  "substantially  equivalent"  to
another  legally  marketed  Class I, Class II or  pre-1976  Class III device for
which the FDA has not  called  for a PMA,  and allow the  proposed  device to be
marketed in the United States. The FDA may determine, however, that the proposed
device is not substantially equivalent, or may require further information, such
as  additional  test  data,  before  the FDA is  able  to  make a  determination
regarding   substantial   equivalence.    A   "not   substantially   equivalent"
determination or a request for additional  information could delay the Company's
market  introduction of its products and could have a material adverse effect on
the Company's business, operating results and financial condition.

      The alternate method to seek approval is to obtain Premarket approval from
the FDA. If a manufacturer  or distributor of a medical device cannot  establish
that a proposed device is  substantially  equivalent to another legally marketed
device, whether or not the FDA has made a determination in response to a Section
510(k) notification, the manufacturer or distributor will have to seek Premarket
approval for the proposed device.  A PMA application  would have to be submitted
and be supported by extensive  data,  including  preclinical  and clinical trial
data to prove the safety and efficacy of the device. If human clinical trials of
a proposed device are required and the device presents a "significant risk," the
manufacturer  or  the  distributor  of the  device  will  have  to  file  an IDE
application with the

                                       17

<PAGE>



FDA prior to commencing  human  clinical  trials.  The IDE  application  must be
supported  by data,  typically  including  the results of animal and  mechanical
testing. If the IDE application is approved,  human clinical trials may begin at
a specific  number of  investigational  sites,  and the  approval  letter  could
include the number of patients approved by the FDA. An IDE clinical trial can be
divided  into  several  parts or Phases.  Sometimes,  a company  will  conduct a
feasibility study to confirm that a device functions according to its design and
operating parameters.  This is usual clinical trial site. If the Phase I results
are promising,  the applicant may, with the FDA's permission,  expand the number
of  clinical  trial  sites and the  number of  patients  to be treated to assure
reasonable  stability  of clinical  results.  Phase II studies are  performed to
confirm  predictability  of results  and the absence of adverse  reactions.  The
applicant may, upon receipt of the FDA's authorization,  subsequently expand the
study to a third  phase  with a larger  number  of  clinical  trial  sites and a
greater number of patients. This involves longer patient follow-up times and the
collection of more patient data. Product claims,  labeling and core data for the
PMA are derived primarily from this portion of the clinical trial. The applicant
may also, upon receipt of the FDA's permission,  consolidate one or more of such
portions of the study.  Sponsors of clinical  trials are permitted to sell 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.  Although both approval  methods may require  clinical  testing of the
device in question  under an approved IDE, the Premarket  approval  procedure is
more complex and time consuming.

      Upon  receipt  of  the  PMA   application,   the  FDA  makes  a  threshold
determination  whether  the  application  is  sufficiently  complete to permit a
substantive review. If the FDA determines that the PMA is sufficiently  complete
to permit a substantive  review,  the FDA will "file" the application.  Once the
submission is filed,  the FDA has by  regulation 90 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 QSR requirements prior to approval of a PMA.
While the FDA has responded to PMA applications within the allotted time period,
PMA reviews  generally take  approximately 12 to 18 months or more from the date
of filing to approval.  The PMA process is lengthy and expensive,  and there can
be no assurance  that such  approval  will be obtained for any of the  Company's
products determined to be subject to such requirements.  A number of devices for
which PMA approval has been sought by other  companies  have never been approved
for marketing.

      Any products  manufactured  or  distributed  by the Company  pursuant to a
premarket clearance  notification or PMA are or will be subject to pervasive and
continuing  regulation  by the FDA. The FDC Act also requires that the Company's
products be manufactured in registered establishments and in accordance with QSR
regulations.  Labeling,  advertising and  promotional  activities are subject to
scrutiny by the FDA and, in certain instances,  by the Federal Trade Commission.
The  export  of  medical  devices  is also  subject  to  regulation  in  certain
instances.  In addition,  the use of the Company's  products may be regulated by
various state agencies.

      All lasers  manufactured  for 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

                                       18

<PAGE>



end users  pursuant  to  specific  performance  standards,  and to  comply  with
labeling and certification requirements.  Various warning labels must be affixed
to the laser,  depending  on the class of the  product,  as  established  by the
performance standards.

      Although the Company believes that it currently complies and will continue
to comply with all 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 review guidelines,  regulations or administrative  interpretations by
the FDA or other regulatory bodies,  with possible  retroactive effect, will not
materially  adversely  affect the  Company.  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 potentially hazardous substance.
There  can be no  assurance  that  the  Company  will not be  required  to incur
significant  costs to  comply  with  such  laws and  regulations  and that  such
compliance will not have a material adverse effect upon the Company's ability to
conduct business.

      The  Company  and  the  manufacturers  of the  Company's  products  may be
inspected  on a  routine  basis  by  both  the  FDA and  individual  states  for
compliance with current QSR regulations and other requirements.

      Congress has considered several comprehensive federal health care programs
designed to broaden  coverage  and reduce the costs of existing  government  and
private  insurance  programs.  These programs have been the subject of criticism
within Congress and the health care industry,  and many alternative programs and
features of programs have been proposed and  discussed.  Therefore,  the Company
cannot predict the content of any federal health care program,  if any is passed
by Congress, or its effect on Company and its business.  Some measures that have
been suggested as possible  elements of a new program,  such as government price
ceilings on nonreimbursable procedures and spending limitations on hospitals and
other  healthcare  providers for new equipment,  could have an adverse effect on
the Company's business,  operating results or financial  condition.  Uncertainty
concerning  the features of any health care program  considered by the Congress,
its  adoption by the  Congress  and the effect of the  program on the  Company's
business could result in volatility of the market price of the Company's  Common
Stock.

      Furthermore,  the  introduction  of  the  Company's  products  in  foreign
countries may require the Company to obtain foreign regulatory  clearances.  The
Company believes that only a limited number of foreign  countries have extensive
regulatory  requirements,  including France,  Germany, Korea and Japan. The time
involved  for  regulatory  approval in foreign  countries  varies and can take a
number of years. A number of European and other economically advanced countries,
including  Italy,  Norway,  Spain  and  Sweden,  have not  developed  regulatory
agencies for intensive supervision of such devices. Instead, they generally have
been willing to accept the approval of the FDA. Therefore, a PMA, Section 510(k)
or approved IDE from the FDA is tantamount to approval in those countries. These
countries and most developing  countries have simply deferred direct  discretion
to licensed  practicing  surgeons to  determine  the nature of devices that they
will use in medical  procedures.  The  Company's  two  ultrasound  systems,  the
Photon(TM)  laser cataract system the Company is developing and the ocular blood
flow  analyzer  are  all  devices  which  require  FDA  approval.  Therefore,  a
significant  aspect  of the  acceptance  of the  devices  in the  market  is the
effectiveness  of the Company in obtaining  the necessary  approvals.  Having an
approved IDE allows the Company to export a product to qualified

                                       19

<PAGE>



investigational sites.

Regulatory Status of Products

      The SIStem(TM),  Odyssey(TM) and  Surg-E-Trol(TM) are approved for sale in
the U. S. by the FDA under  510(k)s.  The products  have also been  accepted for
import into various non-EC countries.  The SIStem(TM) has been certified to bear
the CE mark, allowing sales in European Community countries.

      The Photon(TM) Laser Cataract System. The Company acquired permission from
the FDA to  manufacture  the  device  and  approval  to export  it to  qualified
investigator  sites  outside the United  States under an open IDE granted by the
FDA in May 1995.  Although  the  Photon(TM)  laser  cataract  system is uniquely
configured in an original and  proprietary  manner,  the laser system,  a Nd:YAG
laser, is not proprietary to the device or the Company and is widely used in the
medical industry and other industries as well. Of particular significance is the
fact that this particular  component has received previous market clearance from
the FDA for other ophthalmic and medical  applications.  Also of significance is
the Company's belief that the surgical treatment method used with the Photon(TM)
laser cataract is similar to the current ultrasound  cataract treatment employed
by ophthalmologists. The Company thus believes that it can obtain Section 510(k)
clearance for the Photon(TM) laser cataract system sometime in 2000.

      The Company submitted its Premarket  Notification  under Section 510(k) of
the FDC Act for the Photon(TM)  laser cataract system in September 1993. The FDA
requested  clinical support data for claims made in the Section 510(k) Premarket
Notification,  and in October 1994 the Company  submitted an IDE  application to
provide for a "modest  clinical  study" in order to collect the data required by
the FDA for clearance of the Photon(TM) laser cataract  system.  The FDA granted
this IDE in May 1995. The Company began human clinical  trials in April 1996 and
completed the clinical  surgeries in December 1996.  Through the clinical trials
the  Company  discovered  that the  Photon(TM)  laser  cataract  system  may not
effectively  remove harder grade cataracts.  Hard cataracts can be removed using
the already existing ultrasound  capability of the Workstation(TM).  The Company
has requested and received FDA approval to conduct Phase II clinical  studies at
seven sites in hopes of refining the laser system and surgical  method to remove
cataracts and provide the  statistical  data required to approve the  Photon(TM)
laser system for laser cataract removal.  There is no guarantee,  however,  that
the Company will be  successful  in improving  the laser system to remove harder
grade cataracts.

      Blood Flow  Analyzer(TM)(Paradigm  BFA). The FDA granted market  clearance
pursuant to Section

                                       20

<PAGE>



510(k)  of the FDC Act,  for the  commercial  sale of the  Paradigm  Blood  Flow
Analyzer(TM)  in June  1997  for the  intended  use and  claims  of  applanation
tonometry and blood flow analysis.  The clearance allows immediate  marketing in
the United  States  for this new  product  and allows the  Company to expand its
product base into the ophthalmic  office and optometric office with a diagnostic
system.

Employees

      As of December 31,  1999,  the Company had 26  full-time  employees.  This
number does not include the  Company's  manufacturer's  representatives  who are
independent  contractors rather than employees of the Company.  The Company also
utilizes  several  consultants and advisors.  There can be no assurance that the
Company will be successful in recruiting or retaining key personnel. None of the
Company's  employees  is a member  of a labor  union and the  Company  has never
experienced any business interruption as a result of any labor disputes.

Item 2. Description of Property
-------------------------------

      The Company's  executive  offices are currently located at 2355 South 1070
West,  Salt Lake City,  Utah.  This facility  consists of  approximately  29,088
square feet of leased  office space under a three year lease that will expire on
March 1, 2003 with an additional three year renewal option. These facilities are
leased  from Eden Roc,  a  California  partnership,  at a base  monthly  rate of
$15,999 plus a $2,356 monthly common area maintenance fee. The base monthly rent
increases  to $16,479  and  $16,973 for the second and third years of the lease,
respectively.  Pursuant  to the  lease,  the  Company  pays all real  estate and
personal  property  taxes and the insurance  costs on the premises.  The Company
believes  that these  facilities  are  adequate  and  satisfy  its needs for the
foreseeable future.

Item 3. Legal Proceedings
-------------------------

      The Company is not a party to any material legal  proceedings  outside the
ordinary  course of its  business or to any other legal  proceedings  which,  if
adversely  determined,  would have a material  adverse  effect on the  Company's
financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
      None.

                                     PART II
                                     -------

Item 5. Market for Common Equity and related Stockholder Matters
----------------------------------------------------------------

      The Authorized  capital stock of the Company consists of 20,000,000 shares
of Common Stock,  $.001 par value per share,  and 5,000,000  shares of Preferred
Stock,  $.001 par value per share.  The  Company  has  created  four  classes of
Preferred  Stock,  designated  as Series A Preferred  Stock,  Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock.

      The  Company's  Common  Stock and  Class A  Warrants  trade on The  Nasdaq
SmallCap  Market under the  respective  symbols of "PMED" and "PMEDW."  Prior to
July 22, 1996,  there was no public market for the Common Stock. As of March 23,
2000 the closing sale prices of the Common 21

<PAGE>



Stock and Class A  Warrants  were  $9.750  per share  and  $3.313  per  warrant,
respectively.  The  following  are the high and low sales  prices for the Common
Stock and Class A Warrants by quarter as reported by Nasdaq since July 22, 1996.

<TABLE>
<CAPTION>

                                                         Common Stock                         Class A Warrants
                                                          Price Range                            Price Range
          Period (Calendar Year)            High                Low                        High                 Low
<S>                                         <C>                 <C>                       <C>                   <C>
1996
  Third Quarter (since July 22, 1996).....  6.000               2.000                      1.188                  0.125
  Fourth Quarter..........................  5.625               2.875                      1.438                  0.438

1997
  First Quarter...........................  6.375               3.000                      1.563                  0.750
  Second Quarter..........................  5.750               3.000                      1.000                  1.500
  Third Quarter...........................  6.000               1.563                      1.375                  0.125
  Fourth Quarter..........................  4.625               2.438                      0.875                  0.250

1998
  First Quarter...........................  4.688               2.875                      0.938                  0.250
  Second Quarter..........................  6.500               3.813                      1.313                  0.250
  Third Quarter...........................  4.563               2.500                      0.688                  0.438
  Fourth Quarter..........................  3.000               1.563                      1.188                  0.438

1999
  First Quarter                             4.000               2.094                      1.063                  0.047
  Second Quarter                            3.938               2.688                      0.875                  0.594
  Third Quarter                             4.594               2.688                      1.000                  0.438
  Fourth Quarter                            7.938               2.875                      2.313                  0.438

</TABLE>


      The Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred  Stock and Series D Preferred  Stock are not  publicly  traded.  As of
March  23,2000,  there were 659 record holders of Common Stock, 6 record holders
of Series A Preferred  Stock, 4 record holders of Series B Preferred  Stock,  no
record  holders of Series C  Preferred  Stock and 28 record  holders of Series D
Preferred Stock.

      The Company has never paid any cash dividends on its Common Stock and does
not anticipate  paying any cash dividends on its Common Stock in the foreseeable
future.  The  Company  must  pay  cash  dividends  to  holders  of its  Series A
Preferred,  Series B Preferred,  Series C Preferred and Series D Preferred Stock
before it can pay any cash  dividend to holders of its Common  Stock.  Dividends
paid in cash pursuant to outstanding shares of the Company's Series A, Series B,
Series C and Series D Preferred Stock are only payable from surplus  earnings of
the Company and are  non-cumulative  and therefore,  no deficiencies in dividend
payments  from one  year  will be  carried  forward  to the  next.  The  Company
currently intends to retain future earnings, if any, to fund the development and
growth of the Company's  proposed  business and operations.  Any payment of cash
dividends in the future on the Common Stock will be dependent upon the Company's
financial  condition,  results  of  operations,  current  and  anticipated  cash
requirements,  plans  for  expansion,  restrictions,  if  any,  under  any  debt
obligations,  as well as other  factors  that the  Company's  Board of Directors
deems  relevant.  The Company  issued 6,764 shares of its Series A Preferred and
6,017 shares of its Series B Preferred on January 8, 1996 as a stock dividend to
Series A and Series B shareholders of record as of December 31, 1994.

Item 6. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------

General

      The following Management's  Discussion and Analysis of Financial Condition
and Results of Operations,  contains  forward looking  statements  which involve
risks and uncertainty. The Company's actual results could differ materially from
those anticipated in these forward looking statements as a

                                       22

<PAGE>



result of certain factors discussed in this section. The Company has changed its
fiscal year to the period from January 1 to and including December 31.

      The Company is engaged in the design, development, manufacture and sale of
high technology eye care products.  The Company's surgical equipment is designed
to perform  minimally  invasive  cataract  surgery and is  comprised of surgical
devices and related instruments and accessories,  including disposable products.
The Company's ultrasound diagnostic products include a pachymeter, an A-Scan, an
A/B Scan and a  biomicroscope,  the  technology  for  which  was  acquired  from
Humphrey  Systms in 1998.  In  addition,  the  Company  markets  its Blood  Flow
Analyzer(TM).  Paradigm's  activities  for the twelve months ended  December 31,
1999 include domestic sales of the Precisionist  ThirtyThousand(TM) and Humphrey
Systems ultrasound diagnostic  equipment,  acquisition of new product lines, and
research and development on the Photon(TM)  laser cataract  removal system which
received FDA approval for expansion to Phase II Clinical Trials on May 19, 1998.

      In July 1998,  the Company  announced  the  acquisition  of the  exclusive
manufacturing rights to four FDA-approved ophthalmic diagnostic instruments from
Humphrey Sysems,  a division of Carl Zeiss,  Inc. which complement the Company's
cataract  surgical  equipment  and its  Blood  Flow  Anylyzer(TM).  The  Company
commenced  delivery  of  the  Pachymetric   Analyzer,   which  measures  corneal
thickness, in December, 1998 and the Ultrasound A-Scan, which measures the axial
length of the eye, in March,1999.  The Company began shipments of the Ultrasound
A/B Scan, which is used by retinal specialists to identify foreign bodies in the
posterior  chamber of the eye and in evaluating the structural  integrity of the
retina,  in the second quarter of 1999. The  Ultrasonic  Biomicroscope  ("UBM"),
which creates a  high-resolution  computer  image of the unseen parts of the eye
providing a map for the glaucoma surgeon, also commenced shipments in the second
quarter of 1999.

      In October  1999 the  Company  entered  into an  agreement  with Mentor to
purchase the rights to develop, manufacture, market and sell their Phaco product
line. The phaco line includes the Mentor  SIStem(TM),  the Odyssey(TM),  and the
Surg- E-Trol(TM).  Shipments of the Mentor SIStem(TM) commenced immediately upon
purchase, and have continued in first quarter of 2000.

      In  November,  1999,  the  Company  entered  into  a  Mutual  Release  and
Settlement    agreement   with   the    manufacturer    of   the    Precisionist
ThirtyThousand(TM)   Ocular  Surgery   Workstation(TM)   in  which  the  Company
terminated its  Manufacturing  Agreement and completed the purchase from them of
outstanding finished goods and raw material inventory. The company took over the
development   and   manufacture   of  the   ThirtyThousand(TM)   Ocular  Surgery
Workstation(TM).

      On  January  27,  2000,  the  Company  entered  into a letter of intent to
acquire  Vismed,  dba  Dicon,  a  California  corporation,  a  manufacturer  and
distributor of proprietary  medical  diagnostic instrumentation  for chronic eye
diseases.


Results of Operations

      Fiscal  year  Ended  December  31,  1999,  Compared  to Fiscal  year Ended
December 31, 1998:

      Sales  increased by $443,000,  or 35%, to $1,701,000 for the twelve months
ended December 31, 1999,  from  $1,258,000  for the  comparable  period in 1998.
Production  and  shipment  of the  Humphrey  ophthalmic  diagnostic  instruments
commenced in the first and second  quarters of 1999. The Company shipped a total
of 105 A-Scans, 22 A/B Scans, 21 Ultrasonic Biomicroscopes,  and 31 Pachymeters.
Also,  upon the purchase of the Mentor phaco product line in the fourth  quarter
of 1999, the Company shipped two Mentor SIStem(TM) surgery workstations, as well
as associated  accessories.  The new fluidic panel for the  Precisionist(TM) was
completed late in the year, rather than in March 1999, as was anticipated at the
end of 1998. As a result, the Company shipped only one Precisionist(TM) in 1999.
Due to the  restructuring  of Phase II clinical study sites in the third quarter
of 1999, which was done to expedite  completion of the clinical  studies,  sales
returns were posted of approximately $500,000.

      Cost of sales increased by $218,000,  or 27%, to $1,031,000 for the twelve
months ended December 31, 1999, from $813,000 for the comparable period in 1998.
The 39% gross margin on sales for the twelve months ended December 31, 1999, was
4% higher than the 35% gross margin on sales for the comparable  period in 1998.
If the  amortization of capitalized  engineering and design charges,  a non-cash
expense, 23

<PAGE>



is excluded, gross margins for 1999 and 1998 were 44% and 41%, respectively.


      Marketing and selling expenses decreased by $106,000,  or 10%, to $915,000
for  the  twelve  months  ended  December  31,  1999,  from  $1,021,000  for the
comparable  period in 1998.  Sales and  marketing  activities  pertaining to the
Humphrey ophthalmic  diagnostic  instruments were launched during the 1999 year,
although there were no changes in the size of the sales force.

      General and  administrative  expenses  increased by  $870,000,  or 47%, to
$2,711,000 in 1999,  from  $1,841,000  for the twelve months ended  December 31,
1998.  The  majority  of the  increase  was  attributable  to the  Black-Scholes
valuation of common stock warrants and common stock granted as compensation  for
consulting services during the year and an increase in bad debt expense relating
to  receivables.  In  addition,  approximately  $85,000  in design  expense  was
recognized as a result of the Mutual Release and  Settlement  Agreement with the
manufacturer of the Precisionist(TM),  which was entered into in preparation for
taking the development and manufacture of the Precisionist(TM) in-house.

      Research and  development  expenses  increased by  $379,000,  or 127%,  to
$677,000  for the year ended  December 31, 1999,  from  $298,000 for  comparable
period in 1998.  The increase  between 1998 and 1999 was ascribed to an increase
in personnel  pursuant to bringing the Humphrey  line into full  production  and
taking over the manufacture of the Precisionist(TM).

      Other  income(expense)increased  by $55,000,to  $11,000 for the year ended
December  31, 1999,  from  ($44,000)  for the same period in 1998.  This was the
result of a  reduction  in  interest  expense  recognized  in 1999 and a billing
adjustment posted in 1998.

      The Company had a net loss of $3,622,000,  or $.54 per share, for the year
ended  December  31,  1999,  compared to a net loss of  $2,759,000,  or $.69 per
share,  for the year ended  December  31,  1998,  an increase of  $863,000.  The
increase  in  net  loss  was  attributable  to  a  reduction  in  sales  of  the
Precisionist(TM)  as a result of delays in the release of the new fluidic panel,
sales returns pursuant to  restructuring  the Phase II clinical study sites, the
valuation of the warrants granted to outside consultants, expenses recognized in
connection   with  the  Mutual  Release  and   Settlement   Agreement  with  the
manufacturer of the Precisionist(TM),  and an increase in bad debt allowance for
receivables.

      Fiscal  Year  Ended  December  31,  1998,  Compared  to Fiscal  Year Ended
December 31, 1997:

      Sales  increased by $794,000,or  171%, to $1,258,000 for the twelve months
ended  December 31, 1998 from $464,000 for the  comparable  period in 1997.  The
higher  level of  sales  in  fiscal  1998  was  primarily  due to the sale of 21
Precisionist(TM)   and   17   Blood   Flow   Analyzer(TM)s   compared   with   8
Precisionist(TM)s  and 3 Blood  Flow  Analyzer(TM)s  in  fiscal  1997.  Sales of
products in the surgery equipment market are contingent upon customer evaluation
and acceptance.  In 1998, two Precisionist(TM)s were returned compared with five
in 1997 when  certain  software  and  hardware  revisions  were  identified  and
corrected. With the introduction of teh new fluidic system in March 1999 for the
Precisionist Thirty Thousand  Workstation(TM),  coupled with the shipment of the
four new ophthalmic diagnostic instruments, management anticipates a significant
improvement in sales.

      The cost of sales increased $480,000,  or 144%, to $813,000 for the twelve
months ended December 31, 1998, from $333,000 for the comparable period in 1997.
The gross margin for the twelve  months  ended  December 31, 1998 of 35%, was 7%
higher  than the  gross  margin  for the  comparable  period  in  1997,  of 28%,
primarily as a result of the amortization of capitalized  engineering and design
charges.  If the amortization of capitalized  engineering and design charges,  a
non-cash expense,

                                       23

<PAGE>



is excluded, the gross margin for 1998 and 1999 is 41% or slightly less than the
gross margin of 41% for 1997.

      Marketing  and  selling  expenses  increased  by  $430,000,   or  73%,  to
$1,021,000 for the twelve months ended December 31, 1998,  from $591,000 for the
comparable  period in 1997.  The increase  was a result of the Company  adding a
sales  manager  and  two  additional  sales  representatives,   an  increase  in
advertising  promotional  activities  associated  with  trade  shows  and  laser
seminars for ophthalmic surgeons in conjunction with launching the Photon Ocular
Surgery  Workstation(TM),  and service  problems  due to software  and  hardware
revisions to the Precisionist(TM)Ocular Surgery Workstation(TM).

      General and  administrative  expenses increased $39,000 from $1,802,000 in
1997  or 2% to  $1,841,000  for the  twelve  months  ended  December  31,  1998,
primarily  due to  higher  costs  associated  with the  implementation  of a new
computer network and accounting, manufacturing and inventory control system.

      Research and development  expenses decreased by $242,000,  or 45%, for the
year ended  December  31, 1998,  to $298,000  from  $540,000 for the  comparable
period in 1997.  The decrease was  primarily  the result of the  completion of a
substantial  part of the  engineering  and design  changes  on the  Precisionist
ThirtyThousand(TM) Ocular Surgery Workstation(TM).

      Other  expenses  decreased  by  $164,000  to  $44,000  for the year  ended
December  31,1998,  compared  to $208,000  for the same period in 1997.  This is
primarily due to the conversion of promissory notes into  convertible  preferred
stock.

      The Company had a net loss of $2,759,000,  or $.69 per share, for the year
ended  December  31, 1998 as compared to a net loss of  $3,010,000,  or $.82 per
share,  for the year ended  December  31,  1997,  a decrease  of  $251,000.  The
decrease was a result of increased sales and decreased  research and development
expenses offset by increased costs of sales, marketing, and selling expenses.


Upgrades

      To garner sales, the Company offers the ultrasonic Precisionist(TM) system
with an  unconditional  arrangement  under which the customer may trade in their
Precisionist(TM) system to upgrade to a Precisionist  ThirtyThousand(TM)  Ocular
Surgery  Workstation(TM).  Under this  arrangement,  the customer  receives full
credit for the trade in purchase  price of the  Precisionist(TM)  system against
the   price  of  the  new   Precisionist   ThirtyThousand(TM)   Ocular   Surgery
Workstation(TM).   As  of  December  31,  1999,  the  Company  has   distributed
approximately 51 Precisionist(TM) systems under this provision. The gross margin
on these  original  sales was  approximately  $295,000,  or 32%. If all of these
customers were to exercise their upgrade  privilege,  the Company would exchange
the   Precisionist(TM)   system  for  the  Company's  new  Precisionist   Thirty
Thousand(TM)  Ocular  Surgery   Workstation(TM)  and  refurbish  the  ultrasonic
Precisionist(TM)  systems and sell them in the international  market. Any losses
on the sale of the refurbished  Precisionist(TM) systems, which are not expected
to  be  significant,   would  reduce  the  gross  margin  on  the   Precisionist
ThirtyThousand(TM)  Ocular Surgery Workstation(TM) sales. The total gross margin
on the upgrade  sales is estimated  to be  $1,677,000,  or 41%.  During the year
ended  December  31,  1999,  there were no  trade-in  sales,  compared  with two
trade-in sales totaling $76,000 for the year ended December 31, 1998.

Liquidity and Capital Resources

      The Company used cash in operating activities of $3,623,000 for the twelve
months ended  December 31, 1999,  compared to  $2,414,000  for the twelve months
ended December 31, 1998.  The increase in cash used for operating  activities in
1999 was attributed to the purchase of inventory  associated with the production
of the Humphrey  diagnostic  line and a decrease in collections on  receivables.
The Company used cash from investing  activities of $4,000 for the twelve months
ended December 31, 1999,  compared to $92,000 in fiscal 1998. The difference was
attributable  to a note  receivable  recognized  in 1998 but  reversed  in 1999.
Investment in property and equipment in both years was about the same.  Net cash
provided by financing  activities for the twelve months ended December 31, 1999,
was  $4,515,000,  compared with  $1,733,000 for 1998. In March 1999, the Company
completed  a private  placement  of  1,140,000  shares  of Series D  Convertible
Preferred  Stock  at  $1.75  per  share  with the net  proceeds  to the  Company
approximating $1,649,000. In several sale transactions, 920,900 shares of Common
Stock were sold for net proceeds of $2,485,000.  In addition,  First  Associated
Securities warrants,  Noteholders'  warrants, the Win and Cyndel working capital
loan  warrants,  and  Hemmer  warrants  were  exercised  for total  proceeds  of
$398,000.

      The Company  will seek  funding to meet its working  capital  requirements
through  collaborative  arrangements and strategic alliances,  additional public
offerings and/or private placements of its securities or bank borrowings.  There
can be no  assurance,  however,  that  additional  funds,  if required,  will be
available from any of the foregoing or other sources on favorable  terms,  if at
all.

      The  Company's  ratio of  inventory  to sales for the twelve  month period
ended  December 31,  1999,  was 2.44, compared  with .57, for the same period in
1998.  With the  launching  of new  products  within the past  eighteen  months,
management has had to build inventory in anticipation of sales. As a result, the
ratio of inventory to sales,  particularly computed on the basis of inventory to
quarterly sales,  tends to fluctuate widely depending on the Company's  purchase
orders with the manufacturers, the time lags between customer's purchase orders,
delivery and sales, the number of demonstration units in the field, the accuracy
of the sales forecast and seasonal factors.

      At December 31, 1999,  the Company had net  operating  loss  carryforwards
(NOLs)of  approximately  $12,000,000  and  research and  development  tax credit
carryforwards of approximately  $34,000.  These  carryforwards  are available to
offset future taxable income,  if any, and begin to expire in the year 2006. The
Company's  ability to use its NOLs to offset future income is dependant upon the
tax laws in effect at the time the NOL's can be utilized.  The Tax Reform Act of
1996 significantly  limits the annual amount that can be utilized for certain of
these carry forwards as a result of change of ownership.

Effect of Inflation and Foreign Currency Exchange

      The Company  has not  realized a  reduction  in the  selling  price of the
Precisionist phaco system as a result of domestic inflation. Nor has the Company
experienced  unfavorable profit reductions due to currency exchange fluctuations
or inflation with its foreign customers.


                                       25

<PAGE>



Impact of New Accounting Pronouncements

      In June 1998,  the FASB issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities".  This statement establishes  accounting and
reporting standards for derivative  instruments and requires  recognition of all
derivatives as assets or liabilities in the statement of financial  position and
measurement of those  instruments at fair value.  The statement is effective for
fiscal  years  beginning  after June 15,  1999.  The Company  believes  that the
adoption  of SFAS  133  will  not have  any  material  effect  on the  financial
statements of the Company.

      The Company has reviewed all other recently issued accounting standards in
order to  determine  their  effects,  if any,  on the results of  operations  or
financial  position of the Company.  Based on that review,  the Company believes
that none of these  pronouncements  will have a significant effect on current or
future earnings or operations.

Item 7. Financial Statements
----------------------------

                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Index to Financial Statements


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




                                                                            Page
                                                                            ----

Independent Auditors' Report                                                 F-2


Balance Sheet                                                                F-3


Statement of Operations                                                      F-4


Statement of Stockholders' Equity                                            F-5


Statement of Cash Flows                                                      F-7


Notes to Financial Statements                                                F-8





--------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                             F-1

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                    INDEPENDENT AUDITORS' REPORT








To the Board of Directors of
Paradigm Medical Industries, Inc.


We have audited the balance  sheet of Paradigm  Medical  Industries,  Inc.  (the
Company) as of December  31, 1999,  and the related  statements  of  operations,
stockholders'  equity,  and cash flows for the years ended December 31, 1999 and
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Paradigm Medical  Industries,
Inc. as of December 31,  1999,  and the results of its  operations  and its cash
flows  for the years  ended  December  31,  1999 and 1998,  in  conformity  with
generally accepted accounting principles.




                                       TANNER + Co.





Salt Lake City, Utah
March 16, 2000



                                                                             F-2

<PAGE>
<TABLE>
<CAPTION>



                                                                         PARADIGM MEDICAL INDUSTRIES, INC.

                                                                                             Balance Sheet

                                                                                         December 31, 1999
----------------------------------------------------------------------------------------------------------



              Assets
              ------
<S>                                                                                     <C>

Current assets:
     Cash                                                                               $        1,002,000
     Receivables, net                                                                              561,000
     Inventories                                                                                 4,153,000
     Prepaid expenses                                                                               91,000
                                                                                        ------------------

                  Total current assets                                                           5,807,000

Intangibles, net                                                                                   611,000
Property and equipment, net                                                                        204,000
                                                                                        ------------------

                  Total assets                                                          $        6,622,000
                                                                                        ------------------

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

              Liabilities and Stockholders' Equity
              ------------------------------------

Current liabilities:
     Payables                                                                           $          252,000
     Accrued liabilities                                                                           142,000
     Current portion of long-term debt                                                              23,000
                                                                                        ------------------

                  Total current liabilities                                                        417,000
                                                                                        ------------------

Long-term debt                                                                                      25,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' equity:
     Preferred stock,  $.001 par value,  5,000,000
       shares  authorized,  341,457 shares
       issued and outstanding (aggregate
       liquidation preference of $684,000)                                                               -
     Common stock, $.001 par value, 20,000,000
       shares authorized, 8,785,548 shares
       issued and outstanding                                                                        9,000
     Additional paid-in capital                                                                 26,564,000
     Treasury stock, at cost                                                                        (4,000)
     Stock subscription receivable                                                                  (8,000)
     Accumulated deficit                                                                       (20,381,000)
                                                                                        ------------------

                  Total stockholders' equity                                                     6,180,000
                                                                                        ------------------

                  Total liabilities and stockholders' equity                            $        6,622,000
                                                                                        ------------------

----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                                                         PARADIGM MEDICAL INDUSTRIES, INC.

                                                                                   Statement of Operations

                                                                                  Years Ended December 31,
----------------------------------------------------------------------------------------------------------




                                                                             1999              1998
                                                                       -----------------------------------

<S>                                                                    <C>                 <C>
Sales                                                                  $       1,701,000   $     1,258,000

Cost of sales                                                                  1,031,000           813,000
                                                                       -----------------------------------

         Gross profit                                                            670,000           445,000
                                                                       -----------------------------------

Operating expenses:
     General and administrative                                                2,711,000         1,841,000
     Marketing and selling                                                       915,000         1,021,000
     Research and development                                                    677,000           298,000
                                                                       -----------------------------------

         Total operating expenses                                              4,303,000         3,160,000
                                                                       -----------------------------------

         Operating loss                                                       (3,633,000)       (2,715,000)
                                                                       -----------------------------------

Other income (expense):
     Interest income                                                              30,000            49,000
     Interest expense                                                            (15,000)          (33,000)
     Other                                                                        (4,000)          (60,000)
                                                                       -----------------------------------

         Total other income                                                       11,000           (44,000)
                                                                       -----------------------------------

         Loss before provision for income taxes                               (3,622,000)       (2,759,000)

Provision for income taxes                                                             -                 -
                                                                       -----------------------------------

         Net loss                                                      $      (3,622,000)  $    (2,759,000)
                                                                       -----------------------------------

Loss per common share - basic and diluted                              $            (.54)  $          (.69)
                                                                       -----------------------------------

Weighted average common shares - basic and diluted                             6,733,000         4,022,000
                                                                       -----------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-4

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                       PARADIGM MEDICAL INDUSTRIES, INC.
                                                                                       Statement of Stockholders' Equity

                                                                                  Years Ended December 31, 1999 and 1998
------------------------------------------------------------------------------------------------------------------------
                                                        Preferred Stock
                         -----------------------------------------------------------------------------
                            Series A           Series B             Series C             Series D         Common Stock
                         -----------------------------------------------------------------------------------------------
                         Shares  Amount    Shares    Amount     Shares    Amount     Shares    Amount    Shares   Amount
                         -----------------------------------------------------------------------------------------------
<S>                       <C>       <C>     <C>         <C>      <C>         <C>           <C>    <C>   <C>        <C>
Balance at
January 1, 1998           50,122    $   -    45,383     $    -         -     $    -         -     $   - 3,798,931  $4,000

Issuance of Series C
preferred stock for:                                                                        -         -
  Cash                         -        -         -          -    19,937          -         -         -         -       -
  Debt                         -        -         -          -     9,950          -         -         -         -       -
  Subscription                 -        -         -          -        93          -         -         -         -       -
  receivable

Conversion of preferred
stock to common stock   (15,503)        -  (14,147)          -  (23,080)          -         -         - 1,354,424   1,000

Issuance of common
stock for:
  Services                     -        -         -          -         -          -         -         -    93,135       -
  Payables                     -        -         -          -         -          -         -         -    90,000       -
  Debt                         -        -         -          -         -          -         -         -    37,500       -
  Assets                       -        -         -          -         -          -         -         -   126,316       -

Issuance of stock
options for services           -        -         -          -         -          -         -         -         -       -

Difference between the
series C preferred
stock conversion price
and common stock fair          -        -         -          -         -          -         -         -         -       -
value

Net loss                       -        -         -          -         -          -         -         -         -       -

Balance at December 31,
1998                      34,619        -    31,236          -     6,900          -         -         - 5,500,306   5,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                         Additional                   Unearned Stock sub-     Accum-
                          Paid-In    Treasury Stock    Compen-  scription     ulated
                                    ------------------
                          Capital    Shares  Amount    sation  Receivable    Deficit
                        -----------------------------------------------------------------
<S>                       <C>          <C>    <C>      <C>          <C>     <C>
Balance at
January 1, 1998           $8,834,000   2,600  $(4,000) $      -     $    -  $(8,258,000)

Issuance of Series C
preferred stock for:
  Cash                     1,739,000       -         -        -          -             -
  Debt                       829,000       -         -        -          -             -
  Subscription                 8,000       -         -        -    (8,000)             -
  receivable

Conversion of preferred
stock to common stock        (1,000)       -         -        -          -             -

Issuance of common
stock for:
  Services                   290,000       -         - (94,000)          -             -
  Payables                   399,000       -         -        -          -             -
  Debt                        75,000       -         -        -          -             -
  Assets                     500,000       -         -        -          -             -

Issuance of stock
options for services         161,000       -         -        -          -             -

Difference between the
series C preferred
stock conversion price
and common stock fair      4,870,000       -         -        -          -   (4,870,000)
value

Net loss                           -       -         -        -          -   (2,759,000)
                        -----------------------------------------------------------------
Balance at December 31,
1998                      17,704,000   2,600   (4,000) (94,000)    (8,000)  (15,887,000)
-----------------------------------------------------------------------------------------
                                                                                      F-5

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                       PARADIGM MEDICAL INDUSTRIES, INC.
                                                                                       Statement of Stockholders' Equity

                                                                                  Years Ended December 31, 1999 and 1998
------------------------------------------------------------------------------------------------------------------------
                                                        Preferred Stock
                         -----------------------------------------------------------------------------
                            Series A           Series B             Series C             Series D         Common Stock
                         -----------------------------------------------------------------------------------------------
                         Shares  Amount    Shares    Amount     Shares    Amount     Shares    Amount    Shares   Amount
                         -----------------------------------------------------------------------------------------------
<S>                       <C>       <C>     <C>         <C>      <C>         <C>           <C>    <C>   <C>        <C>


Issuance of Series D
preferred stock for cash      -        -         -         -         -         -   1,140,000     1,000          -       -

Conversion of preferred
stock                   (26,542)       -  (12,000)         -   (6,400)         -   (826,356)   (1,000)  1,238,199   1,000

Issuance of common
stock for:
  Cash                        -        -         -         -         -         -           -         -    920,900   1,000
  Exercise of warrants
    and options               -        -         -         -         -         -           -         -    166,980       -
  Assets                      -        -         -         -         -         -           -         -    819,257   1,000
  Satisfaction of
    payables                  -        -         -         -         -         -           -         -     23,426       -
  Services                    -        -         -         -         -         -           -         -    116,510   1,000

Offering costs for:
    Preferred stock           -        -         -         -         -         -           -         -          -       -
    Common stock              -        -         -         -         -         -           -         -          -       -

Amortization of unearned
  compensation                -        -         -         -         -         -           -         -          -       -

Issuance of stock
options
  and warrants for            -        -         -         -         -         -           -         -          -       -
  services

Difference between the
Series D preferred
stock conversion price
and common stock fair         -        -         -         -         -         -           -         -          -       -
value

Net loss
                        --------------------------------------------------------------------------------------------------

Balance at
December 31, 1999         8,077    $   -    19,236    $    -       500    $    -     313,644     $   -  8,785,578  $9,000
                        ==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
                         Additional                   Unearned Stock sub-     Accum-
                          Paid-In    Treasury Stock    Compen-  scription     ulated
                                    ------------------
                          Capital    Shares  Amount    sation  Receivable    Deficit
                        -----------------------------------------------------------------
<S>                       <C>          <C>    <C>      <C>          <C>     <C>
Issuance of Series D
preferred stock for cash   1,995,000       -        -         -          -             -

Conversion of preferred
stock                              -       -        -         -          -             -

Issuance of common
stock for:
  Cash                     2,620,000       -        -         -          -             -
  Exercise of warrants
    and options              398,000       -        -         -          -             -
  Assets                   2,656,000       -        -         -          -             -
  Satisfaction of
    payables                 107,000       -        -         -          -             -
  Services                   366,000       -        -         -          -             -

Offering costs for:
    Preferred stock        (347,000)       -        -         -          -             -
    Common stock           (136,000)       -        -         -          -             -

Amortization of unearned
  compensation                     -       -        -    94,000          -             -

Issuance of stock
options
  and warrants for           329,000       -        -         -          -             -
  services

Difference between the
Series D preferred
stock conversion price
and common stock fair        872,000       -        -         -          -     (872,000)
value

Net loss                                                                     (3,622,000)
                        -----------------------------------------------------------------
Balance at
December 31, 1999        $26,564,000   2,600 $(4,000)     $   -   $(8,000) $(20,381,000)
                        =================================================================


-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                      F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                                                         PARADIGM MEDICAL INDUSTRIES, INC.

                                                                                   Statement of Cash Flows

                                                                                  Years Ended December 31,
----------------------------------------------------------------------------------------------------------



                                                                                1999              1998
                                                                       -----------------------------------

<S>                                                                    <C>                 <C>
Cash flows from operating activities:
     Net loss                                                          $      (3,622,000)  $    (2,759,000)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
         Depreciation and amortization                                           163,000           106,000
         Amortization of unearned compensation                                    94,000                 -
         Issuance of common stock for services                                   367,000           196,000
         Issuance of stock option/warrant for services                           329,000           161,000
         Provision for losses on receivables                                     345,000            30,000
         (Increase) decrease in:
              Receivables                                                       (340,000)         (475,000)
              Inventories                                                       (905,000)          240,000
              Debt offering cost                                                       -           259,000
              Prepaid expenses                                                   (76,000)            1,000
         Increase (decrease) in:
              Payables                                                            43,000            14,000
              Accrued liabilities                                                (21,000)         (187,000)
                                                                       -----------------------------------
                  Net cash used in
                  operating activities                                        (3,623,000)       (2,414,000)
                                                                       -----------------------------------

Cash flows from investing activities:
     Purchase of property and equipment                                          (48,000)          (48,000)
     Notes receivable                                                             44,000           (44,000)
                                                                       -----------------------------------
                  Net cash used in
                  investing activities                                            (4,000)          (92,000)
                                                                       -----------------------------------

Cash flows from financing activities:
     Proceeds from issuance of Series C preferred stock                                -         1,739,000
     Proceeds from issuance of Series D preferred stock                        1,649,000                 -
     Proceeds from issuance of common stock                                    2,485,000                 -
     Principal payments on long-term  debt                                       (17,000)           (6,000)
     Proceeds from exercise of common stock warrants and
       options                                                                   398,000                 -
                                                                       -----------------------------------
                  Net cash provided by
                  financing activities                                         4,515,000         1,733,000
                                                                       -----------------------------------

Net increase (decrease) in cash                                                  888,000          (773,000)

Cash, beginning of year                                                          114,000           887,000
                                                                       -----------------------------------

Cash, end of year                                                      $       1,002,000   $       114,000
                                                                       -----------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-7
</TABLE>
<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements

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

1.   Organization and Significant Accounting Policies

Organization

Paradigm  Medical  Industries,  Inc.  (the  Company)  is a Delaware  Corporation
incorporated  in October  1989.  The Company is engaged in marketing and selling
advanced  surgical  systems for cataracts,  various  attachments  and disposable
accessories and diagnostic equipment and instrumentation.

The Company is in the business of developing and selling  laser-based  and other
surgical eye care equipment and products.

Liquidity

The  Company  incurred  a net  loss  and  negative  cash  flows  from  operating
activities for the year ended December 31, 1999 and has an accumulated  deficit.
Subsequent  to year-end the Company has continued to have  individuals  exercise
their  options  or  warrants.  As a result,  management  believes  that if sales
projections are realized these net proceeds, plus existing working capital, will
be  sufficient  to  assure  continuation  of the  Company's  operations  through
December 31, 2000.  However,  no assurances can be given that management's plans
will be successful in achieving profitability to positive cash flows.

Cash Equivalents

For  purposes  of the  statement  of cash  flows,  cash  includes  all  cash and
investments with original maturities to the Company of three months or less.

The Company  maintains its cash in bank deposit  accounts which,  at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such  account and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.


--------------------------------------------------------------------------------
                                                                             F-8

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


1.   Organization and Significant Accounting Policies Continued

Inventories

Inventories are stated at the lower of cost or market,  cost is determined using
the weighted average method.

Property and Equipment

Property and  equipment  are recorded at cost,  less  accumulated  depreciation.
Depreciation  on property and  equipment is determined  using the  straight-line
method  over the  estimated  useful  lives of the  assets or terms of the lease.
Expenditures  for  maintenance  and  repairs  are  expensed  when  incurred  and
betterments are capitalized.  Gains and losses on sale of property and equipment
are reflected in operations.

Intangible Assets

The Company  capitalized a portion of payments to manufacturers  for engineering
and design  services.  These costs are being  amortized  using the straight line
method  over a three to five year  period.  At December  31, 1999 and 1998,  the
accumulated amortization was $253,000 and $135,000,  respectively.  Amortization
expense for the years ended December 31, 1999 and 1998 was $118,000 and $74,000,
respectively.

Income Taxes

Deferred  income  taxes are  provided  in amounts  sufficient  to give effect to
temporary  differences between financial and tax reporting,  principally related
to depreciation and accrued liabilities.

Earnings Per Share

The  computation  of basic  earnings  per common  share is based on the weighted
average number of shares outstanding during each year.

The  computation  of diluted  earnings per common share is based on the weighted
average  number of shares  outstanding  during  the year plus the  common  stock
equivalents,  which would arise from the exercise of stock  options and warrants
outstanding  using the treasury  stock  method and the average  market price per
share during the year.  Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.


--------------------------------------------------------------------------------
                                                                             F-9

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization and Significant Accounting Policies Continued

Revenue Recognition

Revenues for sales of the Photon product,  are recognized upon  installation and
acceptance  by the  customer.  Revenues  for  sales of other  surgical  systems,
ultrasound  diagnostic devices,  and disposable products are recognized when the
product is shipped.

The Company  offers certain  products with an  unconditional  arrangement  under
which the customer may trade in the product to upgrade to other systems, such as
the Photon. Under this agreement,  the customer will receive full credit for the
purchase price of the product traded against the price of the other system.

Research and Development

Costs  incurred in  connection  with  research and  development  activities  are
expensed  as  incurred.  These  costs  consist  of  direct  and  indirect  costs
associated with specific  projects as well as fees paid to various entities that
perform certain research on behalf of the Company.

Concentration of Risk

The market for  ophthalmic  lasers is  subject  to rapid  technological  change,
including advances in laser and other technologies and the potential development
of alternative surgical techniques or new pharmaceutical  products.  Development
by  others of new or  improved  products,  processes  or  technologies  may make
products developed by the Company obsolete or less competitive.

The  Company's  high  technology  product line requires the Company to deal with
suppliers and  subcontractors  supplying  highly  specialized  parts,  operating
highly  sophisticated  and narrow  tolerance  equipment  and  performing  highly
technical  calculations  and  tasks.  Although  there  are a  limited  number of
suppliers  and  manufacturers  that meet the  standards  required of a regulated
medical device, management believes that other suppliers and manufacturers could
provide similar components and services.

The nature of the Company's  business exposes it to risk from product  liability
claims. The Company maintains product liability  insurance providing coverage up
to $2 million per claim with an aggregate policy limit of $2 million. Any losses
that the Company many suffer from any product liability  litigation could have a
material adverse effect on the Company.


--------------------------------------------------------------------------------
                                                                            F-10

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization and Significant Accounting Policies Continued

Concentration of Risk - Continued

A significant  portion of the Company's product sales are in foreign  countries.
The economic and political  instability of some foreign countries may affect the
ability of medical personnel to purchase the Company's  products and the ability
of the customers to pay for the procedures for which the Company's  products are
used.  Such  circumstances  could  cause a possible  loss of sales,  which would
affect operating results adversely.

During  the year ended  December  31,  1999,  the  Company  had sales to a major
customer which represented approximately 14% of total net sales. During the year
ended December 31, 1998, no single customer  represented  more than 10% of total
net sales.

Accounts  receivable  are  due  from  medical  distributors,   surgery  centers,
hospitals  and  ophthalmologists  located  throughout  the U.S.  and a number of
foreign  countries.  The  receivables  are  generally due within thirty days for
domestic customers and sixty days for international customers.

The Company  maintains its cash in bank deposit  accounts,  which at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such  account and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.

Use of Estimates in the  Preparation of Financial  Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Reclassifications

Certain  amounts in the 1998  financial  statements  have been  reclassified  to
conform with the presentation of the current year financial statements.



--------------------------------------------------------------------------------
                                                                            F-11

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



2.   Detail of Certain Balance Sheet Accounts

Receivables:

     Trade receivables                                        $         916,000
     Employee receivables                                                10,000
     Other                                                               10,000
     Allowance for doubtful accounts                                   (375,000)
                                                              -----------------

                                                              $         561,000
                                                              -----------------



Inventories:
     Finished goods                                           $       2,081,000
     Raw materials                                                    2,072,000
                                                              -----------------

                                                              $       4,153,000
                                                              -----------------



Preferred stock:
     Series A 500,000 shares authorized, 8,077
       shares issued and outstanding (aggregate
       liquidation preference of $8,000)                      $               -
     Series B, 500,000 shares authorized, 19,236
       shares issued and outstanding (aggregate
       liquidation preference of $77,000)                                     -
     Series C, 30,000 shares authorized, 500
       shares issued and outstanding (aggregate
       liquidation preference of $50,000)                                     -
     Series D 1,140,000 shares authorized,
       313,644 shares issued and outstanding
       (aggregate liquidation preference of $549,000)                         -
                                                              -----------------

                                                              $               -
                                                              -----------------


--------------------------------------------------------------------------------
                                                                            F-12

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



3.   Property and Equipment

Property and equipment consists of the following:


Office equipment                                          $         187,000
Computer equipment                                                  108,000
Automobile                                                           26,000
Furniture and fixtures                                               21,000
                                                          -----------------

                                                                    342,000

Accumulated depreciation and
amortization                                                       (138,000)
                                                          -----------------

                                                          $         204,000
                                                          -----------------



4.   Long-Term Debt

Long-term debt consists of the following:


Note payable to a bank in monthly installments of
$418, including interest at 9.95% secured by an
automobile and due September 2001                         $           8,000

Capital lease obligations (see note 5)                               40,000
                                                          -----------------

                                                                     48,000

Less current portion                                                (23,000)
                                                          -----------------

                                                          $          25,000
                                                          -----------------



Future maturities are as follows:


Year Ending December 31,                                       Amount
------------------------                                       ------

                           2000                           $          23,000
                           2001                                      24,000
                           2002                                       1,000
                                                          -----------------

                                                          $          48,000
                                                          -----------------



--------------------------------------------------------------------------------
                                                                            F-13

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Lease Obligations

During the year ended  December 31, 1999 the Company  leased  certain  equipment
under noncancellable capital leases. These leases provide the Company the option
to purchase the leased assets at the end of the initial lease term. Assets under
capital leases included in fixed assets and are as follows:


Computer and other equipment                              $          54,000

Less accumulated amortization                                       (10,000)
                                                          -----------------

                                                          $          44,000
                                                          -----------------

Amortization  expense  on assets  under  capital  leases  during  the year ended
December 31, 1999 was $10,000.

Capital lease  obligations have imputed  interest rates of approximately  15% to
22% and are payable in aggregate  monthly  installments of approximately  $2,000
through 2001 and $1,000 through April 2002. The leases are secured by equipment.
Future minimum payments on the capital lease obligations are as follows:


2000                                                      $          23,000
2001                                                                 23,000
2002                                                                  3,000
                                                          -----------------

                                                                     49,000

Less amount representing interest                                    (9,000)
                                                          -----------------

Present value of future minimum lease payments            $          40,000
                                                          -----------------



--------------------------------------------------------------------------------
                                                                            F-14

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Lease Obligations Continued

The  Company  leases  office  and  warehouse  space  under  an  operating  lease
agreement.  Future minimum rental  payments  under the  noncancelable  operating
lease as of December 31, 1999 is approximately as follows:


Year Ending December 31,                                       Amount
------------------------                                       ------

              2000                                        $         176,000
              2001                                                  197,000
              2002                                                  203,000
              2003                                                   17,000
                                                          -----------------

             Total future minimum rental payments         $         593,000
                                                          -----------------

Rent  expense  related  to  noncancelable  operating  leases  was  approximately
$102,000  and  $41,000  for  the  years  ended   December  31,  1999  and  1998,
respectively.


6.   Income Taxes

The provision for income taxes is different than amounts which would be provided
by applying the statutory  federal income tax rate to loss before  provision for
income taxes for the following reasons:


                                                     Years Ended
                                                    December 31,
                                          ---------------------------------
                                                1999             1998
                                          ---------------------------------

Federal income tax benefit at
  statutory rate                          $       1,200,000  $      938,000
Other                                                     -          45,000
Change in valuation allowance                    (1,200,000)       (983,000)
                                          ---------------------------------

                                          $              -   $           -
                                          ---------------------------------



--------------------------------------------------------------------------------
                                                                            F-15

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


6.   Income Taxes Continued

Deferred tax assets (liabilities) are comprised of the following:


Net operating loss carryforward                           $       4,080,000
Depreciation and amortization                                       (23,000)
Allowance and reserves                                              146,000
Research and development tax credit
  carryforwards                                                      34,000
                                                          -----------------

                                                                  4,237,000

Valuation allowance                                              (4,237,000)
                                                          -----------------

                                                          $               -
                                                          -----------------


A valuation allowance has been established for the net deferred tax asset due to
the uncertainty of the Company's ability to realize such asset.

At December  31,  1999,  the Company had net  operating  loss  carryforwards  of
approximately  $12,000,000 and research and development tax credit carryforwards
of approximately  $34,000.  These  carryforwards  are available to offset future
taxable income and begin to expire in 2006. The utilization of the net operating
loss  carryforwards is dependent upon the tax laws in effect at the time the net
operating  loss  carryforwards  can be  utilized.  The  Tax  Reform  Act of 1986
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of the change in ownership.



--------------------------------------------------------------------------------
                                                                            F-16

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


7.   Capital Stock

The  Company  has  established  a  series  of  preferred  stock  with a total of
5,000,000  authorized  shares and a par value of $.001, and one series of common
stock with a par value of $.001 and a total of 20,000,000 authorized shares.

Series A Preferred Stock

On September 1, 1993, the Company  established a series of non-voting  preferred
shares  designated  as the 6% Series A Preferred  Stock,  consisting  of 500,000
shares  with $.001 par value.  The Series A  Preferred  Stock has the  following
rights and privileges:

1.   The  holders  of the  shares  are  entitled  to  dividends  at the  rate of
     twenty-four  cents  ($.24) per share per  annum,  payable in cash only from
     surplus  earnings  of the  Company  or in  additional  shares  of  Series A
     Preferred   Stock.   The   dividends  are   non-cumulative   and  therefore
     deficiencies in dividend  payments from one year are not carried forward to
     the next year.

2.   Upon the liquidation of the Company,  the holders of the Series A Preferred
     Stock are entitled to receive,  prior to any  distribution of any assets or
     surplus  funds to the holders of shares of common stock or any other stock,
     an amount equal to $1.00 per share,  plus any accrued and unpaid  dividends
     related to the fiscal year in which such liquidation occurs.

3.   The  shares  are  convertible  at the option of the holder at any time into
     common shares, based on an initial conversion rate of one share of Series A
     Preferred Stock for 1.2 common shares.

4.   The holders of the shares have no voting rights.

5.   The Company may, at its option,  redeem all of the then outstanding  shares
     of the Series A Preferred Stock at a price of $4.50 per share, plus accrued
     and unpaid  dividends  related to the fiscal year in which such  redemption
     occurs.


--------------------------------------------------------------------------------
                                                                            F-17

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital Stock Continued

Series B Preferred Stock

On May 9, 1994, the Company established a series of non-voting  preferred shares
designated at 12% Series B Preferred  Stock,  consisting of 500,000  shares with
$.001 par value.  The Series B  Preferred  Stock have the  following  rights and
privileges:

1.   The  holders  of the  shares  are  entitled  to  dividends  at the  rate of
     forty-eight  cents  ($.48) per share per  annum,  payable in cash only from
     surplus  earnings  of the  Company  or in  additional  shares  of  Series B
     Preferred   Stock.   The   dividends  are   non-cumulative   and  therefore
     deficiencies in dividend  payments from one year are not carried forward to
     the next year.

2.   Upon the liquidation of the Company,  the holders of the Series B Preferred
     Stock are entitled to receive,  prior to any  distribution of any assets or
     surplus  funds to the holders of shares of common stock or any other stock,
     an amount equal to $4.00 per share,  plus any accrued and unpaid  dividends
     related to the fiscal year in which such  liquidation  occurs.  Such right,
     however,  is subordinate to the rights of the holders of Series A Preferred
     Stock to receive a distribution  of $1.00 per share plus accrued and unpaid
     dividends.

3.   The  shares  are  convertible  at the option of the holder at any time into
     common shares, based on an initial conversion rate of one share of Series B
     Preferred Stock for 1.2 common shares.

4.   The holders of the shares have no voting rights.

5.   The Company may, at its option, redeem all of the then outstanding share of
     the Series B Preferred  Stock at a price of $4.50 per share,  plus  accrued
     and unpaid  dividends  related to the fiscal year in which such  redemption
     occurs.


--------------------------------------------------------------------------------
                                                                            F-18

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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

7.   Capital Stock Continued

Series C Preferred Stock

In January 1998, the Company authorized the issuance of a total of 30,000 shares
of Series C Preferred  Stock,  $.001 par value,  $100 stated value. The Series C
Preferred Stock have the following rights and privileges:

1.   The holders of the shares are  entitled to dividends at the rate of 12% per
     share  per  annum  of  the  aggregate   stated  value.  The  dividends  are
     non-cumulative and,  therefore,  deficiencies in dividend payments from one
     year are not carried forward to the next year.

2.   Upon the liquidation of the Company,  the holders of the Series C Preferred
     Stock are  entitled  to receive an amount per share equal to the greater of
     (a) the amount they would have  received if they had  converted  the shares
     into shares of Common  Stock  immediately  prior to such  liquidation  plus
     declared  but  unpaid  dividends;  or (b)  the  stated  value,  subject  to
     adjustment.

3.   Each  share is  convertible,  at the option of the holder at any time until
     January 1, 2002,  into  approximately  57.14  shares of common  stock at an
     initial  conversion price,  subject to adjustments for stock splits,  stock
     dividends and certain  combination or recapitalization of the common stock,
     equal to $1.75 per share of common stock.

4.   The holders of the shares have no voting rights.


Series D Preferred Stock

In January 1999, the Company's  Board of Directors  authorized the issuance of a
total of  1,140,000  shares of Series D Preferred  Stock $.001 par value,  $1.75
stated  value.  The  Series D  Preferred  Stock  has the  following  rights  and
privileges:

1.   The holders of the shares are  entitled to dividends at the rate of 10% per
     share  per  annum  of  the  aggregate   stated  value.  The  dividends  are
     non-cumulative and,  therefore,  deficiencies in dividend payments from one
     year are not carried forward to the next year.


--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


7.   Capital Stock Continued

Series D Preferred Stock - continued

2.   Upon the liquidation of the Company,  the holders of the Series D Preferred
     Stock are  entitled  to receive an amount per share equal to the greater of
     (a) the amount they would have received had they  converted the shares into
     Common Stock  immediately  prior to such  liquidation plus all declared but
     unpaid dividends; or (b) the stated value, subject to adjustment.

3.   Each  share is  convertible,  at the option of the holder at any time until
     January 1, 2002,  into one share of Common  Stock at an initial  conversion
     price,  subject  to  adjustment.  The  Series D  Preferred  Stock  shall be
     converted  into one share of the Common Stock subject to adjustment  (a) on
     January 1, 2002 or (b) upon 30 days  written  notice by the  Company to the
     holders of the Shares, at any time after (i) the 30-day  anniversary of the
     registration  statement on which the shares of Common Stock  issuable  upon
     conversion  of the Series D Preferred  Stock were  registered  and (ii) the
     average closing price of the Common Stock for the 20-day period immediately
     prior to the date on which notice of  redemption is given by the Company to
     the holders of the Series D Preferred Stock is at least $3.50 per share.

4.   The holders of the shares have no voting rights.


8.   Stock Option Plan and Warrants

The Company has a Stock  Option Plan (the Option  Plan) which  reserves  300,000
shares of the Company's authorized but unissued common stock for the granting of
stock options. An amendment to the Plan increases the number of shares of common
stock reserved for issuance thereunder by an aggregate of 300,000 shares.

The  Option  Plan  provides  for  the  grant  of  incentive  stock  options  and
non-qualified  stock  options to  employees  and  non-employee  directors of the
Company.  Incentive  stock options may be granted only to employees.  The Option
Plan is  administered  by the Board of  Directors or a  Compensation  Committee,
which determines the terms of options granted  including the exercise price, the
number of shares subject to the option, and the exercisability of the option.


--------------------------------------------------------------------------------
                                                                            F-20

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



8.   Stock Option Plan and Warrants Continued

In addition,  the Company has granted  warrants to purchase the Company's common
stock to various  entities.  During the years ended  December 31, 1999 and 1998,
the Company granted the following warrants:

o    In  connection  with the  Company  issuing  Series C Preferred  Stock,  the
     Company issued warrants to purchase up to 100,000 shares of common stock at
     a purchase price of $3.00 per share.  The warrant is currently  exercisable
     and expires on February 24, 2001.

o    The Company  issued  warrants to purchase  100,000  shares of the Company's
     common  stock  at  a  price  of  $4.00  per  share  to  an  individual,  as
     consideration for consulting and legal services. The warrants are currently
     exercisable and expire on December 18, 2008.

o    In  connection  with the  Company  issuing  Series D Preferred  Stock,  the
     Company issued warrants to purchase up to 211,400 shares of common stock at
     a purchase  price of between  $2.38 and $2.69 per share.  The  warrants are
     currently exercisable and expire on February 12, 2004.


--------------------------------------------------------------------------------
                                                                            F-21

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



8.   Stock Option Plan and Warrants Continued

A schedule of the options and warrants is as follows:



                                              Number of             Exercise
                                     ----------------------------  Price Per
                                        Options       Warrants       Share
                                     ------------------------------------------

Outstanding at January 1,
  1998                                      450,200     1,736,625  $3.00 - 8.13
     Granted                                319,960       200,000   2.31 - 5.00
     Forfeited                              (50,000)            -          5.00
                                     ------------------------------------------

Outstanding at December 31,
 1998                                       720,160     1,936,625  $3.00 - 8.13
     Granted                                310,040       801,400   2.30 - 7.50
     Exercised                                    -      (166,980)  2.30 - 3.00
     Expired                                      -       (17,945)  3.00 - 4.00
     Forfeited                             (121,450)            -          5.00
                                     ------------------------------------------

Outstanding at December 31,
  1999                                      908,750     2,553,100  $2.30 - 8.13
                                     ------------------------------------------



9.   Stock-Based Compensation

The Company  adopted the  disclosure  only  provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation."
Accordingly,  no  compensation  expense has been  recognized  for stock  options
granted to employees.  Had compensation  expense for the Company's stock options
been  determined  based on the fair value at the grant date  consistent with the
provisions of SFAS No. 123, the Company's  results of operations would have been
reduced to the pro forma amounts indicated below:


                                                        Years Ended
                                                        December 31,
                                            ------------------------------------
                                                   1999              1998
                                            ------------------------------------

Net loss - as reported                      $       (3,622,000)  $   (2,759,000)
Net loss - pro forma                        $       (4,433,000)  $   (3,044,000)
Loss per share - as reported                $             (.54)  $         (.69)
Loss per share - pro forma                  $             (.66)  $         (.76)
                                            ------------------------------------


--------------------------------------------------------------------------------
                                                                            F-22

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



9.   Stock-Based Compensation Continued

The fair value of each option  grant is estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:


                                                   December 31,
                                        -----------------------------------
                                               1999             1998
                                        -----------------------------------

Expected dividend yield                 $               -    $           -
Expected stock price volatility                        81%              82%
Risk-free interest rate                               6.0%             5.0%
Expected life of options                       2 - 5 years          6 years
                                        -----------------------------------


The  weighted  average  fair value of  options  granted  during the years  ended
December 31, 1999 and 1998 are $1.24 and $1.85, respectively.

The  following  table  summarizes  information  about stock options and warrants
outstanding at December 31, 1999:


                            Outstanding                      Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                             Remaining    Weighted                   Weighted
   Range of                 Contractual    Average                   Average
   Exercise      Number        Life       Exercise      Number       Exercise
    Prices     Outstanding    (Years)       Price     Exercisable     Price
--------------------------------------------------------------------------------

$2.30 - 5.00   2,186,850        3.35     $    3.75    2,114,630   $         3.73
 7.50 - 8.13   1,275,000        1.53          7.55    1,200,000             7.55
--------------------------------------------------------------------------------

$2.30 - 8.13   3,461,850        2.61     $    5.15    3,314,630   $         5.12
--------------------------------------------------------------------------------


10.  Related Party Transactions

The Company has an amended  exclusive  patent  license  agreement with a company
which owns the  patent for the  laser-probe  used on the  Photon  machine.  This
company is owned by a shareholder of the Company. The agreement provides for the
payment of a 1% royalty on all sales proceeds related directly or indirectly, to
the Photon machine.  The agreement  terminates on July 7, 2003. Through December
31, 1999, no significant royalties have been paid under this agreement.


--------------------------------------------------------------------------------
                                                                            F-23

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



10.  Related Party Transactions Continued

A law firm,  of which a former  director  of the Company is a  shareholder,  has
rendered legal  services to the Company.  The Company paid this firm $53,000 and
$97,000,  for the year ended  December  31, 1999 and 1998,  respectively.  As of
December  31,  1999,  the  Company  owed this firm  $9,000  which is included in
accounts payable.

The Company had an investment banking agreement with Win Capital Corp. (Win) for
a two year period which may be extended an additional year. A former director of
the Company is also a former director of Win. The Company pays a retainer to Win
Capital of $2,000 per month for the first six  months,  $4,000 per month for the
second six months and $6,000 per month for the  remainder of the  contract.  The
Company also issued a warrant to Win Capital to purchase up to 191,000 shares of
common stock at a purchase price of $3.00 per share.  In March 1998, the Company
issued to Win  Capital a warrant to  purchase  100,000  shares of the  Company's
common  stock at a price of $3.00 per  share.  The  Company  satisfied  the cash
portion of this agreement in 1999 through the payment of $7,500 and the issuance
of 24,200 shares of common stock.

Prior to the  initial  closing of the Series D Preferred  Offering,  the Company
borrowed  $75,000  from Cyn Del,  of which a former  director  of the Company is
President,  a  director  and  shareholder  and $25,  000 from Win  Capital.  The
combined  $100,000 loan bore  interest at a rate of 10% per annum,  and was paid
back at the end of six  months.  The  Company  issued  to Cyn  Del  warrants  to
purchase  105,000  shares of Common  Stock and Win Capital  warrants to purchase
35,000 shares.  The Company also entered into a one-year  consulting  agreement,
wherein  Cyn  Del  would   provide   consulting   services  to  the  Company  in
consideration  for a fee of $5,000 per month for the term of the  agreement.  In
April,  1999 the Board of Directors  agreed to grant 25,000  warrants to Win and
75,000  warrants to Cyn Del,  both at an exercise  price of $4.00 per share,  if
they exercised their outstanding warrants, which they did.



--------------------------------------------------------------------------------
                                                                            F-24

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



11.  Supplemental Cash Flow Information

During the year ended December 31, 1999:

o    The Company  issued common stock in exchange for  inventory of  $2,528,000,
     intangible assets of $120,000,  equipment of $9,000 and accounts payable of
     $107,000.

o    The  Company  increased  the  accumulated  deficit and  additional  paid-in
     capital by $872,000  due to the  difference  between the Series D preferred
     stock conversion price and the common stock fair value.

o    The Company acquired  property and equipment in exchange for long-term debt
     of $19,000.


During the year ended December 31, 1998:

o    The Company issued Series C Preferred  Stock in exchange for long-term debt
     of $995,000 and debt-offering costs of $166,000.

o    The  Company  issued  common  stock for  future  services  in the amount of
     $94,000.

o    The Company issued common stock in exchange for long-term debt of $75,000.

o    The Company issued common stock in exchange for a related-party  payable of
     $399,000.

o    The Company  issued  common  stock in  exchange  for  production  rights of
     $374,000 and inventory of $126,000.

o    The Company  increased  the  accumulated  deficit and  additional  paid- in
     capital by $4,870,000 due to the difference  between the Series C preferred
     stock conversion price and the common stock fair value.

o    The Company acquired  computer  equipment in exchange for long-term debt of
     $36,000.


--------------------------------------------------------------------------------
                                                                            F-25

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



11.  Supplemental Cash Flow Information Continued

Actual amounts paid for interest and income taxes are as follows:


                                                    Years Ended
                                                   December 31,
                                        -----------------------------------
                                               1999              1998
                                        -----------------------------------

Interest                                $        15,000   $        33,000
                                        -----------------------------------

Income taxes                            $             -   $             -
                                        -----------------------------------



12.  Export Sales

Total sales include export sales by major geographic area as follows:


                                                    Years Ended
                                                   December 31,
                                        -----------------------------------
Geographic Area                                1999              1998
---------------
                                        -----------------------------------

Far East                                $          556,000  $         3,000
South America                                      266,000          140,000
Middle East                                        151,000          150,000
Europe                                              30,000           11,000
                                        -----------------------------------

                                        $        1,003,000  $       304,000
                                        -----------------------------------


13.  Profit Sharing Plan

The Company has adopted a profit  sharing plan pursuant to which an amount equal
to 10% of the pretax profits of the Company will be set aside for the benefit of
the Company's  officers and key employees.  This amount will only be paid if the
Company's  qualified pretax profits exceed $10,000,000 for any fiscal year prior
to December 31, 2001.



--------------------------------------------------------------------------------
                                                                            F-26

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



14.  Savings Plan

In November 1996, the Company  established a 401(k) Retirement  Savings Plan for
the Company's officers and employees.  The Plan provisions  include  eligibility
after six months of service,  a three year vesting  provision  and 100% matching
contribution by the Company up to 3% of a participant's compensation. During the
years ended  December 31, 1999 and 1998, the Company  contributed  approximately
$19,000 and $11,000 to the Plan, respectively.


15.  Commitments and Contingencies

Consulting Agreements

During  the year  ended  December  31,  1999 the  Company  entered a  consulting
agreement  with a former  officer  of the  Company,  which  expires  in 2004 and
requires  annual  payments of $25,000  through  2003 and a payment of $12,500 in
2004.

During the year ended  December  31,  1999 the Company  entered  into a business
development  agreement with an  individual.  The terms of this agreement are for
one year and provide for a commission  of 10% up to a maximum of  $1,000,000  in
the event the individual is able to find a party to acquire the Company.

Employment Agreements

The Company has employment  agreements  with an officer and key employees  which
expire  between  December 2001 and December  2002.  The  agreements  provide for
aggregate  annual  compensation of $195,000  through 2001, and $135,000  through
2002.  In addition,  the Company has entered into  agreements  which provide for
additional  payments  to be made to the  officer in the event the  Company has a
change of control.

Litigation

The  Company  may  become or is subject to  investigations,  claims or  lawsuits
ensuing out of conduct of its business, including those related to environmental
safety and health, product liability,  commercial  transactions etc. The Company
is currently not aware of any such items which it believes could have a material
adverse effect on its financial position.


--------------------------------------------------------------------------------
                                                                            F-27

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


16.  Fair Value of Financial Instruments

The Company's financial instruments consist of cash, receivables,  payables, and
notes  payable.   The  carrying   amount  of  cash,   receivables  and  payables
approximates  fair value because of the  short-term  nature of these items.  The
carrying amount of the notes payable  approximates  fair value as the individual
borrowings bear interest at market interest rates.


17.  Recent Accounting Pronouncements

In June  1999,  the  FASB  issued  SFAS  No.  137,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities-  Deferral of the  Effective  date of FASB
Statement No. 133." SFAS 133 establishes  accounting and reporting standards for
derivative  instruments and requires recognition of all derivatives as assets or
liabilities  in the  statement of financial  position and  measurement  of those
instruments at fair value.  SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company.


18.  Subsequent Event

On January 28, 2000, the Company  entered into a letter of intent with a company
to purchase  all the  outstanding  shares of common  stock of that  company.  As
consideration  for the purchase the Company will issue 750,000  common shares to
the company.



--------------------------------------------------------------------------------
                                                                            F-28

<PAGE>

Item  8. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosures
--------------------

   None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
--------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------

                                       26

<PAGE>



    The executive  officers and  directors of the Company,  their ages and their
positions are set forth below:

      Name                      Age         Position

      Thomas F. Motter          51      Chairman of the Board, President and
                                        Chief Executive Officer and acting
                                        Chief Financial Officer
      Robert L. Frome           60      Director
      David M. Silver, Ph.D.    58      Director
      Randall Mackey            54      Director

      The  directors  are elected  for one year terms  which  expire at the next
annual meeting of shareholders.  Executive  officers are elected annually by the
Board of Directors to hold office until the first meeting of the Board following
the next annual meeting of  shareholders  and until their  successors  have been
elected and qualified.

      Thomas F. Motter has served as Chairman of the Board of the Company  since
April 1993.  Since  December  12,1997 and from May 1994 to August  1997,  he has
served as President and Chief Executive  Officer of the Company.  From June 1989
to April 1993, Mr. Motter served as Chief Executive Officer of Paradigm Medical,
Inc.  which merged with the Company in May 1994.  From  September  1990 to April
1992, he was employed by HGM Medical  Laser Systems as general  manager of their
International  Division. From October 1978 to June 1989, Mr. Motter was employed
by SmithKline  Beckman's  Humphrey  Instruments  Division,  which  developed and
manufactured  advanced  ophthalmic  diagnostic  instruments,   serving  last  as
National Sales Manager overseeing all domestic sales in its ophthalmic  computer
division. Mr. Motter received a B.A. degree in English from Stephen's College in
1970 and an M.B.A. degree from Pepperdine University in 1975.

      Robert L. Frome,  has been a director of the Company  since  September  3,
1998. He has been a Senior  Partner at the Olshan  Grundman  Frome  Rosenzweig &
Wolosky  LLP law firm in New York  City for over  twenty  years.  He serves as a
director of HealthCare  Services Group,  Inc., the nation's  largest provider of
housekeeping,  linen and laundry services to long term care  facilities,  and of
NuCo2 Inc., the nation's  largest provider of bulk carbon dioxide to restaurant,
fast food  outlets  and  convenience  stores.  Mr.  Frome is a trustee of Daytop
Village  Foundation and The Hospital for Joint  Diseases of New York  University
Medical  Center.  He received an LL.B. from Harvard Law School in 1961 and LL.M.
and B.S. degrees from New York University in 1962 and 1958, respectively.

      David M. Silver,  Ph.D. has been re-appointed a director of the Company in
January  2000.  He had served as a director of the Company from November 1995 to
September  1998.  Dr.  Silver is a Principal  Senior  Scientist in the Milton S.
Eisenhower  Research  and  Technology  Development  Center at the Johns  Hopkins
University Applied Physics Laboratory, where he has been employed since 1970. He
served as the J. H. Fitzgerald  Dunning  Professor of Ophthalmology in the Johns
Hopkins  Wilmer Eye Institute in Baltimore  during  1998-99.  He received a B.S.
degree from Illinois Institute of Technology,  an M.A. degree from Johns Hopkins
University  and a Ph.D.  degree  from Iowa  State  University  before  holding a
postdoctoral  fellowship at Harvard University and a visiting scientist position
at the University of Paris.

      Randall A.  Mackey has been  re-appointed  a  director  of the  Company in
January  2000.  He had served as a director of the Company from November 1995 to
September  1998.  Since 1989, Mr. Mackey has been a shareholder of the Salt Lake
City law firm of Mackey Price & Williams and its predecessor  firms.  Mr. Mackey
received a B.S.  degree in  Economics  from the  University  of Utah in 1968,  a
M.B.A.  degree from  Harvard  University  in 1970, a J.D.  degree from  Columbia
University in 1975 and a B.C.L.  degree from Oxford  University  in 1977.  Since
January 1998,  Mr. Mackey has served as a director of Cimetrix  Incorporated,  a
software  development company. Mr. Mackey is Vice Chair of the Board of Trustees
of Salt Lake Community College.

                                       28

<PAGE>


Technical and Medical Advisory Personnel

      The Company  utilizes an informal  Clinical  Advisory  Board of recognized
practicing  ophthalmic  surgeons in technical and medical  advisory  capacities.
Outside  consultants are generally used on an ad hoc basis and such  individuals
do not meet  together  as a group and are not  compensated.  The  Members of the
Company's Clinical Advisory Board are as follows:

      Paul L. Archambeau,  M.D. -- Dr. Archambeau is an ophthalmologist in Santa
Rosa,  California  and a faculty  member at the  University of California at San
Francisco.  He received his medical degree at the University of Buffalo  Medical
School in 1959 and  performed  his  residency  at the Mayo Clinic in  Rochester,
Minnesota.

      Daniele S. Aron-Rosa,  Ph.D, M.D. -- Dr.  Aron-Rosa is a faculty member at
the Rothschild Eye Institute in Paris,  France.  She received a doctorate degree
in physics from the  University of Paris in 1957 and received her medical degree
there in 1962 and performed her residency at the University of Paris Hospital.

      David C. Brown,  III,  M.D.  -- Dr.  Brown is an  ophthalmologist  in Fort
Myers,  Florida.  He received his medical degree at the University of Florida in
1963 and also performed his residency at that facility.

      Alan S. Crandall,  M.D. -- Dr. Crandall is an ophthalmologist in Salt Lake
City, Utah. He received his medical degree at the University of Utah in 1973 and
performed his residency at the University of Pennsylvania.

      I.  Howard  Fine,  M.D. -- Dr. Fine is an  ophthalmologist  practicing  in
Eugene,  Oregon and a member of the Oregon Health Sciences  University  faculty.
Dr. Fine  received  his  medical  degree at Boston  University  in 1966 and also
performed his residency at that facility.

      Stephane P.  Ganem,  M.D.  -- Dr.  Ganem is chairman of the  ophthalmology
department at the Rothschild Eye Institute in Paris, France.

      Frederic B. Kremer,  M.D. -- Dr. Kremer is an  ophthalmologist  in Radnor,
Pennsylvania.  He received his medical degree at the Jefferson Medical Center in
1976 and  performed  his  residency at the Wills Eye  Hospital in  Philadelphia,
Pennsylvania.

      Francis A.  L'Esperance,  M.D.  -- Dr.  L'Esperance  is  President  of the
American Board of Laser Surgery and a faculty member at the Columbia  College of
Physicians  and Surgeons.  He received his medical  degree from Harvard  Medical
School in 1956 and  performed  his  residency at the  Massachusetts  Eye and Ear
Infirmary.

      Michael B. Limberg,  M.D. -- Dr. Limberg is an ophthalmologist  practicing
in San Luis Obispo, California. He received his medical degree at the University
of Utah Medical School in 1982 and

                                       29

<PAGE>



performed his residency at Louisiana State University.

      Marc  A.  Michelson, M.D.  --  Dr.  Michelson  is  an  ophthalmologist  in
Birmingham, Alabama. He received his medical degree at the University of Alabama
in  1975,  and  performed  his  residency  at the  Eye  Foundation  Hospital  in
Birmingham, Alabama.

      Lawrence E. Noble, M.D. -- Dr. Noble is an ophthalmologist in Provo, Utah.
He  received  his  medical  degree at the  University  of  Oregon  in 1964,  and
performed his residency at the Good Samaritan Hospital.

      Jaswant Singh Pannu, M.D. -- Dr. Pannu is an ophthalmologist in Lauderdale
Lakes,  Florida.  He received his medical  degree at the  University of Miami in
1967  and  performed  his  residency  at  the  Milwaukee,   Wisconsin   Veterans
Administration Hospital and at Evanston Hospital in Evanston, Illinois.

      David  M.  Schneider,  M.D.  -- Dr.  Schneider  is an  ophthalmologist  in
Cincinnati, Ohio. He received his medical degree at the University of Cincinnati
in 1975, and performed his residency at the University of Cincinnati.

      Jeffrey G. Straus,  M.D. -- Dr. Straus is an  ophthalmologist in Metairie,
Louisiana.  He received his medical  degree at State  University  of New York at
Buffalo in 1984 and performed his residency at Ochsner  Foundation  Hospital and
Clinic in New Orleans, Louisiana.

      Gerald Zelman,  M.D. -- Dr. Zelman is a Ophthalmologist in Manhasset,  New
York. He received his medical  degree at the University of Lausanne in 1964, and
performed  his  residency at the Brooklyn Eye and Ear facility in Brooklyn,  New
York.

Board Meetings and Committees

      The Board of  Directors  held a total of nine  meetings  during the fiscal
year ended  December  31,  1999.  The Audit  Committee of the Board of Directors
consists of directors Robert L. Frome,  David M. Silver,  and Randall A. Mackey.
The Audit  Committee  last met on  September  10, 1999.  The Audit  Committee is
primarily  responsible  for  reviewing  the services  performed by the Company's
independent  public accountants and internal audit department and evaluating the
Company's accounting  principles and its system of internal accounting controls.
The  Compensation  Committee  of the Board of  Directors  consists of  directors
Thomas F. Motter,  David M.  Silver,  and Randall A.  Mackey.  The  Compensation
Committee  also last met on September 10, 1999.  The  Compensation  Committee is
primarily  responsible  for  reviewing  compensation  of executive  officers and
overseeing the granting of stock options. No director attended fewer than 75% of
all meetings of the Board of Directors during the 1999 fiscal year.

      Pursuant  to  Nasdaq  corporate  governance   requirements  recently  made
applicable  to Nasdaq  SmallCap  Market  companies,  the Company must have (i) a
minimum of two independent directors; (ii) an audit committee with a majority of
independent directors; and (iii) an annual stockholders meeting. The Company has
and can presently satisfy each of these requirements. Messrs. Frome, Silver, and
Mackey qualify as independent directors.


                                       30

<PAGE>




Compliance with Section 16(a) of the Securities and Exchange Act of 1934


Item 10. Executive Compensation

      The following  table sets forth,  for each of the last three fiscal years,
the compensation received by Thomas F. Motter, Chairman of the Board, President,
Chief Executive  Officer,  and acting Chief Financial Officer of the Company all
other  executive  officers  (collectively,  the "Named  Executive  Officers") at
December  31, 1999 whose  salary and bonus for all  services  in all  capacities
exceed $100,000 for the fiscal year ended December 31, 1999.

<TABLE>
<CAPTION>

                                                        Summary Compensation Table

                                                                                        Long-Term Compensation
                                   Annual Compensation                            Awards                     Payouts

                                                         Other                  Securities
                                                        Annual     Restricted   Underlying      Long-term    All Other
     Name and                                          Compensa-      Stock      Options/       Incentive    Compensa-
Principal Position    Period   Salary($)    Bonus($)   tion($)(6)    Awards($)    SARs(#)       Payout($)    tion ($)(5)

<S>                   <C>       <C>              <C>       <C>             <C>         <C>            <C>      <C>
Thomas F. Motter,     1999(1)   $141,208         0              0          0           50,000(5)      0        $5,000(4)
Chairman of the       1998(2)   $122,497         0              0          0                0         0        $6,000(4)
Board, President      1997(3)   $129,584         0         $5,250          0                0         0             0
and Chief Executive
Officer

Robert W. Millar(6),  1999(1)   $114,383         0              0          0                0         0        $3,125(4)
Vice President of     1998(2)   $121,019         0         $5,250          0                0         0        $6,000(4)
Engineering and       1997(3)    114,675         0              0          0                0         0             0
Manufacturing

Michael W. Stelzer(7),1999(1)   $113,019         0              0          0           20,000(5)      0        $8,000(4)
Secretary/Treasurer,  1998(2)    $78,541         0              0          0                0         0             0
Chief Financial       1997(3)    $20,060         0              0          0                0         0             0
Officer, Chief
Operating Officer,
Vice President of
Operations, Director
</TABLE>

(1)  For the fiscal year ended December 31, 1999

(2)  For the fiscal year ended December 31, 1998

(3)  For the fiscal year ended December 31, 1997

(4)  The amounts  indicated under "Other Annual  Compensation" for 1998 and 1999
     consist of payments  related to the operation of  automobiles  by the named
     executive.

(5)  On  September  10, 1999,  the Company  granted Mr.  Motter and Mr.  Stelzer
     options  to  purchase  50,000  and  20,000  shares,  respectively,  of  the
     Company's  Common  Stock at an  exercise  price of $4.00 per  share.  These
     options expire on September 10, 2004.

(6)  Mr. Millar resigned as an officer of the Company on August 27, 1999, and as
     a director on September 30, 1999.

(7)  Mr. Stelzer resigned as an officer and a director of the Company on January
     21, 2000.

      The  following  table sets forth  information  concerning  the exercise of
options to acquire shares of the Company's  Common Stock by the Named  Executive
Officers during the fiscal year ended December 31,

                                       31

<PAGE>



1999, as well as the aggregate  number and value of unexercised  options held by
the Named Executive Officers on December 31, 1999.


<TABLE>
<CAPTION>

             Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

                                                        Number of Securities Underlying         Value of Unexercised
                                                           Unexercised Options/SARs         In-the-Money Options/SARs at
                                                             at December 31, 1999(#)             December 31, 1999($)
                     Shares Acquired       Value
       Name          on Exercise (#)   Realized ($)      Exercisable      Unexercisable     Exercisable      Unexercisable
<S>                        <C>              <C>              <C>               <C>              <C>               <C>
Thomas F. Motter           -0-              -0-              193,450               -0-      193,450                  -0-

Robert W. Millar           -0-              -0-                  -0-           121,450          -0-                  -0-

John W. Hemmer             -0-              -0-               57,450               -0-       57,450                  -0-

Michael W. Stelzer         -0-              -0-               77,450               -0-       77,450                  -0-

Curtis G. Page             -0-              -0-               10,080               -0-        3,360                6,720

Richard D. Dirkson         -0-              -0-                5,040               -0-        5,040                  -0-
</TABLE>

Director Compensation

   Steven J. Bayern and Patrick M.  Kolenik,  who were  directors of the Company
during 1999,  and  subsequently  resigned as directors on January 21, 2000,  and
Robert L. Frome were each granted stock options to purchase 75,000 shares of the
Company's  Common  Stock  at an  exercise  price  of $4.00  per  share.  Outside
directors  are also  reimbursed  for  their  expenses  in  attending  Board  and
committee meetings.  Directors are not precluded from serving the Company in any
other capacity and receiving compensation therefor.

Employee 401(k) Plan

      In  October  1996,  the  Company's  Board of  Directors  adopted  a 401(k)
Retirement  Savings  Plan.  Under the terms of the 401(k) plan,  effective as of
November  1,  1996,  the  Company  may  make  discretionary   employer  matching
contributions  to its employees who choose to  participate in the plan. The plan
allows the Board to determine the amount of the contribution at the beginning of
each  year.  The  Board  adopted a  contribution  formula  specifying  that such
discretionary   employer  matching   contributions   would  equal  100%  of  the
participating  employee's contribution to the plan up to a maximum discretionary
employee  contribution  of 3% of a  participating  employee's  compensation,  as
defined by the plan. All persons who have completed at least six months' service
with the Company and satisfy other plan requirements are eligible to participate
in the 401(k)plan.

1995 Stock Option Plan

      The Company  adopted a 1995 Stock Option Plan (the "Plan"),  for officers,
employees,  directors and  consultants  of the Company on November 7, 1995.  The
Plan  authorized  the granting of stock options ("Plan  Options")to  purchase an
aggregate of not more than 300,000  shares of the  Company's  Common  Stock.  On
February 16,1996,  options for substantially all 300,000 shares were granted. On
June 9, 1997,  the Company's  shareholders  approved an amendment to the Plan to
increase the number of shares of Common Stock reserved from issuance  thereunder
by an  aggregate  of 300,000  shares.  That same day,  20,000  options each were
granted to Michael W. Stelzer,  formerly Vice  President of Operations and Chief
Operating  Officer of the Company,  and John W. Hemmer,  then Vice  President of
Finance,  Treasurer and Chief Financial Officer of the Company. On September 14,
1998, 37,450 options each were granted to Thomas F. Motter,  President and Chief
Executive  Officer of the  Company,  Robert W.  Millar,  then Vice  President of
Engineering  and  Manufacturing,  and Messrs.  Stelzer  and  Hemmer,  and 75,000
options each to Patrick M.

                                       32

<PAGE>



Kolenik and Robert L. Frome, two outside directors of the Company at the time.

      On September 10, 1999, 50,000 options were granted to Mr.  Motter,  20,000
options were  granted to Mr.  Stelzer,  and 75,000  options were granted each to
Messrs.  Kolenik, Frome and Steven J. Bayern, the three outside directors of the
Company at the time. There are presently outstanding options to purchase 908,750
shares of the  Company's  Common Stock that have been granted under the Plan. No
such options had been exercised as of December 31, 1999.

      The Plan is  administered  by the  Board of  Directors  or a  Compensation
Committee of not less than two disinterested  members of the Board of Directors.
In general,  the Board of Directors or the Compensation  Committee,  as the case
may be,  will  select  the  person  to whom  options  will be  granted  and will
determine,  subject to the terms of the Plan,  the number,  exercise,  and other
provisions  of  such  options.  Options  granted  under  the  Plan  will  become
exercisable  at such times as may be determined by the Board of Directors or the
Compensation Committee, as the case may be.

      Options under the Plan may be either incentive stock options ("ISOs"),  as
such term is  defined in the  Internal  Revenue  Code of 1986,  as  amended,  or
non-ISOs.  ISOs may only be granted to persons who are employees of the Company.
Non-ISOs may be granted to any person,  including, but not limited to, employees
of the Company,  independent agents,  consultants,  as the Board of Directors or
the Compensation  Committee,  as the case may be, believes has  contributed,  or
will  contribute,  to the success of the Company.  The Board of Directors or the
Compensation Committee as the case may be, shall determine the exercise price of
options  granted under the Plan,  provided that, in the case of ISOs, such price
may not be less than 100% (110% in the case of ISOs granted to holders of 10% of
voting power of the Company's stock) of the fair market value (as defined in the
Plan) of the Common Stock on the date of grant.  The aggregate fair market value
(determined  at the time of option  grant)of  stock  with  respect to which ISOs
become exercisable for the first time in any year cannot exceed $100,000.

      The term of each option shall not be more than 10 years (five years in the
case of ISOs  granted to holders  of 10% of the  voting  power of the  Company's
stock)  from the date of  grant.  The Board of  Directors  has a right to amend,
suspend  or  terminate  the Plan at any time;  provided,  however,  that  unless
ratified by the Company's stockholders,  no amendment or change in the Plan will
be effective which would increase the total number of shares which may be issued
under the Plan,  materially  increase the benefits  accruing to persons  granted
under the Plan or  materially  modify the  requirements  as to  eligibility  and
participation in the Plan. No amendment,  supervision or termination of the Plan
shall,  without the consent of an  employee to whom an option  shall  heretofore
have been granted, affect the rights of such employee under such option.

Employment Agreements

      The Company  entered  into  employment  agreements  with each of Thomas F.
Motter,  Michael  W.  Stelzer,  Robert W.  Millar  and John W.  Hemmer and which
commenced  on January 1, 1998 and  expire on  January  1, 2003.  The  agreements
require  each  employee to devote  substantially  all of his working time to the
Company, provide that each of them may be terminated for "cause" (as provided in
the agreements)and prohibit each of them from competing with the Company for two
years  following the  termination  of his employment  agreement.  The agreements
provide  for the payment of an initial  base  salary of $135,000 to Mr.  Motter,
$100,000 to Mr. Stelzer,  $125,000 to Mr. Millar and $120,000 to Mr. Hemmer, and
became  effective  as of January  1, 1998.  In January  1998,  Mr.  Hemmer  also
received a bonus of 50,000 shares of the Company's  Common Stock in  recognition
of the services  previously  rendered by him. The agreements  provide for salary
increases and bonuses as shall be  determined at the  discretion of the Board of
Directors.

                                       33


Profit Sharing Plan

      On February 16, 1996, the Company adopted a Profit Sharing Plan,  pursuant
to which an amount equal to 10% of the pretax profits of the Company will be set
aside for the benefit of the Company's officers and key employees.  This funding
will be paid to the Company's  officers and key employees as follows:  Thomas W.
Motter, Chairman of the Board, President and Chief Executive Officer--30%; and a
pool of 70% to be  allocated  among  the other  officers  and key  employees  as
determined by the Compensation Committee and approved by the Board of Directors.
This funding will only be paid if the Company's  qualified pretax profits exceed
$10,000,000  for any fiscal year beginning  October 1, 1996 and ending  December
31, 2001. If the Company's pretax profits reach $10,000,000 for any fiscal year,
the entire pretax  profits for that year will qualify for the funding.  The plan
expires at the end of its fifth fiscal year on December 31, 2001, when all funds
held will be disbursed.

                                       35

<PAGE>




Limitation of Liability and Indemnification

      The Company re-incorporated in Delaware in February 1996, in part, to take
advantage  of  certain  provisions  in  Delaware's  corporate  law  relating  to
limitations  on  liability  of corporate  officers  and  directors.  The Company
believes  that  the  re-incorporation  into  Delaware,  the  provisions  of  its
Certificate  of  Incorporation  and  Bylaws  and  the  separate  indemnification
agreements  outlined below are necessary to attract and retain qualified persons
as directors and officers. The Company's Certificate of Incorporation limits the
liability of directors to the maximum  extent  permitted by Delaware  law.  This
provision is intended to allow the  Company's  directors the benefit of Delaware
General  Corporation Law which provides that directors of Delaware  corporations
may be relieved of monetary  liabilities for breach of their fiduciary duties as
directors, except under certain circumstances, including breach of their duty of
loyalty, acts or omissions not in good faith or involving intentional misconduct
or a knowing  violation of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions or any transaction from which the director derived an
improper personal  benefit.  The Company's Bylaws provide that the Company shall
indemnify its officers and directors to the fullest extent  provided by Delaware
law. The Bylaws authorize the use of indemnification  agreements and the Company
has  entered  into such  agreements  with each of its  directors  and  executive
officers.

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

      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 SEC, such  indemnification  is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.


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

      The  following  table  sets  forth  certain  information  with  respect to
beneficial  ownership of the Company's  Common Stock as of December 31, 1999 for
(i) each  executive  officer of the  Company  (ii) each  director of the Company
(iii) each person known to the Company to be the  beneficial  owner of more than
5% of the outstanding shares, and (iv) all directors and officers as a group.

                                       36

<PAGE>





                                                  Percent of
Name and Address(1)       Number of Shares        Ownership(2)

Thomas F. Motter(3)         495,083                  5.6%
Douglas MacLeod             418,451                  4.8%
Michael W. Stelzer(4)        77,450                    *
Patrick M. Kolenik (5)       29,577                    *
Robert L. Frome(6)           56,855                    *
Steven J. Bayern(7)               0                    *
Curtis G. Page (8)            3,176                    *
Richard D. Dirkson (9)            0                    *

Executive officers and
directors as a group
     (8 persons)          1,080,592                 12.3%
---------------

*     Less than 1%.

(1)     The address for Mr. Motter is c/o Paradigm,  2355 South 1070 West,  Salt
        Lake City,  UT,  84119.  The address  for Mr.  Stelzer is 7468 Tall Oaks
        Drive,  Park City, UT 84098.  The address for Mr.  MacLeod is 1002 South
        10th Street, Tacoma, Washington  98405. The address for Mr. Frome is 505
        Park Avenue,  16th Floor,  New York, New York 10022. The address for Mr.
        Kolenik is 35  Elizabeth  Drive,  Laurel  Hollow,  New York  11791.  The
        address for Mr. Bayern is 5 Cedarwood  Court,  Laurel Hollow,  New York,
        11791.
(2)     Assumes no exercise of Class A Warrants.
(3)     Includes 300 shares held by Jerry Motter,  Mr.  Motter's  wife, but does
        not include  options to purchase  193,450 shares of Common Stock granted
        to Mr. Motter under the Company's 1995 Option Plan.
(4)     Does not  include  options to  purchase  77,450  shares of Common  Stock
        granted to Mr. Stelzer under the Company's 1995 Option Plan.
(5)     Includes  28,570  shares  held by an IRA  account for the benefit of Mr.
        Kolenik,  does not include options to purchase  150,000 shares of Common
        Stock granted to Mr.  Kolenik,  105,000 shares held by Cyndel & Co., and
        warrants  to  purchase  150,000  shares of Common  Stock  granted by the
        Company to Cyndel & Co., of which Mr.  Kolenik is an officer,  director,
        and 50% owner,  40,200  shares of Common Stock held by Win, and warrants
        to purchase  435,000  shares of Common  Stock  granted by the Company to
        Win, of which Mr. Kolenik is an officer, director, and shareholder.
(6)     Does not include  options to  purchase  150,000  shares of Common  Stock
        granted to Mr. Frome.
(7)     Does not  include  options to  purchase  75,000  shares of Common  Stock
        granted to Mr.  Bayern,  105,000 shares of Common Stock held by Cyndel &
        Co., and warrants to purchase  150,000 shares of Common Stock granted by
        the  Company  to  Cyndel  & Co.,  of which  Mr.  Bayern  is an  officer,
        director,  and 50% owner, 40,200 shares of Common Stock held by Win, and
        warrants  to  purchase  435,000  shares of Common  Stock  granted by the
        Company  to Win,  of which  Mr.  Bayern  is an  officer,  director,  and
        shareholder.
(8)     Does not  include  options to  purchase  10,080  shares of Common  Stock
        granted to Mr. Page under the Company's 1995 Option Plan.
(9)     Does not  include  options  to  purchase  5,040  shares of Common  Stock
        granted to Mr. Dirkson under the Company's 1995 Option Plan.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

      The information set forth herein describes  certain  transactions  between
the Company and certain affiliated parties. Future transactions, if any, will be
approved by a majority of the  disinterested  members of the Company and will be
on terms no less favorable to the Company than those that could be obtained from

                                       37

<PAGE>



unaffiliated parties.

      The Company had  subcontracted  the  manufacture  of its  Precisionist(TM)
Ocular Surgery Workstation(TM) to one of its shareholders, Zevex, Inc. ("Zevex")
which is located in Salt Lake City,  Utah.  On September  23, 1996,  the Company
entered into a Design,  Engineering and  manufacturing  Agreement with Zevex for
the engineering and manufacture of the Workstation(TM)and  Precisionist(TM).  On
November  24,  1999 the Company  entered  into a Mutual  Release and  Settlement
Agreement,  in which the Company  purchased the remaining  finished good and raw
material inventory pertaining to the  Precisionist(TM),  with the intent to take
its  development  and  manufacture  in house.  For the fiscal  year  ended ended
December 31, 1999, the Company  purchased design and  manufacturing  services in
the amount of $225,252 from Zevex.

      On January 8, 1997, the Company subcontracted the subassembly of the laser
module piece of the Photon(TM) Laser Phaco(TM) from Sunrise  Technologies,  Inc.
("Sunrise").  During the 12 month period ending  December 31, 1997,  the Company
purchased 10 laser module  subassemblies for a total purchase price of $160,000,
from Sunrise whose president was a member of the Company's Board of Directors at
the time the manufacturing agreement was signed.

      On December 19, 1995,  the Company  entered into a settlement  and release
agreement(the  "Settlement  Agreement")  with Douglas A. MacLeod,  a significant
shareholder of the Company.  Pursuant to this  agreement,  Mr. MacLeod agreed to
terminate certain anti-dilution rights granted to him by the Company.  Under the
terms  of this  Settlement  Agreement,  Mr.  MacLeod  agreed  to  terminate  his
anti-dilution  rights in consideration for the following:(i) Mr. Motter agreeing
to sell to Mr. MacLeod from his personal holdings 61,111 shares of the Company's
Common Stock at a purchase price of $611.11, (ii) Mr. Millar agreeing to sell to
Mr.  MacLeod from his personal  holdings  38,889 shares of the Company's  Common
Stock at a purchase price of $388.89, and (iii) the Company agreeing to issue to
MacLeod an additional 20,000 shares of Common Stock. Based on the value assigned
by the Company's investment banker, Kenneth Jerome & Company, Inc., of $1.50 per
share, the Company recognized $30,000 of expense for the 20,000 shares issued by
the Company  and  $149,000 of expense  and  additional  paid-in-capital  for the
100,000 shares sold by Mr. Motter and Mr. Millar. The Company represented in the
Settlement Agreement that a public offering of the Company's securities would be
completed by June 1, 1996. On May 24, 1996, the Company and Mr. MacLeod  amended
the  Settlement  Agreement to indicate  that a public  offering of the Company's
securities  would be completed  by July 15, 1996.  By order dated July 10, 1996,
the SEC  declared the  Company's  Registration  Statement  to be  effective  and
following  the sale of the  Company's  securities,  the  closing  of the  public
offering occurred on July 25, 1996.

      The Photon(TM)  Laser Phaco(TM)  system is protected under a United States
patent  issued  in 1987 to  Daniel  M.  Eichenbaum,  M.D.  (U.S.  Patent  Number
4,694,828)  for the  utility  and  methods  of laser  ablation,  aspiration  and
irrigation of tissue  through a hand-held  probe of a unique design and assigned
to Photomed, a corporation owned in part by Dr. Eichenbaum.  The Company secured
the exclusive worldwide right to this patent shortly after its issue, and to the
international  patents  pending,  from Photomed by means of a License  Agreement
that  entitled Dr.  Eichenbaum to royalty  payments  equal to 1% of the proceeds
from the net  commercial  sales of the  Photon(TM)  Laser  Phaco(TM)  system and
accessories in all medical specialties. The License Agreement terminates

                                       38

<PAGE>



July 7, 2003.  The  License  Agreement  was amended on December 5, 1997 to allow
Photomed the right to conduct research,  development and marketing utilizing the
patent in certain medical sub-specialties other than ophthalmology for which the
Company would receive royalty  payments equal to 1% of the proceeds from the net
sales of products utilizing the patent.

      Mr. Mackey,  a director of the Company from September 1995 to September 3,
1998,  and a director  since January 21, 2000, is President and a shareholder of
the law firm of Mackey Price & Williams,  which has rendered  legal  services to
the Company since February 1995 in connection with the Company's public offering
and other  corporate  matters.  Legal fees and  expenses  paid to Mackey Price &
Williams  for the ended  December  31,  1999,  the  Company  paid legal fees and
expenses in the amount of $53,324 and at year end owed $8,967.

      Mr.  Kolenik,  a director of the Company from  November 1997 to January 21
2000, and Mr. Bayern,  a director of the company from July, 1999, to January 21,
2000, are officers,  directors, and shareholders of Win, the placement agent for
the Series C Convertible Preferred Stock offering.  Under the terms of an agency
agreement with Win, the Company agreed to pay to Win a commission equal to 9% of
the aggregate purchase price of the Shares sold, or $269,820.  Win was also paid
a non-accountable  expense allowance equal to 3% of the aggregate purchase price
of the Shares sold.  The Company has also  entered  into an  agreement  with Win
dated  August 20,  1997,  wherein Win agreed to perform  unspecified  investment
banking  services for the Company for a two year  period,  for which the Company
agreed to pay Win a monthly  retainer  of $2,000 for the first six months of the
agreement,  $4,000 per month for the second six months, and $6,000 per month for
the remainder of the agreement.  In an agreement  entered into in February 1999,
WIN agreed to accept  $7,500 in cash plus  $60,500 in Common Stock valued at the
close of business  April 1, 1999,  in  addition  to a $50,000  finders fee as it
relates to the Series D Preferred Stock Offering.

      In addition, the Company issued Win warrants to purchase 191,000 shares of
Common  Stock at an  exercise  price of $3.00 per share in  connection  with the
investment banking agreement and additional  warrants to purchase 100,000 shares
of  Common  Stock at $3.00  per  share  for  services  rendered  in the  private
placement  of  Series C  Convertible  Preferred  Stock  (collectively,  the "Win
Warrants").

      Prior to the initial closing of the Offering, the Company borrowed $75,000
from Cyndel, of which Messrs. Kolenik and Bayern are each an officer,  director,
and 50%  shareholder,  and $25,000  from Win. The  combined  $100,000  loan bore
interest at a rate of 10% per annum, and was paid back at the end of six months.
The Company issued to Cyndel  five-year  warrants to purchase  105,000 shares of
Common Stock and Win warrants to purchase 35,000 share of Common Stock,  both at
an initial exercise price equal $2.30, the closing price of the Company's Common
Stock  on the  business  day  immediately  prior  to the  issuance  date  of the
warrants. The Company also entered into a one-year consulting agreement, wherein
Win would provide financial  consulting services to the Company in consideration
for a fee of $5,000  per month for the term of the  agreement.  On April 7, 1999
the  Board of  Directors  agreed  to grant  25,000  warrants  to Win and  75,000
warrants  to  Cyndel,  both at an  exercise  price  of 4.00 per  share,  if they
exercised their outstanding warrants,  which warrants were exercised in June and
August of 1999.


                                     PART IV


                                       39

<PAGE>



Item 13. Exhibits and Reports on Form 8-K

      (a)         Exhibits

      The  following  Exhibits  are  filed  herewith  pursuant  to  Rule  601 of
Regulation S-B or are incorporated by reference to previous filings.

Table No.                            Document

 2.1  Amended Agreement and Plan of Merger between Paradigm Medical  Industries,
      Inc., a California corporation and Paradigm Medical Industries, Inc., a
      Delaware corporation(1)
 3.1  Certificate of Incorporation(1)
 3.2  Bylaws(1)
 4.1  Specimen Common Stock Certificate (2)
 4.2  Specimen Class A Warrant Certificate(2)
 4.3  Form of Class A Warrant Agreement(2)
 4.4  Underwriter's Warrant with Kenneth Jerome & Co., Inc.(3)
 4.5  Attorney's Warrant with Mackey Price & Williams(1)
 4.6  Warrant to Purchase Common Stock with Win Capital Corp.(5)
 4.7  Specimen Series C Convertible Preferred Stock Certificate(5)
 4.8  Certificate of the Designations, Powers, Preferences and Rights of the
      Series C Convertible Preferred Stock(5)
10.1  Exclusive Patent License Agreement with Photomed(1)
10.2  Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3  Confidential Disclosure Agreement with Zevex, Inc.(1)
10.4  Indemnity Agreement with Zevex International, Inc.(1)
10.5  Manufacturing Agreement with Sunrise Technologies, Inc.(1)
10.6  Royalty  Agreement  dated January 30, 1992, with Dennis L. Oberkamp Design
      Services(1)
10.7  Indemnity Agreement dated January 30, 1992, with Dennis L. Oberkamp Design
      Services(1)
10.8  Royalty Agreement (for Ultrasonic Phaco Handpiece) with Dennis L. Oberkamp
      Design Services(1)
10.9  Lease Agreement with Eden Roc
10.10 1995 Stock Option Plan and forms of Stock Option Grant Agreements(1)
10.11 Design, Engineering and Manufacturing Agreement with Zevex, Inc.(4)
10.12 License and Manufacturing Agreement with O.B.F. Labs, Ltd. (5)
10.13 Agreement with Win Capital Corp. (5)
10.14 Securities Exchange Agreement (5)

                                       40

<PAGE>

10.15 Stock   Exchange   for   Satisfaction   of  Debt   Agreement   with  Zevex
      International, Inc. (6)
10.16 Co-Distribution  Agreement  with  Pharmacia & Upjohn  Company and National
      Healthcare Manufacturing Corporation (6)
10.17 Agreement for Purchase and Sale of Assets with Humphrey  Systems  Division
      of Carl Zeiss, Inc. (6)
10.18 Employment Agreement with Thomas F. Motter (7)
10.19 Employment Agreement with Robert W. Millar (7)
10.20 Employment Agreement with John W. Hemmer (7)
10.21 Employment Agreement with Michael W. Stelzer (7)
10.22 Change of Control Termination Agreement with Thomas F. Motter (7)
10.23 Change of Control Termination Agreement with Robert W. Millar (7)
10.24 Change of Control Termination Agreement with John W. Hemmer (7)
10.25 Change of Control Termination Agreement with Michael W. Stelzer (7)
10.26 Asset Purchase  Agreement with Mentor Corp.,  Mentor Ophthalmics Inc., and
      Mentor Medical Inc.
10.27 Transition  Services Agreement with Mentor Corp., Mentor Ophthalmics Inc.,
      and Mentor Medical Inc.
10.28 Severance Agreement and General Release with Michael W. Stelzer
10.29 Consulting Agreement with Dr. Michael B. Limberg
10.30 Renewed Consulting Agreement with Dr. Michael B. Limberg
10.31 Mutual Release and Settlement Agreement with Zevex, Inc.
10.32 Consulting Agreement with Douglas Adams
27    Financial Data Schedule

(1)   Incorporated  by reference  from  Registration  Statement on Form SB-2, as
      filed on March 19, 1996.
(2)   Incorporated by reference from Amendment No. 1 to  Registration  Statement
      on Form SB-2, as filed on May 14, 1996.
(3)   Incorporated by reference from Amendment No. 2 to  Registration  Statement
      on Form SB-2, as filed on June 13, 1996.
(4)   Incorporated  by reference from Annual Report on Form 10-KSB,  as filed on
      December 30, 1996.
(5)   Incorporated  by reference from Annual Report on Form 10-KSB,  as filed on
      April 16, 1998.
(6)   Incorporated by reference from Quarter Report on Form 10-QSB,  as filed on
      August 19, 1998.
(7)   Incorporated by reference from Quarter Report on Form 10-QSB,  as filed on
      November 12, 1998.

      (b)  Reports on Form 8-K
           -------------------
        No  reports  on Form 8-K were  filed by the  Company  during  the fourth
quarter of 1999.

                                       41

<PAGE>



                                   SIGNATURES

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

                                        PARADIGM MEDICAL INDUSTRIES, INC.



Dated: March 30, 2000                   By:   /s/Thomas F. Motter
                                        ----------------------------------------
                                        Thomas F. Motter, Chairman of the Board,
                                        President and Chief Executive Officer


      Pursuant to the  requirements  of the Securities Act of 1934,  this report
has been signed by the following persons in counterpart on behalf of the Company
on the dates indicated.


<TABLE>
<CAPTION>

       Signature                        Title                                            Date
       ---------                        -----                                            ----

<S>                             <C>                                                  <C>
/s/Thomas F. Motter             Chairman of the Board,                               March 30, 2000
----------------------          President and Chief Executive Officer
Thomas F. Motter                (Principal Executive Officer)



/s/Randall A. Mackey, Esq.      Secretary and Director                               March 30, 2000
----------------------
Randall A. Mackey, Esq.


/s/Robert L. Frome, Esq.        Director                                             March 30, 2000
----------------------
Robert L. Frome, Esq.


/s/David M. Silver, Ph.D.       Director                                             March 30, 2000
----------------------
David M. Silver, Ph.D.



</TABLE>


                                       42