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| DELAWARE                                        | 87-0459536                                    |
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| (State      or other jurisdiction               | (I.R.S.      Employer                         |
| of      incorporation or organization)          |    Identification      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 |
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| Securities      registered pursuant to Section 12(b) of the Act:  None |
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| Securities      registered pursuant to Section 12(g) of theAct: |
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| 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 [    ] |
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| Indicate      by check mark if disclosure of delinquent filers pursuant to Item 405 of      Regulation S-B is not contained 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-K or any      amendment to this Form 10-K. [ ] |
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|   | Registrant's      revenues for the fiscal year ended December 31, 2008 were      $1,259,000. |
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| Indicate      by check mark whether the registrant is a large accelerated filer, an      accelerated filer, a non-accelerated filer, or a smaller reporting      company.  See the definitions of "large accelerated filer,"      "accelerated filer" an "smaller reporting company" in Rule 12b-2 of the      Exchange Act.  (Checkone): |
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| Large      accelerated filer 9 | Accelerated      filers 9                          | Non-accelerated      filer : | Smaller      reporting company  9 |
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|                           | (Do      not check if a smaller reporting company) |                         |

| Indicate      by check mark whether the registrant is a shell company (as defined in      Exchange Act Rule 12b-2): Yes [ ] No[X] |
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| DOCUMENTS      INCORPORATED BY REFERENCE: |
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| Additional      documents set forth in Part IV hereof are incorporated by      reference. |
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| Transitional      Small Business Disclosure Format (check one): Yes [ ] No    [X] |
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| PART      I |
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| Item      1. Description of Business |
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| General |
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| The      Company develops, manufactures, sources, markets and sells ophthalmic      surgical and diagnostic instrumentation and related accessories, including      disposable products. The Company's surgical equipment is designed for      minimally invasive cataract treatment. The Company's cataract removal      system, the PhotonTM      laser system, is a laser cataract surgery system designed to be      marketed as the next generation of cataract removal. Because of the "going      concern" status of the Company, management  has focused efforts      on those products and activities that will, in its opinion, achieve the      most resource efficient short-term cash flow to the Company. As reflected      in the results for the fiscal year ended December 31, 2008, diagnostic      products are currently the Company's major focus and the PhotonTM      and other extensive research and development projects have been put on      hold pending future evaluation when the financial position of the Company      improves. Due to the lack of FDA approval and the lack of current evidence      to support recoverability, the Company has recorded an inventory reserve      to offset the majority of the inventory associated with the PhotonTM.      In addition, most inventory associated with the Precisionist Thirty      ThousandTM      has been reserved due to the estimated lack of recoverability. The      Company's focus is not on any specific diagnostic product or products, but      rather on its entire group of diagnostic products. The PhotonTM      can be sold in markets outside of the United States. Both the      PhotonTM      and the Precisionist Thirty ThousandTM,      although not currently manufactured, have been manufactured in the past as      an Ocular Surgery WorkstationTM. |
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| The      Company's diagnostic products include a P2000 pachymetric analyzer, a P37      Ultrasonic A/B Scan, P40, P45 and P60 UBM Ultrasound Biomicroscopes, a P37      A/B Scan, two perimeters, the Blood Flow AnalyzerTM,      and the Glaid.  The diagnostic ultrasonic products including the      P2000 pachymetric analyzer, the P37 Ultrasonic A/B Scan and the P40 UBM      Ultrasound Biomicroscope were acquired from Humphrey Systems, a division      of Carl Zeiss in 1998.  The Company  developed and      offered for sale in the fall of 2000 the P45, which combines the P37      Ultrasonic A/B Scan and the UBM biomicroscope in one machine. In addition,      the Company developed and offered for sale in March 2005 the P60, which      represents the fourth generation of UBM devices and has better visual      clarity and image flexibility than earlier versions. The perimeter and the      corneal topographer were added when the Company acquired the outstanding      shares of the stock of Vismed, Inc. d/b/a/ DiconTM      in June 2000. The Company purchased Ocular Blood Flow, Ltd. in June      2000 whose principal product is the Blood Flow AnalyzerTM.      This product is designed for the measurement of intraocular pressure and      pulsatile ocular blood flow volume for detection and monitoring of      glaucoma. The Company is currently developing additional applications for      all of its diagnostic products. |
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| In      June 1997, the Company received FDA clearance to market the Blood Flow      AnalyzerTM      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 AnalyzerTM      is a portable automated in-office system that presents an affordable      method for ocular blood flow testing for the ophthalmic and optometric      practitioner. In June 2000, the Company purchased Occular Blood Flow,      Ltd., the manufacturer of the Blood Flow AnalyzerTM.      The terms and conditions of the sale were $100,000 in cash and 100,000      shares of common stock. In April 2001, the Company received authorization      to use a common procedure terminology or CPT code from the American      Medical Association for procedures performed with the Blood Flow      AnalyzerTM,      for reimbursement purposes for doctors using the device. However, certain      payers have elected not to reimburse doctors using the Blood Flow      AnalyzerTM. |
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| 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      materialsfor each of the product lines for the sum of $500,000, payable in      the form of 78,947 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. If the net proceeds received by Humphrey Systems      from the sale of the shares issued pursuant to the Agreement was less than      $375,000, after payment of commissions, transfer taxes and other expenses      relating to the sale of such shares, the Company would be required to      issue additional shares of common stock, or pay additional funds to      Humphrey Systems as would be necessary to increase the net proceeds from      the sale of the assets to $375,000. Since Humphrey Systems realized only      $162,818 from the sale of 78,947 shares of its common stock, the Company      issued 80,000 additional shares in January 1999 to enable Humphrey Systems      to receive its guaranteed amount. The amount of $21,431 was paid to the      Company as excess proceeds from the sale of this additional      stock. |
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| The      rights to the ophthalmic diagnostic instruments, which have been purchased      from Humphrey Systems, complement both the Company's cataract surgical      equipment and the Company's ocular Blood Flow AnalyzerTM.      The Ultrasonic Biometer calculates the prescription for the intraocular      lens to be implanted during cataract surgery. The P55 pachymetric measures      corneal thickness for the new refractive surgical applications that      eliminate the need for eyeglasses and for optometric applications      including contact lens fitting. The P37 Ultrasonic A/B Scan combines the      Ultrasonic Biometer and ultrasound imaging for advanced diagnostic testing      throughout the eye and is a viable tool for retinal specialists. The P40      UBM Ultrasound Biomicroscope utilizes microscopic digital ultrasound      resolution for detection of tumors and improved glaucoma management. The      Company introduced the P45 in the fall of 2000, which combines the P37      Ultrasonic A/B Scan, and the Ultrasonic Biometer in one      machine. |
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| On      October 21, 1999, the Company purchased Mentor's surgical product line,      consisting of the Phaco SlStemTM,      the OdysseyTM      and the Surg-E-Tro1TM.      This acquisition was an attempt to round out the Company's cataract      surgery product line by adding entry-level, moderately priced cataract      surgery products. The transaction was paid for with $1.5 million worth of      the Company's common stock. Due to the lack of sales volume of these      products, they were determined to be obsolete and a reserve was      established to offset all inventory associated with these products. During      the fourth quarter of 2003, the Company sold all inventory rights      associated with the SlStemTM      and OdysseyTM      for $125,000. |
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| On      June 5, 2000, the Company purchased Vismed Inc. d/b/a DiconTM      under a pooling of interest accounting treatment. The purchase      included the DiconTM      perimeter product line consisting of the LD 400, the TKS 5000, the      SSTTM,      FieldLinkTM,      FieldViewTM      and Advanced FieldView and the corneal topographer product line,      the CT 200TM,      the CT 50 and an ongoing service and software business. Perimeters are      used to determine retinal sensitivity testing the visual pathway. Corneal      topographers are used to determine the shape and integrity of the cornea,      the anterior surface of the eye. Corneal topographers are used for the      refractive surgical applications that eliminate the need for eyeglasses      and for optometric applications including contact lens      fitting. |
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| In      January 2002, the Company purchased the InnovatomeTM      microkeratome of Innovative Optics, Inc. by issuing an aggregate of      1,272,825 shares of its common stock, warrants to purchase 250,000 shares      of its common stock at $5.00 per share, exercisable over a period of three      years from the dosing date, and $100,000 in cash. The transaction was      accounted for as a purchase in accordance with Statement of Financial      Accounting Standards No. 141. The Company acquired from Innovative Optics      raw materials, work in process and finished goods inventories.      Additionally, the Company acquired the furniture and equipment used in the      manufacturing process of the microkeratome console and the inspection and      packaging of the disposable blades. |
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| The      Company was unsuccessful in supplying the disposable blades. The Company      discontinued the marketing and sales efforts of this product during the      third quarter of 2002. On April 1, 2002, the Company entered into a      consulting agreement with John Charles Casebeer, M.D. to develop and      promote the microkeratome. For Dr. Casebeer's services during the period      from April 1, 2002 to September 30, 2002, the Company issued him a total      of 43,684 shares of its common stock, representing payment of $100,000 in      stock for his services. All assets acquired from Innovative Optics,      including remaining inventory with a book value of $160,000 and equipment      and intangible assets with a book value of $2,082,000, were written off      during 2002. |
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| On      September 19, 2002, the Company completed a transaction with International      Bio-Immune Systems, Inc., a Delaware corporation , in which the Company      acquired 2,663,254 shares, or 19.9% of the outstanding shares of its      common stock, and warrants to purchase 1,200,000 shares of its common      stock at $2.50 per share for a period of two years, through the exchange      and issuance of 736,945 shares of its common stock, the lending of 300,000      shares of its common stock to the Company and the payment of certain of      its expenses through the issuance of an aggregate of 94,000 shares of its      common stock to the Company and its counsel. During 2004, the Company sold      all 2,663,254 shares of International Bio-Immune Systems stock for net      proceeds of $505,000. |
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| On      December 3, 2003, the Company executed a purchase agreement with American      Optisurgical, Inc. for the sale of the Mentor surgical products line,      consisting of the Phaco SIStemTM      and the OdysseyTM.      The assets sold in the transaction included patents, trademarks, software      codes and programs, supplies, work in process, finished goods, and molds      related to the equipment. The purchase price paid to the Company by      American Optisurgical for the assets was $125,000. The purchase agreement      also contained a noncompete provision in which the Company agreed for a      period of three years from the closing date not to own, manage, operate or      control any business that competes with cataract removal equipment      substantially the same as the proprietary technology of the Phaco      SlStemTM      and the OdysseyTM. |
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| In      March 2005, the Company introduced the P60 UBM Ultrasound Biomicroscope.      The P60 Biomicroscope represents the fourth generation of UBM devices and      has better visual clarity and image flexibility than earlier versions. On      March 1, 2005, the Company was awarded the CE Mark for the P60, which      enables it to market the device in 19 Western European countries, most of      the Middle East and India, and some parts of Asia and the Pacific Rim. On      May 26, 2005, the Company received FDA 510(k) premarket approval for the      P60, which allows it to be sold in the United States. On February 9,      2006,the Company received a Canadian device license for the P60, which      allows it to be sold in Canada. |
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| On      June 12, 2006, the Company entered into a Worldwide OEM Agreement with      MEDA Co., Ltd., one of China's leading developers and producers of      ultrasound devices. Under the terms of the agreement, MEDA agrees to      jointly engineer, develop and manufacture the Company's next generation of      the Ultrasound BioMicroscope, as well as other proprietary new products      and enhancement of the Company's current products. The products to be      manufactured by MEDA, at agreed upon costs, and supplied to the Company      for resale include the following new products: an ultrasound      biomicroscope, two ultrasound A/B Scans, a biometric A-Scan and a      pachymeter. |
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| The      agreement provides that the Company and MEDA agree to jointly develop and      collaborate in the improvement and enhancement of the Company's products      and, in the interest of product development, enhancement and      differentiation, MEDA agrees to give consideration to potential software      development or enhancements made available to the Company for its      products. Moreover, in the interest of product improvement, MEDA agrees to      collaborate with the Company and its designated engineers, employees and      consultants to consider and potentially implement jointly or individually      the development of product enhancements to the Company's products to be      manufactured by MEDA. |
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| The      software and hardware modifications designed jointly by the Company and      MEDA will be considered the joint intellectual property of the Company and      MEDA and may be used, without restriction, unless otherwise previously      agreed to, by either party. MEDA also agrees to provide a twelve month      warranty on all products that it manufactures for the Company. If defects      cannot be corrected at the Company's facilities, the products may be      returned to MEDA for the purposes of carrying out such repairs as      required, and MEDA agrees to return the repaired products to the Company      or its designated agent or distributor within ten working days from the      date of receiving such products, at no cost to the Company, and MEDA will      pay return freight costs. |
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| MEDA      further agrees to endeavor to answer any technical inquiries concerning      the products it has manufactured. MEDA also agrees to train the Company's      technical service engineers and designated international distributors as      soon as possible after the signing of this agreement, and as future needs      arise and as MEDA can reasonably fit such training into the regular      schedules of its employees. MEDA agrees to determine the need for future      training on new products as necessary and will offer such training in      Tiangin, China. For training conducted outside China, the Company or its      designated distributors and/or service centers will be responsible for the      traveling, living and hotel expenses for MEDA's engineers. Training is at      no charge to the Company. The training will also be made available to the      Company's designated repair agencies in order to provide service and      repair on a worldwide basis. Such agencies will be considered authorized      repair facilities for the products manufactured by  MEDA. |
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| MEDA      provides the Company with several ultrasound devices. These devices      include the P37-legal issues A/B Scan, the P2000 A-Scan Biometric      AnalyzerTM,      P2200 Pachymeter and the P2500, which is a combined A-Scan and pachymeter.      MEDA also manufactures the P2700, P3700, and P37-II A/B Scans and the P50      Ultrasound Biomicroscope. The agreement provides exclusive distribution      rights to the Company throughout most of the world, including the United      States and Canada, once FDA approval is received on these      devices. |
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| The      agreement shall be effective for three years from date of execution. At      the end of the three year term, representatives of the Company and MEDA      will confer to determine whether to extend the term of the agreement. This      will have a practical effect of extending the term of the agreement for an      additional 120 days. If mutual agreement for extending the term of the      agreement is not reached within 120 days after the end of the three year      term, then the agreement will be deemed terminated. However, if within the      120 day period, the Company and MEDA mutually agree to extend the term of      the agreement, then thereafter either party may terminate the agreement by      providing at least twelve months' prior written notice to the other party.      All outstanding orders at the time of notification will be supplied under      the terms of the agreement, and MEDA will continue to fulfill all orders      from the Company until the twelve month notice period has      expired. |
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| On      January 31 and February 1, 2007, MEDA received FDA 510(k) premarket      approval for a new generation of ultrasound devices. This approval allows      the new devices to be sold in the United States. The new ultrasound      devices, which are to be manufactured by MEDA and sold by the Company in      the United States, include the P2000 A-Scan (used to measure axial length      of the eye), the P2200 Pachymeter (used for measuring corneal thickness),      the P2500 A­Scan/Pachymeter (a combination of the two stand alone      devices), the P2700 AB/Scan (an ultrasound imaging device for detecting      abnormalities within the eye) and the P37-II (a more advanced AB/Scan used      to provide portability for ophthalmology veterinary applications) and the      P50 Ultrasound Biomicroscope for high frequency imaging of the anterior      chamber of the eye. |
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| On      September 25, 2006, the Company entered into a Worldwide OEM Agreement      with Tinsley, a division of Hartest Precision Instruments Limited, and one      of Europe's leading developers and producers of visual fields analysis      devices or perimeters. Under the terms of the agreement, Tinsley agrees to      engineer, develop and manufacture the Company's newest perimeter, the      LD700 Visual Fields Analyzer. The product is to be manufactured by Tinsley      at agreed upon costs and supplied to the Company for    resale. |
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| On      August 14, 2007, the Company entered into an agreement with Equity Source      Partners, LLC of Jericho, New York. Under the terms of the agreement,      Equity Source Partners will act as the exclusive financial advisor to the      Company and will assist the Company in raising private capital, creating a      strategy for growing its core business, pursuing a follow on offering, and      providing general strategic corporate advice. Among the strategic advisory      services Equity Source Partners will provide are to assist in identifying      and introducing the Company to third parties in connection with potential      strategic relationships, provide advice concerning issues relating to      potential strategic relations, capital raises and potential investment      banking contacts, and establish contact with prospective providers of      capital. Among the financing services Equity Source Partners will perform      is to solicit prospective providers of capital on the Company's      behalf. |
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| The      term of the agreement is for twelve months unless extended by mutual      consent. As compensation for its services, the Company agrees to provide      equity Source Partners with an advisory fee equal to an aggregate of 3% of      the outstanding shares of the Company's common stock. In addition, the      Company agrees to pay Equity Source Partners a cash fee equal to 7.5% of      the gross proceeds from the sale of securities to investors that were      introduced to the Company by Equity Source Partners and a cash fee equal      to 3% of the gross proceeds received from the sale of securities to      investors that were not introduced by Equity Source      Partners.  The agreement terminated on August 14, 2008, when it      was not extended by mutual consent for an additional time      period. |
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| On      January 16, 2008, the Company entered into a consulting agreement with      Corcoran Consulting Group, which specializes in medical reimbursement      issues for optometry and ophthalmology. The Company plans to work with      Corcoran Consulting Group to create a new common procedure technology, or      CPT code number, for reimbursement purposes for physicians and      practitioners using the Blood Flow AnalyzerTM.      In addition, the Company plans to work with Corcoran Consulting Group to      offer educational seminars for physicians and practitioners who purchase      the Blood Flow AnalyzerTM. |
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| On      January 28, 2008, the Company entered into a Distribution Agreement with      LACE Elettronica srl to distribute its Glaid device, a proprietary      electrophysiology instrument for the early detection of glaucoma by means      of measuring the physical condition of the retina's ganglion cells,      including retinal ganglion cell loss. The Glaid device was approved by the      FDA in 2005 and has undergone extensive testing and clinical studies in      the United States, Canada and Italy, including at Bascom Palmer Eye      Institute, University of California at San Diego's Hamilton Glaucoma      Center, and New York State College ofOptometry. |
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| Under      the terms of the agreement, the Company has the exclusive right to      distribute the Glaid device in the United States and Canada. The Company      also has a first right of refusal for distribution of the product to      countries outside the United States and Canada where LACE is not currently      selling or marketing the product. These additional distribution rights are      subject to reasonable new minimum quotas. The Distribution Agreement      requires the Company to purchase the Glaid device from LACE at an agreed      upon price and to then sell the product in compliance with minimum order      requirements. The five year quotas for the Glaid device are 27 units, 60      units, 100 units, 120 units, and 120 units for years one through five of      the agreement. Paradigm sales for quota requirements are to begin as soon      as the product is fully completed, with all accessories and consumables,      and ready for delivery. |
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| The      Distribution Agreement is for the term of five years.  At the      end of the five year term,      representatives of the Company and LACE will determine whether to extend      the term of the agreement. If mutual agreement for continuation of the      agreement is not reached within 120 days thereafter, the agreement will be      deemed terminated. However, if within the 120 day period, the Company and      LACE mutually agree to continue the agreement, then either party may      terminate the agreement at any time thereafter by providing at least      twelve months' prior written notice to the other party. All outstanding      orders at the time of notification will be supplied under the terms of the      agreement, and LACE will continue to fulfill all orders from the Company      until the twelve month notice period has  expired. |
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| LACE      also agrees to provide a twelve month warranty from the day of delivery on      all Glaid devices supplied to the Company. If the defects cannot be      corrected at the Company's facilities or at the facilities of trained      Company repair centers, the products must then be returned to LACE for      purposes of carrying out such repairs as required, and LACE agrees to      return the repaired products to the Company or its designated agent or      distributor within ten working days from the date of receiving such      products, at no cost to the Company, and LACE will pay return freight      costs. The Company additionally agrees to arrange for installation of the      Glaid device at no cost to LACE. The Company further agrees to provide      Company brand specific labeling to be applied to the LACE devices shipped      directly to the Company's customers and distributors.  On March      12, 2009, the Distribution Agreement was mutually terminated by the      Company and LACE due to the difficulties that the companies had in working      together. |
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| On      December 5, 2008, the Company’s shareholders approved a 1-for-100 reverse      stock split, which became effective on December 5, 2008. All references to      share and per-share data for all periods presented in this report have      been adjusted to give effect to this reverse  split. |
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| On      April 7, 2009, the Company signed a letter of intent with Fairhills      Capital Offshore, LLC in which Fairhills Capital committed to finance up      to $1,800,000 through the purchase of promissory notes from the      Company.  The letter of intent provides that $600,000 in notes      will be purchased every three months over a nine month period, with the      first purchase of $300,000 to be made at closing and the remainder to be      purchased upon the satisfaction of financial objectives to be mutually      determined between the Company and Fairhills Capital.  The      convertible notes will bear interest at 6% per annum.  In      addition, Fairhills Capital will have a right of first refusal on future      financing transactions by the Company for as long as the notes remain      outstanding. |
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| Background |
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| Corporate History: The      Company's business originated with Paradigm Medical, Inc., a California      corporation formed in October 1989. Paradigm Medical, Inc. developed its      present ophthalmic business and was operated by its founders Thomas F.      Motter and Robert W. Millar. In May 1993, Paradigm Medical, Inc. merged      with Paradigm Medical Industries, Inc. At the time of the merger, the      Company was a dormant public shell existing under the name French Bar      Industries, Inc. French Bar had operated a mining and tourist business in      Montana. Prior to its merger with Paradigm Medical, Inc. 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 Paradigm Medical, Inc. 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 Paradigm Medical, Inc.      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. |
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| Overview |
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| 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. |
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| Birth      defects, trauma from accidents, disease and age related deterioration of      the components of the eye could 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 or low pressure in      the eye), loss of nerve fibers resulting in loss of vision, 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. |
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| 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. |
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| Surgical      use of ultrasonics in ophthalmology is limited to treatment of cataract      lenses in the eye through a procedure called phacoemulsification or      "phaco." A primary objective of cataract surgeries is the removal of the      opacified (cataract) lens through an incision that is as small as      possible. The opacified lens is then replaced by a new synthetic lens      intraocular implant. 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 cataracts 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      lenses, 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. Market Scope's      (Manchester, Missouri), The 2001 Report on the      Worldwide Cataract Market, January 2001 indicates that phaco      cataract treatment was the technology for cataract removal used in over      80% of surgeries in the United States and over 20% of all foreign      surgeries. |
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| 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 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 wave lengths 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 tissues. 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. |
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| Lasers      are widely accepted in the ophthalmic community for treatment of certain      eye disorders and are popular for surgical applications because of their      relatively noninvasive 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 is used 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 cyclophotocoagulation). 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      PhotonTM      laser cataract system is designed to be used for multiple ophthalmic      applications, including certain new applications that may be made possible      with its proprietary technology. Such new applications, however, must be      tested in clinical trials and be approved by the  FDA. |
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| The      Company's principal proprietary surgical products are systems for use by      ophthalmologists to perform surgical treatment procedures to remove      cataracts. The Company has complete ownership of each product with no      technological licensinglimitations. |
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| Precisionist Thirty      ThousandTM.  The      Precisionist Thirty ThousandTM      is the Company's core phaco surgical technology. The PrecisionistTM      was placed into production and offered for sale in      1997.  Although manufactured in the past, the PrecisionistTM      is not currently being manufactured.  As a phaco cataract      surgery system, the Company believes the PrecisionistTM      with its new fluidics panel is equal or superior to the present      competitive systems in the United States. However, due to the lack of      recent sales, the majority of the Company's inventory associated with the      Precisionist Thirty ThousandTM      has been estimated to be obsolete and therefore a reserve for such      inventory has been recorded. The system features a graphic color display      and unique proprietary on board computer and graphic user interface linked      to a 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 PrecisionistTM      provides one hundred pre-programmable surgery setups, with a second level      of subprogrammed custom modes within each major surgical screen (i.e.,      ultrasound phaco and irrigation/aspiration  modes). |
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| The      PrecisionistTM      also features the Company's proprietary fluidics panel which is completely      noninvasive for improved sterility and to provide a surgical environment      in the eye that virtually eliminates fluidic surge and solves chamber      maintenance problems normally associated with phaco cataract surgery. This      fluidics system provides greater control for the surgeon and allows the      safe operation at much higher vacuum settings by sampling changes in      aspiration I00 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. Sales of the PrecisionistTM      and related accessories were 0% of total revenues in both the      fiscal years 2006 and 2005,respectively. |
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| Ocular      Surgery WorkstationTM. The Ocular Surgery      WorkstationTM      comprises the base system of the Precisionist Thirty ThousandTM      and is the first system, to the Company's knowledge, 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 WorkstationTM      utilizes an embedded open architecture 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) are all included in the base model. Each component is      controlled as a peripheral module within this fully integrated system.      This approach allows for seamless expansion and refinement of the      WorkstationTM      with the ability to add other hardware and software features. Expansion      such as the Company's PhotonTM      laser system and hardware for additional surgical applications are easily      implemented by means of a preexisting expansion rack, which resides in the      base of the WorkstationTM.      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      WorkstationTM      will be accepted in the marketplace. If the FDA approves the      PhotonTM,      the Company will refer to the WorkstationTM      as the PhotonTM      Ocular Surgery WorkstationTM.      To date, the Company has not commercially developed or offered for sale      any other added hardware or software features to its WorkstationTM |
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| PhotonTM Laser System: The      PhotonTM      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' Ocular Surgery WorkstationTM.      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, PhotonTM      laser software package and interchangeable disposable hand held fiber      optic laser cataract probe. The PhotonTM      laser utilizes the on board microprocessor computer of the      WorkstationTM to generate short      pulse laser energy developed through the patented LCPTM      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 could      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. |
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| 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 that 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 Precisionist'M.      Because of the "going concern" status of the Company, management has      focused efforts on those products and activities that will, in its      opinion, achieve the most resource efficient short-term cash flow to the      Company. As reflected in the results for the fiscal year ended December      31, 2008, diagnostic products are currently the Company's major focus and      the PhotonTM      and other extensive research and development projects have been put on      hold pending future evaluation when the Company's financial position      improves. Due to the uncertainty surrounding the timetable for obtaining      FDA approval and the lack of significant revenue  from the other      surgical products, the Company has recorded an inventory reserve against      the majority of the inventory associated with the PhotonTM      and Precisionist Thirty ThousandTM.      The Company's focus is not on any specific diagnostic product or products,      but rather on its entire group of diagnostic  products. |
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| At      some point in the future, the Company may intend, subject to economic      feasibility and the availability of adequate funds, to refine the laser      delivery system and laser cataract surgical technique used on soft      cataracts through expanded research and clinical studies. Subject to the      aforementioned constraints, the Company intends to refine the fluidics      management system by improving chamber maintenance during surgical      procedures and to develop techniques to optimize time and improve invasive      techniques 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 denature cataract tissue at a precise      location inside the eye while simultaneously irrigating and aspirating the      site. |
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| The      Company's laser system is based upon the concept that pulsed laser energy      produced with the microprocessor 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-cataract tissues within the eye, the Company's PhotonTM      laser cataract system should only affect tissues with which it comes into      direct contact. |
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| In      October of 2000, the Company received FDA approval for the PhotonTM      WorkstationTM      to be used with a 532mm green laser which is effective for medical      procedures other than cataract removal, such as photocoagulation of      retinal and venous anomalies within or outside the eye, pigmented lesions      around the orbital socket, posterior or anterior procedures associated      with glaucoma or diabetes and general photocoagulation for various      dermatological venous anomalies including telangiectasia (surface veins),      or commonly referred to as "spider veins". The goal is to be able to      integrate multiple laser wavelengths into one system or workstation that      can be used for multiple medical specialties. This approval represents      only one of the potential applications that could represent substantial      growth opportunities including additional sales of equipment, instruments,      accessories and disposables. |
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| The      PhotonTM      Ocular Surgery WorkstationTM      has not been commercially developed with any other      added hardware or software features. There is no guarantee that the      ophthalmic surgery market will accept the laser in this capacity or that      the FDA will grant approval. Regulatory approval would require completion      of pending PhotonTM      clinical trials and resubmission of a 510(k) predicate device application      to the FDA. Because of the "going concern" status of the Company,      management has focused efforts on those products and activities that will,      in its opinion, achieve the most resource efficient short-term cash flow      to the Company. As reflected in the results for the fiscal year ended      December 31, 2008, diagnostic products consisting mainly of P40, P45 and      P60 UBM Ultrasound Biomicroscopes; P2700, P3700 and P37 A/B Scans;      perimeters, CT 50 Corneal Topographer, and Blood Flow AnalyzerTM      are currently      the Company's major focus and the PhotonTM      and other extensive research and development projects have been put on      hold pending future evaluation when the financial position of the Company      improves. The Company's focus is not on any specific diagnostic product or      products, but rather on the entire group of diagnostic      products. |
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| On      March 31, 2005, Joseph W. Spadafora filed a complaint against the Company      in the United States District Court, District of Utah, in which he alleges      that he was a clinical investigator in the study for the FDA involving the      Company's PhotonTM      laser system where he performed numerous surgeries using the PhotonTM.      Dr. Spadafora contends that in meetings with the Company's personnel he      suggested ways in which the handpiece on the PhotonTM      could be improved. Dr. Spadafora further contends that on August 5, 1999,      when the Company filed a patent application for an improved handpiece with      the United States Patent and Trademark Office, he was not named as one of      the inventors or a coinventor on the patent application. On September 24,      2004, the Company was issued a patent entitled, "Laser Surgical Handpiece      with Photon Trap." Because the Company did not list Dr. Spadafora as one      of the inventors or a coinventor on the patent, Dr. Spadafora requests in      his complaint that a court order be entered declaring that he is the      inventor or coinventor of the patent and, as a result, is entitled to all      or part of the royalties and profits that the Company earned or will earn      from the sale of any product incorporating or using the improved      handpiece. |
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| On      June 2, 2006, the Company entered into a settlement agreement with Dr.      Spadafora for the dismissal of the lawsuit. Under the terms of the      settlement agreement, the Company agrees to provide Dr. Spadafora with the      exclusive right over a three-year period to market and sell the      PhotonTM      laser system and its components, including the inventory and intellectual      property rights. If Dr. Spadafora were successful in finding a prospective      purchaser to acquire the PhotonTM      laser system upon terms acceptable to the Company, it agrees to pay him a      commission equal to 10% of the total purchase price. If the purchase price      for the PhotonTM      laser system includes a royalty or other payments payable to the      Company on later sales of the PhotonTM      laser system other than its handpiece component, the Company agrees to pay      Dr. Spadafora 8% of such royalties or other payments on such later sales      through the full term of the purchase agreement. The Company further      agrees that if a purchase price includes a royalty or other payments      payable to the Company on later sales of the handpiece component of the      PhotonTM      laser system, the Company agrees to pay Dr. Spadafora 15% of such      royalties or other payments through the full term of the purchase      agreement. |
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| Additionally,      the settlement agreement provides that if the Company is successful      through its sole efforts, without any assistance from Dr. Spadafora, in      finding a purchaser to acquire the PhotonTM      laser system or its components during the second or third year of Dr.      Spadafora's exclusive rights, the Company agrees to pay Dr. Spadafora a      commission equal to 1.7% of the total purchase price and of the Company's      royalties or other payments on subsequent sales of the PhotonTM      laser system or its components through the full term of the      purchase agreement. Finally, the settlement agreement provides for mutual      releases by Dr. Spadafora and the Company for the benefit of each other,      and that the Company and Dr. Spadafora each agree to pay their own costs,      expenses and attorney's fees incurred in connection with the lawsuit and      the preparation of the settlementagreement. |
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| Surgical Instruments and      Disposables:  In addition to the cataract surgery      equipment, the Company's surgical systems are designed to 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 penetrates the      cataract surgery market and expands the treatment applications for its      WorkstationTM.      These products contributed 0% of total revenues for both 2008 and      2007. |
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| Diagnostic Eye Care      Products:  Glaucoma is a second leading cause of adult      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,      visual field and observation of the optic nerve head to determine the      possibility of pressure being exerted upon the retina and optic nerve      fiber bundle, which can diminish the visual field. Recently, retinal blood      circulation has been indicated as a key component in the presence of      glaucoma. Some companies produce color Doppler equipment in the $80,000      price range intended to provide measurement of ocular blood flow activity      in order to diagnose and treat glaucoma at an earlier    stage. |
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| Blood Flow      AnalyzerTM:  In      June 1997, the Company received FDA clearance to market the Blood Flow      AnalyzerTM      for early detection and treatment management of glaucoma and other retinal      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      AnalyzerTM      is a portable automated in-office system that presents an      affordable method for ocular blood flow testing for the ophthalmic and      optometric practitioner. This was the first diagnostic eye care device.      The device is a portable desktop system that utilizes a proprietary and      patented pneumatic Air Membrane Applanation ProbeTM      or AMAPTM,      which can be attached to any model of standard examination slit lamp,      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 waveform profile,      which can be correlated to blood flow volume within the eye. A proprietary      software algorithm developed by David M. Silver, Ph.D., at Johns Hopkins      University, calculates the blood flow volume. 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. |
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| The      Company markets the Blood Flow AnalyzerTM      as a stand-alone model packaged with a custom built computer system. The      Blood Flow AnalyzerTM      utilizes a single use disposable cover for the Air Membrane      Applanation Probe''M, a      corneal probe which is shipped in sterile packages. The 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 AnalyzerTM      for marketing in June 1997 and the Company commenced selling the system in      September 1997. In addition to the Humphrey products, this diagnostic      product allowed 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. |
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| In      April 2001, the Company received written authorization from the CPT      Editorial Research and Development Department of the American Medical      Association to use common procedure terminology or CPT code number 92120      for its Blood Flow AnalyzerTM,      for reimbursement purposes for doctors using the device. However, certain      payors have elected not to reimburse doctors using the Blood Flow      AnalyzerTM.      The Company is continuing its aggressive campaign to educate the payors      about the Blood Flow AnalyzerTM,      its purposes and the significance of its performance in patient care in      order to achieve reimbursements to the doctors. Currently, there is      reimbursement by insurance payors to doctors using the Blood Flow      AnalyzerTM      in 22 states and partial reimbursement in four other states. The amount of      reimbursement to doctors using the Blood Flow AnalyzerTM      generally ranges from $56.00 to $76.00 per patient, depending upon      the insurance payor. Insurance payors providing reimbursement for the      Blood Flow AnalyzerTM      have the discretion to increase or reduce the amount of reimbursement. The      Company is endeavoring to obtain reimbursement by insurance payors in      other states where there is currently no reimbursement being      made. |
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| The      manufacturing activities for the Blood Flow AnalyzerTM      have been moved to the Salt Lake City facility from the outsourced plant      located in England. On October 21, 2002, the Company received FDA approval      on its 510(k) application for additional indications of use for the Blood      Flow AnalyzerTM.      The additional indications include pulsatile ocular blood flow and      pulsatile ocular blood volume. These are diagnostic measurements that      assess the hemodynamic and vascular health of the eye. Also, the Company      is continuing its aggressive campaign to educate the insurance payors      about the Blood Flow AnalyzerTM,      its purposes and the significance of its performance in patient care in      order to achieve reimbursements to the doctors using its Blood Flow      AnalyzerTM.      Sales of the Blood Flow AnalyzerTM      and related accessories accounted for 5% and 13% of total sales for      the fiscal years ended December 31, 2008 and 2007,      respectively. |
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| On      January 16, 2008, the Company entered into a consulting agreement with      Corcoran Consulting Group, which specializes in medical reimbursement      issues for optometry and ophthalmology. The Company plans to work with      Corcoran Consulting Group to create a new common procedure technology, or      CPT code number, for reimbursement purposes for physicians and      practitioners using the Blood Flow Analyzer TM. In addition, the Company      plans to work with Corcoran Consulting Group to offer educational seminars      for physicians and practitioners who purchase the Blood Flow Analyzer      TM. |
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| DiconTM      Perimeters:  DiconTM      perimeters consist of the LD 400, the TKS 5000, and software consisting of      Field LinkTM FieldViewTM      and Advanced Field View. Perimeters are used to determine retinal      sensitivity testing the visual pathway. Perimeters have become a standard      of care in the detection and monitoring of glaucoma worldwide. Perimetry      is reimbursable worldwide. The DiconTM      perimeters feature patented kinetic fixation and voice synthesis      now in 27 different languages. Software programs are sold to assist in the      analysis of the test results. Sales of the perimeters and related      accessories generated 24% and 19% of the total revenues for 2008 and 2007,      respectively. |
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| The      LD 400FT, or Fast Threshold Autoperimeter, is the successor to the LD 400.      The device is an autoperimeter used to measure patient visual fields. The      LD 400FT is identical in hardware to the LD 400 but it uses new software      to enable a fast threshold test. This test reduces the time required by      ophthalmologists and optometrists conducting autoperimetry tests by more      than 40% by running an abbreviated test at light levels determined to be      sufficient to be seen in normal patients. The procedure currently takes      more than 15 minutes. The fast threshold test by the LD 400FT is similar      to tests by other devices on the market. Healthy patients will pass the      test. Patients with reduced visual fields will be flagged by the test      enabling the device to automatically run a more comprehensive examination      to determine the extent of the visual field loss. All existing LD 400s can      be upgraded to support the new fast threshold test through the purchase of      a software package. |
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| The      LD700 Perimeter is the next generation of perimeters, providing a small      footprint and compact design. The test given with the LD700 tests for      visual field loss that is often an indicator of the presence of glaucoma.      The LD700 is designed to identify glaucoma suspects and also monitor the      onset of glaucoma in patients afflicted with this eye disease. It is also      used in the management of medication used to treat glaucoma to assure the      prescribed medication is effective in slowing the progression of glaucoma      and other ailments that result in visual field  loss. |
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| DiconTM Corneal Topographers:      DiconTM      corneal topographers include the CT 200TMand      the CT 50. Corneal topographers are used to determine the shape and      integrity of the cornea, the anterior surface of the eye. Clinical      applications for corneal topographers include refractive surgery that      eliminates the need for eyeglasses and optometric applications including      contact lens fitting. Revenues from the topographer and related      accessories were 0% and 1% of the total revenues for 2008 and 2007,      respectively. An enhanced version of the CT 200TH      was introduced during the fourth quarter of 2003. The Company has      completed the upgrades to the CT 200THand      the CT 50 Corneal Topographers, which are now operating with Windows XP      software rather than the former Windows 95 operating    systems. |
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| P2000 Pachymetric Analyzer:      The ultrasonic pachymeter is used for measurement of corneal      thickness. The Model P2000 is positioned as a standard office pachymeter.      This device is targeted to the refractive surgery market and contributed      2% and 3% of the total revenues for both 2008 and 2007,      respectively. |
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| P37 A/B Scan Ocular Ultrasound      Diagnostic: The A/B Scan is used by retinal subspecialists 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 and its image resolution qualities. Sales from this      product were 11% and 10% of the total revenues for 2008 and 2007,      respectively. |
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| P40, P45 and P60 UBM      Ultrasound Biomicroscopes: Humphrey Systems developed the P40 UBM      Ultrasound Biomicroscope in conjunction with the New York Eye and Ear      Infirmary in Manhattan and the University of Toronto. The P40      biomicroscope and its intellectual property were included in the purchase      from Humphrey Systems and gives the Company the proprietary rights to this      device. The P40 biomicroscope creates a high resolution computer image of      the unseen parts of the eye that is a "map" for the glaucoma surgeon. The      P40 biomicroscope is an "enabling technology" for the ophthalmologist, one      that the Company has repositioned for broader market sales penetration.      Formerly sold only to glaucoma subspecialty practitioners, the Company      reintroduced the P40 biomicroscope at a price point targeted for the      average practitioners seeking to add glaucoma filtering surgical      procedures and income to their cataract surgical  practice. |
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| The      P40 biomicroscope related surgical filtering procedures are fully      reimbursable by Medicare and insurance providers. This untapped new market      positions the Company with its proprietary P40 biomicroscope and, to its      knowledge, the only commercially viable product of this type on the      market, as a leader in the rapidly expanding glaucoma imaging and      treatment segment. In the fall of 2000, the Company introduced the P45 UBM      Ultrasonic Biomicroscope, which combines the P40 biomicroscope and the P37      A/B Scan Ocular Ultrasound Diagnostic into one instrument. The Company      believes that by combining functions, the P45 will appeal to a broader      market. The P40 biomicroscope and related accessories sales were 1% and 6%      of the total revenues for 2008 and 2007, respectively. The P45      biomicroscope and related accessories sales contributed 0% and 2% of the      total revenues for 2008 and 2007,respectively. |
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| On      October 25, 2004, the Company entered into a Manufacturing and      Distribution Agreement with E-Technologies, Inc., a Iowa based developer      of software and related technology for technical applications. Under the      terms of the agreement, E-Technologies granted to the Company the      exclusive right to manufacture, market, sell and distribute an ultrasound      biomicroscope. Upon execution of the agreement, the Company paid $30,000      to E-Technologies for engineering costs associated with the development of      the biomicroscope. When the biomicroscope received FDA approval on May 26,      2005, the Company paid E-Technologies an additional fee of      $45,000. |
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| In      consideration for the exclusive right to manufacture and distribute the      biomicroscope, the Company agreed to pay E-Technologies a royalty in the      amount of $5,000 for each of the first 25 biomicroscopes sold by the      Company. Thereafter, the Company agreed to pay E-Technologies the sum of      $4,000 for each biomicroscope sold. As an additional condition, the      Company agreed to sell 25 biomicroscopes during the first 12 months after      the biomicroscope receives FDA approval. The agreement is effective for a      term of two years. After the expiration of the two year period, the      agreement is to automatically renew for additional one year periods,      unless either party elects to terminate the agreement upon at least 30      days prior written notice to the other party before the end of any term of      the agreement.  The agreement was terminated on July 18,      2006. |
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| In      March 2005, the Company introduced the P60 UBM Ultrasound Biomicroscope.      The P60 biomicroscope represents the fourth generation of UBM devices and      has better visual clarity and image flexibility than earlier versions. On      March 1, 2005, the Company was awarded the CE Mark for the P60, which      enables it to market the device in 19 Western European countries, the      Middle East and India, and some parts of Asia and the Pacific Rim. On May      26, 2005, the Company received FDA 510(k) premarket approval for the P60,      which allows it to be sold in the United States. On February 9, 2006, the      Company received a Canadian device license for the P60, which allows it to      be sold in Canada. The P60 biomicroscope and related accessories sales      were 21% and 16% of total revenues for 2007 and 2006,      respectively. |
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| On      June 5, 2007, the Company introduced a new software package for the P60      biomicroscope. This V2.1 software incorporates greater image resolution, a      user-friendly and robust database management system, and networking      capabilities that allow the patient image data to be transferred within a      user's network for efficient patient record management. The Company      developed the new V2.1 software in partnership with the optic and      engineering group at Reliacon Global,Inc. |
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| In      July 2000, the Company received ISO 9001 and EN 46001 certification using      TUV Essen as the notified body. Under ISO 9001 certification, its products      are now CE marked. The CE mark allows the Company to ship product for      revenue into the European Community. The Company successfully retained its      certification in 2005 and retained ISO 13485 in December2005 from TUV      Essen. |
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| On      June 12, 2006, the Company entered into a Worldwide OEM Agreement with      MEDA Co., Ltd., one of China's leading developers and producers of      ultrasound devices. Under the terms of the agreement, MEDA agrees to      jointly engineer, develop and manufacture the Company's next generation of      the Ultrasound BioMicroscope, as well as other proprietary new products      and enhancement of the Company's current products. The products to be      manufactured by MEDA, at agreed upon costs, and supplied to the Company      for resale include the following new products: an ultrasound      biomicroscope, two ultrasound A/B Scans, a biometric A-Scan and a      pachymeter. |
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| The      agreement provides that the Company and MEDA agree to jointly develop and      collaborate in the improvement and enhancement of the Company's products      and, in the interest of product development, enhancement and      differentiation. MEDA agrees to give consideration to potential software      development or enhancements made available to the Company for its      products. Moreover, in the interest of product improvement, MEDA agrees to      collaborate with the Company and its designated engineers, employees and      consultants to consider and potentially implement jointly or individually      the development of product enhancements for the Company's products to be      manufactured by MEDA. |
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| On      January 31 and February 1, 2007, MEDA received FDA 510(k) pre-market      approval for a new generation of ultrasound devices. This approval allows      the new devices to be sold in the United States. The new ultrasound      devices, which are to be manufactured by MEDA and sold by the Company in      the United States, include the P2000 A-Scan (used to measure axial length      of the eye), the P2200 Pachymeter (used for measuring corneal thickness),      the P2500 A­Scan/Pachymeter (a combination of the two stand-alone      devices), the P2700 and P3700 AB/Scans (an ultrasound imaging device for      detecting abnormalities within the eye), the P37-II (a more advanced      AB/Scan used to provide portability for ophthalmology veterinary      applications) and the P50 Ultrasound Biomicroscope for high frequency      imaging of the anterior chamber of theeye. |
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| Parts and Services: The      parts and service revenue from the repair and service of equipment sold      accounted for 30% and 9% of total revenues in 2008 and 2007,      respectively. |
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| The      following table identifies each product class, status of commercial      development, the percentage of sales contributed by that class,      reimbursement status, and status of applicable United States and foreign      regulatory approvals: |
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|                           |                                                             | Commercial          | Reimbursement | 2007%    | 2008%  |     Regulatory      |
|--------------------------------|------------------------------------------------------------------|---------------------|---------------|----------|--------|-----------------------------------------|
| Product      (1)               | Product      Class                                               | Development         | Status        |     |   |      Approvals |
| P2200      and P2500           | System,      Imaging,                                            | Complete            | Yes           | 4%       | 1%     | FDA      510(K) K844299*                |
| Pachymetric      Analyzer      | Pulsed      Echo Diagnostic                                      |                |          |     |   | ISO      9001: 1994, EN                 |
|                           |                                                             |                |          |     |   | 9001**                                  |
|                           |                                                             |                |          |     |   |                                    |
| P2000      A-Scan              | System      Imaging, Pulsed                                      | Complete            | Yes           | 3%       | 2%     | FDA      510(K) I844299*                |
| Biometric                      | Echo      Diagnostic                                             |                |          |     |   | ISO      9001: 1994,                    |
| Ultrasound      Analyzer       |                                                             |                |          |     |   | EN      ISO 9001**                      |
| P37,      P37-II, P2700        | Transducer,      Ultrasound                                      | Complete            | Yes           | 22%      | 17%    | FDA      510(K) K844299*                |
| and      P3700 A/B Scan        | Diagnostic                                                       |                |          |     |   | ISO      9001: 1994,                    |
| Ocular      Ultrasound         |                                                             |                |          |     |   | EN      ISO 9001**                      |
| Diagnostic                     |                                                             |                |          |     |   |                                    |
| P40      UBM Ultrasound        | System,      Imaging,                                            | Complete            | Yes           | 6%       | 1%     | FDA      510(K) K844299*                |
| BioMicroscope                  | Pulsed      Echo Ultrasound                                      |                |          |     |   | ISO      9001: 1994,                    |
|                           | Diagnostic                                                       |                |          |     |   | EN      ISO 9001**                      |
| P45      UBM Ultrasound        | System,      Imaging,                                            | Complete            | Yes           | 2%       | 0%     | FDA      510(K) K844299*                |
| Biomicroscope,                 | Pulsed      Echo Ultrasound                                      |                |          |     |   | ISO      9001: 1994,                    |
| Workstation      Plus          | Diagnostic                                                       |                |          |     |   | EN      ISO 9001**                      |
| P60      UBM Ultrasound        | System,      Imaging,                                            | Complete            | Yes           | 21%      | 20%    | FDA      510(K) K844299*                |
| Biomicroscope,                 | Pulsed      Echo Ultrasound                                      |                |          |     |   | ISO      9001: 1994,                    |
| Workstation      Plus          | Diagnostic                                                       |                |          |     |   | EN      ISO 9001.**                     |
| BFA      Ocular Blood          | Tonometer,      Manual                                           | Complete            | Yes****       | 13%      | 5%     | FDA      510(K) K844299*                |
| Flow      Analyzer'TM      and | Diagnostic                                                       |                |          |     |   | ISO      9001: 1994,                    |
| Disposables                    |                                                             |                |          |     |   | EN      ISO 9001**                      |
| CT      200 Corneal            | Topographer      Corneal                                         | Complete            | Yes           | 1%       | 0%     | FDA      510(K) K844299*                |
| Topography      System         |     AC-Powered                               |                |          |     |   | ISO      9001: 1994,                    |
|                           |      Diagnostic                         |                |          |     |   | EN      ISO 9001**                      |
| LD      400 Autoperimetry      | Perimeter,      Automatic                                        | Complete            | Yes           | 15%      | 17%    | FDA      510(K) K844299*                |
| System                         |     AC-Powered                               |                |          |     |   | ISO      9001: 1994,                    |
|                           |      Diagnostic                         |                |          |     |   | EN      ISO 9001**                      |
| TKS      5000                  | Perimeter,      Automatic                                        | Complete            | Yes           | 4%       | 7%     | FDA      510(K) K844299*                |
| Autoperimetry      System      |     AC-Powered,                              |                |          |     |   | ISO      9001: 1994,                    |
|                           |       Diagnostic                   |                |          |     |   | EN      ISO 9001**                      |
| Glaid      Ocular              | System,      Imagine                                             | Complete            |  Yes     |  0% | 16%    | FDA      510(K) K043367*                |
| Electrophysiology              |          Electrophysiologic                  |                |          |     |   | ISO      9001: 1994,                    |
| Device                         |          Diagnostic                               |                |          |     |   | EN      ISO 9001**                      |
| Precisionist      Thirty       | Phacofragmentation                                               | Complete            | Yes           | 0%       | 0%     | FDA      510(K) K844299*                |
| ThousandTM,      Ocular        |                                                             |                |          |     |   | ISO      9001: 1994,                    |
| Surgery      Workstation       |                                                             |                |          |     |   | EN      ISO 9001**                      |
| with      Surgical             |                                                             |                |          |     |   |                                    |
| Equipment      and             |                                                             |                |          |     |   |                                    |
| Disposables(2)                 |                                                             |                |          |     |   |                                    |
| PhotonTM Laser,           | Phacoemulsification                                              | In-Process      (4) | No            | 0%       | 0%     | IDB      G940151                        |
| Ocular      Surgery            |                                                             |                |          |     |   | ISO      9001: 1994,                    |
| Workstation      with          |                                                             |                |          |     |   | EN      ISO 9001**                      |
| Surgical      Equipment        |                                                             |                |          |     |   |                                    |
| and      Disposables(3)        |                                                             |                |          |     |   |                                    |
| Parts      and Services        | Perimeter,      BFA,                                             | Complete            | Yes           | 9%       | 14%    | FDA      510(K) K844299*                |
|                           |          Tonometer, |                |          |     |   | ISO      9001: 1994,                    |
|                           |        Topographer,           |                |          |     |   | EN      ISO 9001**                      |
|                           |         Ultrasound       |                |          |     |   |                                    |
|                           |    Workstations,      Systems, Imaging            |                |          |     |   |                                    |

----

| (1) | Except      for the PhotonTM      Ocular Surgery Workstation, which can only be sold in countries      outside the United States, these products can be sold in the United States      and in foreign countries including but not limited to Argentina,      Australia, Bangladesh, Borneo, Brazil, Canada, China, Czechoslovakia,      Egypt, France, Germany, Greece, Hong Kong, India, Israel, Italy, Japan,      Jordan, Korea, Malaysia, Mexico, New Zealand, Pakistan, Peru, Poland,      Puerto Rico, Russia, Saudi Arabia, Spain, Sri Lanka, Taiwan, Thailand,      Turkey, United Kingdom, and United Arab  Emirates. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Due      to the lack of recent sales volume, the inventory associated with the      Precisionist Thirty Thousand TM, the SIStemTM      and the OdysseyTM      has been deemed obsolete and a reserve has been recorded to offset such      inventory. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Due      to the lack of recent evidence to support the recoverability of inventory      associated with the PhotonTM,      the Company has recorded a reserve to offset the majority of such      inventory on hand. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The      PhotonTM      is in-process and not complete because the Company has not      completed the clinical trials in order to obtain FDA regulatory      approval. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| * | FDA      510(K) K844299 and FDA 510(K) K043367 represent domestic      approval by U.S. Food and DrugAdministration. |
|---|--------------------------------------------------------------------------------------------------------------------------------|

| ** | ISO      9001: 1994, EN ISO 9001 represents international  approval. |
|----|----------------------------------------------------------------------|

| *** | IDE      G940151 represents approval for international distribution      only. |
|-----|--------------------------------------------------------------------------------|

| **** | Represents      full reimbursement in 20 states and partial reimbursement in six other      states. |
|------|-----------------------------------------------------------------------------------------------------|

| As      detailed in the table above, except for the PhotonTM      Laser Ocular Surgery Workstation, which requires additional      development and regulatory approvals, the Company's current products are      developed and available for sale in footnote (1) of the table. The      Company's possible future efforts to finalize development of the      PhotonTM      laser system and obtain the necessary regulatory approvals would depend on      adequate funding. If these efforts were undertaken but proved to be      unsuccessful, the impact would include the costs associated with these      efforts and the anticipated future revenues which the Company would not      receive as expected. The Company estimates that the funds needed to      complete the clinical trials on the PhotonTM      in order to obtain the necessary FDA regulatory approval to be      approximately $2,500,000.  This does not include  the      necessary funds for product development and to bring the PhotonTM      to market. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company currently purchases components and parts used in its products from      a limited number of key suppliers. The Company's reliance on its principal      suppliers could result in delays associated with redesigning a product due      to an inability to obtain an adequate supply of required components and      parts, and reduced control over pricing, quality and timely delivery. The      loss of any of these principal suppliers or the inability of a supplier to      meet performance and quality specifications, requested quantities or      delivery schedules could cause the Company's revenues to decline. In      addition, any interruption or discontinuance in the supply of components      or parts could have an adverse effect on the Company's business, results      of operation and financial condition. The Company's principal suppliers      include Capistrano Labs, US Ultrasound and  Anthrop. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 he can offer this      procedure to his patients and the community. Ophthalmologist and hospital      administrators are understanding the necessity of Ultrasound diagnostic      equipment such as the UBM and providing the opportunity for increased      product demonstrations. The capability to detect and manage glaucoma is      greatly enhanced with the UBM. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Industry      analysts report that the United States ophthalmic device market has been      characterized by slower growth in recent years. This has apparently been      caused by the 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 healthcare reform becomes available. However,      analysts predict that the ophthalmic and diagnostic equipment 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. The      acceptance of the UBM as a necessary diagnostic and disease management      tool is enhancing the opportunities for increased sales of these to      hospitals as well as larger privateclinics. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Current Market Acceptance and      Potential: The principal purchasers of the Company's products have      been ophthalmologists, optometrists, universities 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, (The National Eye Institute reported in      March 2002 that the number of blind or visually impaired Americans is      likely to double over the next 30 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, (iv) the introduction of      technology improvements such as the Company's laser system, and (v)the      growing awareness of the need for early detection and treatment of      glaucoma. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Marketing Organization:      The Company markets its products internationally through a network of      distributors and domestically through direct sales representatives,      independent sales organizations, and ophthalmic product distributors. As      of December 31, 2008, the Company had two direct domestic sales employees      and five independent sales representatives in the United States and 30      ophthalmic and medical product distributors outside the United States.      These sales representatives are assigned exclusive territories and have      entered into contracts with the Company that contain performance quotas.      Domestic sales channels have been expanded to include independent sales      representatives and distributors. The Company also plans to continue to      market its products by identifying customers through internal market      research, trade shows and direct marketing  programs. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Product      advertising is intended to be focused in the major industry trade      journals. 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 articles      in these publications. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Manufacturing and Raw      Materials: Currently, the Company maintains a 16,926 square foot      facility in Salt Lake City. The Company transferred the manufacturing      activities for the Blood Flow AnalyzerTM      to San Diego from Ocular Blood Flow, Ltd. in England during 2001. During      the second quarter of 2002, the Company consolidated and closed the San      Diego operations into the Salt Lake City facility. The facility      accommodates its manufacturing, marketing and engineering capabilities.      The Company manufactures under systems of quality control and testing,      which complies with the Quality System Requirements established by the      FDA, as well as similar guidelines established by foreign governments,      including the CE Mark and ISO-9001. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 and at costs      consistent with its financial purchasing capabilities and pricing needs.      The Company manufactures certain accessories at its facility in Salt Lake      City. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Product Service and Support:      Service for the Company's products is overseen from its Salt Lake      City location and is augmented by its international dealer network, which      provides 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. 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 adequate parts      inventory and provides overnight replacement parts shipments to its      dealers. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Research      and Development |
|-------------------------------|

| 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.  In addition to its in-house research and development      capabilities, the Company has enlisted several recognized and respected      consultants and other technical personnel to act in technical and medical      advisory capacities. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Research,      development and service expenses (which includes production and      manufacturing support and the service department expenses) decreased by      $89,000, or 26%, to $255,000 for the twelve months ended December 31,      2008, from $355,000 for the same period in 2007. None of the costs of      research and development activities during 2008 and 2007 was borne      directly by customers. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| During      the period in which Thomas F. Motter served as the Company's Chairman and      Chief Executive Officer, he formed a clinical advisory board and met from      time to time with the board. Jeffrey F. Poore, who served as the Company's      President and Chief Executive Officer from March 2003 to March 2004,      decided not to utilize the clinical advisory board. Instead, he consulted      with former members of the advisory board on an informal basis. The      Company currently has no agreements with any former members of the      clinical advisory board and none of these former members hold or own any      rights to its products or technologies.  The Company's current      management meets regularly with recognized  and respected      ophthalmic experts for advice concerning the Company's diagnostic      devices. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Competition |
|-------------|

| General. The Company is      subject to competition in the glaucoma diagnostic markets from developers      of technologies for ophthalmic diagnostic instruments used for treatment.      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 lines that dominate the diagnostic equipment industry.      The Company believes that the combined sales of the three largest entities      account for over 50% of the glaucoma diagnostic market. The remaining      market is fragmented among emerging smaller companies, some of which are      foreign. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Most      major competitors either entered or expanded into the glaucoma market      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 beformidable. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ultrasound Equipment      Manufacturers. The Company currently recognizes Sonomed, Tomey,      Nidek, OTI and Quantel as its primary competitors in the ultrasound      equipment market. In respect to ultrasound diagnostic equipment such as      the UBM, A-Scan, Pachymeter and A/B Scan, the Company is well positioned      to compete against companies that currently hold a significant share of      the market. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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      refractive surgeries, macular degeneration and glaucoma in the United      States, the leading causes of adult blindness worldwide. The National Eye      Institute stated in 2002 that the number of visually impaired Americans is      likely to double over the next three decades. Their report estimated that      2.4 million people suffer some visual impairment in this country. 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 nearsighted. The Glaucoma Research Foundation recommends that these      high risk individuals be tested regularly for glaucoma. According to the      U.S. Census Bureau, in 2004 there were over 36 million adults 65 years of      age and older and over ten million African Americans 45 years of age and      older. The Glaucoma Research Foundation reports that glaucoma currently      accounts for more than seven 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 accounts      for the majority of diagnostic equipment sales. The Company continues to      derive revenues from the sale of its ultrasound diagnostic equipment and      Blood Flow AnalyzerTM.      The Blood Flow AnalyzerTM      is designed to detect glaucoma in an earlier stage than is presently      possible. In addition, the device performs tonometry and blood flow      analysis. Other ophthalmic diagnostic devices that do not detect glaucoma      in the early stages of the disease as does the Company's Blood Flow      AnalyzerTM      retail at comparable prices. Thus, the Company believes that it can      compete in the diagnostic market place based upon the lower price and      improved diagnostic functions of the analyzer.  The Company also      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 thirdparties. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Intellectual      Property Protection |
|---------------------------------------|

| The      Company's cataract surgical products are proprietary in design,      engineering and performance. Its surgical 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      Company acquired proprietary intellectual property in the transaction with      Humphrey Systems when the Company purchased the diagnostic ultrasonic      product line in 1999. This technology uses ultrasound to create a high      resolution computer image of the unseen parts of the eye that is a "map"      for the practitioner. The P40 UBM Ultrasound Biomicroscope, one of the      ultrasonic products the Company purchased, is subject to a license      agreement dated September 27, 1990, with Sunnybrook Health Science Center.      Under the terms of the license agreement, the Company has the exclusive      worldwide rights to manufacture and sell the UBM biomicroscope, for which      the Company is required to pay a royalty of $150 for each licensed product      sold. The license agreement was automatically terminated by its terms on      September 27, 2002, at which time the Company had a royalty free worldwide      license to use and sell the P40 UBM Ultrasound Biomicroscope. However, the      Company has a continuing obligation after such termination to continue to      use and sell the biomicroscope only in the field of ophthalmology. As a      result of its agreement with MEDA Co., Ltd., the Company is also able to      provide the P50 UBM biomicroscope, which is manufactured by MEDA, to other      industry segments such as the research and the veterinary      markets. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      PhotonTM      laser cataract probe is protected  under a United States patent      issued to Daniel M. Eichenbaum, M.D. in 1987 and subsequently assigned to      PhotoMed International, Inc. and a Japanese patent issued to the Company      in 1997 for the utility and methods of laser ablation, aspiration and      irrigation of tissue through a hand held probe of a unique design. The      United States patent expired in September2004. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company secured the exclusive worldwide rights to this patent shortly      after its issue, and to the international patents pending, from PhotoMed      by means of a license agreement dated July 7, 1993. The license agreement      provided the Company with the rights to manufacture, distribute and sell a      laser system using the PhotonTM      laser cataract probe and related components to customers on a worldwide      basis, for which PhotoMed is to receive a 1% royalty on all net sales of      such systems and related components sold  worldwide. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Under      the license agreement PhotoMed is entitled to all royalty payments from      net sales at the time of billing to the purchaser or within 30 days of the      date of shipment, whichever occurs first. The Company is required each      quarter to prepare a summary of sales and the royalties to which PhotoMed      is entitled to be paid. The sales summary must list the number of surgical      systems and disposable units sold in each country, the dollar value of      gross and net sales, the amount of the royalty to which PhotoMed is      entitled, and any other information requested by PhotoMed from time to      time. Under the terms of the agreement, the Company has agreed to be      actively engaged in either research and development of a salable product      utilizing the patent or in marketing and selling such a      product. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 subspecialties 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. The license agreement      expired when the United States patent rights expired in September 2004,      but the license agreement could be automatically extended or renewed for      any term of extension or renewal awarded for the patent rights. In      addition, the Company has the right to terminate the license agreement at      any time after July 7, 2003 upon 90 days prior written notice to      PhotoMed. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      PhotonTM      laser cataract probe is also protected under a United States patent      issued to the Company in 2002 for a laser surgical device for the removal      of intraocular tissue including a handpiece and a trap. The patent is due      to expire in August 2019. There are also two pending United States patents      relating to the PhotonTM      laser cataract probe. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Blood Flow AnalyzerTM      was granted a patent in the United Kingdom in 1998 and in the United      States in 1999, and has a patent pending in Japan. These patents relate to      pneumatic pressure probes for use in measuring change in intraocular      pressure and in measuring pulsatile ocular blood flow. The United States      patent rights expire in January 2019 and the United Kingdom patent rights      expire in November 2015. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      DiconTM      Perimeters and the DiconTM      Corneal Topographer each have a U.S. patent with a wide scope of claims.      The United States patent for the DiconTM      Perimeter was issued in 1991 and the patent rights expire in March 2010.      The United States patent for the DiconTM      Corneal Topographer was issued in 2002 and the patent rights expire in      January 2018. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| The      Company's trademarks are important to its business. It is its policy to      pursue trademark registrations for its trademarks associated with its      products as appropriate. Also, 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 its key employees, consultants and advisors      are required to enter into a confidentiality agreement with the Company.      Most of its third-party manufacturers and formulators are also bound by      confidentiality agreements with theCompany. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Regulation |
|------------|

| The      FDA under the Food, Drug and Cosmetics Act regulates the Company's      surgical and diagnostic systems as medical devices. 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 Food, Drug and Cosmetics 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 approval for devices. Recommendations by      the FDA that the Company not be allowed to enter into government contracts      in order to avoid criminal prosecution may also be  made. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Following      the enactment of the Medical Device Amendments to the Food, Drug and      Cosmetics 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, premarketing notification and adherence to      the FDA's Quality System Requirements 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 premarketing 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 marketeddevices. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| There      are two principal methods by which FDA approval may be obtained. One      method is to seek FDA approval through a premarketing notification filing      under Section 510(k) of the Food, Drug and Cosmetics 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 pre-marketing approval, the      manufacturer or distributor may seek FDA Section 510(k) premarketing      clearance for the device by filing a Section 510(k) premarketing      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      Investigational Device Exemption 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 premarketing clearance for the device.      There can be no assurance that the Company will obtain Section 510(k)      premarketing clearance for any of the future devices for which the Company      seeks such clearance including the PhotonTM      laser system. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 premarketing approval, 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 its business, operating      results and financial condition. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      alternate method to seek approval is to obtain premarketing 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 premarketing approval for the proposed      device. A premarketing approval 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 Investigational Device Exemption application with the FDA      prior to commencing human clinical trials. The Investigational Device      Exemption application must be supported by data, typically including the      results of animal and mechanical testing. If the Investigational Device      Exemption 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      Investigational Device Exemption clinical trial can be divided into      several parts or phases. Sometimes a company will conduct a feasibility      study (Phase I) to confirm that a device functions according to its design      and operating parameters. This is a 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 premarketing      approval 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 Investigational Device Exemption, the premarketing approval      procedure is more complex and timeconsuming. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Upon      receipt of the premarketing approval application, the FDA makes a      threshold determination whether the application is sufficiently complete      to permit a substantive review. If the FDA determines that the      premarketing approval 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      beapproved. In addition, the FDA will inspect the manufacturing facility      to ensure compliance with the FDA's Quality System Requirements prior to      approval of a premarketing application. While the FDA has responded to      premarketing approval applications within the allotted time period,      premarketing approval reviews generally take approximately 12 to 18 months      or more from the date of filing to approval. The premarketing approval      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 other      companies have sought premarketing approval have never been approved for      marketing. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Any      products manufactured or distributed by the Company pursuant to a      premarket clearance notification or pre­marketing approval are or will      be subject to pervasive and continuing regulation by the FDA. The Food,      Drug and Cosmetics Act also requires that the Company's products be      manufactured in registered establishments and in accordance with Quality      System Requirements 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 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 substances. 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 its products may be inspected on a      routine basis by both the FDA and individual states for compliance with      current Quality System Requirements 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 the Company and its business. Some measures that have been suggested as      possible elements of a new program, such as government price ceilings on      non-reimbursable procedures and spending limitations on hospitals and      other healthcare providers for new equipment, could have an adverse effect      on its 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      its common stock. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Furthermore,      the introduction of the Company's products in foreign countries may      require it to obtain foreign regulatory clearances. The Company believes      that only a limited number of foreign countries have extensive regulatory      requirements, including France, Germany, Korea, China 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 premarketing approval, Section 510(k) or approved      Investigational Device Exemption 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 surgical and diagnostic systems, the PhotonTM      laser cataract system it is developing and the ocular blood flow analyzer      and the UBM biomicroscope are all devices which require FDA approval.      Therefore, a significant aspect of the acceptance of the devices in the      market is the Company's effectiveness in obtaining the necessary      approvals. Having an approved Investigational Device Exemption allows the      Company to export a product to qualified investigational      sites. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Regulatory      Status of Products |
|------------------------------------|

| All      of the Company's products, with the exception of the PhotonTM,      are approved for sale in the U.S. by the FDA under a 510(k). All of the      Company's products have been accepted for import into CE countries and      various non-CE countries. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company acquired permission from the FDA to export the PhotonTM      laser cataract system outside the United States under an open      Investigational Device Exemption granted by the FDA in September 1994.      Although the PhotonTM      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      PhotonTM      laser is similar to the current ultrasound cataract treatment employed by      ophthalmologists. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company submitted a Premarket Notification 510(k) application to the FDA      for the PhotonTM      laser cataract system in September 1993. The FDA requested clinical      support data for claims made in the 510(k), and in October 1994 the      Company submitted an Investigational Device Exemption application to      provide for a "modest clinical study" in order to collect the data      required by the FDA for clearance of the PhotonTM      laser cataract system. The FDA granted this Investigational Device      Exemption in May 1995 for a Phase I Feasibility Study. The Company began      human clinical trials in April 1996 and completed the Phase I study in      November 1997. The Company started Phase II trials in September 1998 and      completed numerous cases of treatment group and control group patients,      which were included in its submission to the  FDA. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company received a warning letter dated August 30, 2000 from the Office of      Compliance, Center for Devices and Radiological Health of the Food and      Drug Administration relating to certain deficiencies in the human clinical      trials for its PhotonTM      Laser Cataract System. The warning letter concerned the conditions found      by the FDA during several audits at its clinical sites. The FDA's comments      were isolated to the administrative procedures of compiling data from the      clinical sites. The Company responded to the warning letter in a      submission dated September 27, 2000. In the submission the Company took      corrective action that included submitting a revised clinical protocol and      case report forms and procedures for the collection and control of data.      In a subsequent letter dated November 2, 2000 to the Company, the FDA      granted conditional approval provided that the Company correct certain      deficiencies. After providing several additional submissions to the FDA,      the Company received a letter dated February 13, 2001 from the FDA stating      that the deficiencies had been corrected and the clinical trials could      continue. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Subsequent      to the warning letter, the Company received approval to continue its      clinical trials, the results of which were included in its supplemental      submission to the FDA in October 2001 for the existing (510)(k) predicate      device application for the PhotonTM      laser system. In December 2001, the Company received a preliminary      review from the FDA regarding the supplemental submission. As a result of      that preliminary review, the Company submitted additional clinical      information to the FDA on February 6, 2002. The application is receiving      ongoing review by the FDA. On May 7, 2002, the Company received a letter      from the FDA requesting further clinical information. The Company has      generated additional clinical information in response to the letter and is      uncertain if the Company will make a submission to the FDA with the      additional clinical information. Because of the "going concern" status of      the Company, management has focused efforts on those products and      activities that will, in its opinion, achieve the most resource efficient      short-term cash flow to the Company. Its diagnostic products are currently      its major focus and the PhotonTM      and other extensive research and development prospects have been put on      hold pending future evaluation until the Company's financial position      improves. Its focus is not on any specific diagnostic product or products,      but rather on its entire group of diagnostic  products. |
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----

| Employees |
|-----------|

| As      of March 31, 2009, the Company had 16 full-time employees and one      part-time employee. This number does not include its manufacturer's      representatives who are independent contractors rather than its employees.      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 its employees are a member of a labor      union and the Company has never experienced any business interruption as a      result of any labor disputes. |
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| In      December 2001 the Company initiated the first phase of a corporate      downsizing program to reduce its operating expenses. The Company      implemented the second phase of its downsizing program in the second      quarter of 2002, by closing and transferring its manufacturing from its      site in San Diego, California to Salt Lake City, resulting in further      reductions in operating expenses. As a result of the downsizing program      and some resignations, the number of its employees has been reduced by 72%      from 112 to 22 employees. The estimated cost savings from the downsizing      program will be in excess of $2,000,000 annually. The costs of downsizing      have included onetime expenses of approximately $43,000 for moving and      travel. In addition, the Company incurred additional onetime expenses of      approximately $18,000 for housing accommodations for key employees working      in Salt Lake City. The Company realized a net cost savings from down      sizing of approximately $2,394,000 during the twelve months ended December      31, 2002. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| The      Company's corporate offices are currently located at 2355 South 1070 West,      Salt Lake City, Utah. This facility consists of 16,926 square feet of      leased office and warehouse space. These facilities were leased from Eden      Roc, a California partnership, at a base monthly rate of $7,109, plus a      $1,690 monthly common area maintenance fee. In January 2003, the Company      renegotiated a three-year lease with Eden Roc at a monthly rate of $9,295,      plus a $1,859 common area maintenance fee for the year 2003, with the rate      increased to $11,433 (including a $1,859 common area maintenance fee) for      2004 and to $11,720 (including a $1,859 common area maintenance fee) for      2005. Pursuant to the lease, the Company pays all real estate and personal      property taxes and the insurance costs on the premises. The lease expired      on December 31, 2005. Since January 1, 2006, the Company has leased 16,926      square feet of space in the facility on a month to month basis at a      monthly rate of $7,109 plus a $1,690 common area maintenance      fee. |
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| The      Company believes that these facilities are adequate and satisfy its needs      for the foreseeable future. |
|---------------------------------------------------------------------------------------------------------------------|

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

| On      June 20, 2003, an action was brought against the Company by CitiCorp      Vendor Finance, Inc., formerly known as Copelco Capital, Inc. in the Third      Judicial District Court, Salt Lake County, State of Utah (Civil No.      030914195).  The complaint claims that $49,626 plus interest is      due for the leasing of three copy machines that were delivered to the      Company's Salt Lake City facilities in or about April of      2000.  The action also seeks an award of attorney’s fees and      costs incurred in the collection.  The Company filed an answer      to the complaint disputing the amounts allegedly owed due to machine      problems and a claimed understanding with the vendor.  The      Company returned two of the machines.  The Company was engaged      in settlement discussions with CitiCorp until counsel for CitiCorp      withdrew from the case.  New counsel for CitiCorp was      appointed.  Thereafter, there was a substitution of plaintiff,      with CIT Technology Financing Services I, LLC as the new      plaintiff.  In June 2008, the Company filed an amended answer      and a third party complaint.  Pursuant to a notice from the      court dated January 13, 2009 to show cause why the case should not be      dismissed for failure to prosecute and a hearing held on March 3, 2009,      the Company and CIT Technology Financing Services agreed to dismiss the      case without prejudice.  Settlement discussion may      continue. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| On      December 27, 2007, the Company entered into a settlement agreement with      Larry Hicks to settle the lawsuit that he brought against the Company for      payments due under a consulting agreement with the Company in the Third      Judicial District Court, Salt Lake County, State of Utah (Civil No.      030922220).  Under the terms of the settlement agreement, the      Company agreed to pay Mr. Hicks a total of $20,000, of which $7,500 was      paid within seven days of the date of execution of the settlement      agreement.  The remaining amount owing of $12,500 was to be paid      in five consecutive quarterly installments of $2,500 each, beginning in      the first quarter of 2008 and ending in the first quarter of      2009.  Payments of $2,500 each were made for the quarters ended      March 31, 2008, June 30, 2008, September 30, 2008, and December 31,      2008. |
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----

| On      March 19, 2009, an action was brought against the Company by Pilot Freight      Services in the Third Judicial District Court, Salt Lake County, State of      Utah (Civil No. 090405609), for payments due for shipping      charges.  The complaint claims the sum of $11,336 is due for      unpaid shipping charges, together with accrued interest from the date the      shipping charges became due, with the last shipping charge becoming due on      October 22, 2008.  The Company is in the process of      investigating the claims made in the complaint and intends to file an      answer in defense of the action. |
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| The      Company is not a party to any other 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 its      financial condition or results ofoperations. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item      4. Submission of Matters to a Vote of Security  Holders |
|-------------------------------------------------------------------|

| On      December 5, 2008, the shareholders approved a 1-for-100 reverse stock      split of the Company's common stock at a Special Meeting of the      Shareholders.  There were 736,703,232 votes cast in favor of the      reverse split, 242,024,479 votes against the reverse split, and 3,281,414      abstentions.  The reverse stock split became effective upon      shareholder approval at the Special Meeting of    Shareholders. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| PART      II |
|--------------|

| Item      5. Market for Common Equity and Related Stockholder  Matters |
|------------------------------------------------------------------------|

| The      Company's authorized capital stock consists of 1,400,000,000 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 seven classes of      preferred stock, designated as Series A preferred stock, Series B      preferred stock, Series C preferred stock , Series D preferred stock,      Series E preferred stock, Series F preferred stock and Series G preferred      stock. |
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| On      December 5, 2008, the Company’s shareholders approved a 1-for-100 reverse      stock split, which became effective on December 5, 2008. All references to      share and per-share data for all periods presented in this report have      been adjusted to give effect to this reverse  split. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company's common stock trades on the OTC Bulletin Board under the symbol      of "PDMI.OB." Prior to July 22, 1996, there was no public market for the      common stock. From July 22, 1996 to June 25, 2003, the Company's common      stock was listed on the Nasdaq SmallCap Market. Since June 25, 2003, the      common stock has traded on the OTC Bulletin Board. As of March 30, 2008,      the closing sale prices of the common stock was $.002 per share. The      following are the high and low sale prices for the common stock by quarter      as reported by the OTC Bulletin Board since January 1,    2007. |
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|                                                                                                                                                                               | Common      StockPrice Range                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Period      (Calendar Year)                                                                                                                                                        | High                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Low |
| 2007First      QuarterSecond      QuarterThird      QuarterFourth      Quarter2008First      QuarterSecond      QuarterThird      QuarterFourth      Quarter2009First      Quarter |                $ 3.20         1.40           .70           .50        $      .01          .01          .02          .05        $      .0027 |                 $ .30          .60          .40          .30        $      .06          .02          .01          .012        $      .0015 |
|                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |

| The      Company's Series A preferred stock, Series B preferred stock, Series C      preferred stock, Series D preferred stock, Series E preferred stock,      Series F preferred stock and Series G preferred stock are not publicly      traded. As of March 31, 2009, there were 4,489 record holders of common      stock, six record holders of Series A preferred stock, four record holders      of Series B preferred stock, no record holders of Series C preferred      stock, one record holder of Series D preferred stock, one record holder of      Series E preferred stock, 18 record holders of Series F preferred stock,      and one record holder of Series G 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, Series D      preferred stock, Series E preferred, Series F preferred stock and Series G      preferred stock before it can pay any cash dividend to holders of its      common stock. Dividends paid in cash pursuant to outstanding shares of its      Series A, Series B, Series C, Series D, Series E, Series F and Series G      preferred stock are only payable from its surplus earnings, and are      noncumulative and therefore, no deficiencies in dividend payments from one      year will be carried forward to thenext. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company currently intends to retain future earnings, if any, to fund the      development and growth of its proposed business and operations. Any      payment of cash dividends in the future on the common stock will be      dependent upon its 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 its 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 preferred shareholders of record      as of December 31, 1994. |
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| Item      6. Management's Discussion and Analysis or Plan of    Operation |
|---------------------------------------------------------------------------|

| This      report contains forward-looking statements and information relating to the      Company that is based on beliefs of management as well as assumptions made      by, and information currently available to management. These statements      reflect its current view respecting future events and are subject to      risks, uncertainties and assumptions, including the risks and      uncertainties noted throughout the document. Although the Company has      attempted to identify important factors that could cause the actual      results to differ materially, there may be other factors that cause the      forward-looking statements not to come true as anticipated, believed,      projected, expected or intended. Should one or more of these risks or      uncertainties materialize, or should underlying assumptions prove      incorrect, actual results may differ materially from those described      herein as anticipated, believed, projected, estimated, expected or      intended. |
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----

| Critical      Accounting Policies |
|-----------------------------------|

| Revenue Recognition.      The Company recognizes revenue in compliance with Staff Accounting      Bulletin 101, Revenue Recognition in Financial Statements (SAB 101), as      revised by Staff Accounting Bulletin No. 104, Revenue Recognition (SAB      104). SAB 101 and SAB 104 detail four criteria that must exist before      revenue is recognized: |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 1.  Persuasive      evidence of an arrangement exists. Prior to shipment of product, the      Company required a signed purchase order and, depending upon the customer,      a down payment toward the final invoiced price or full payment in advance      with certain international productdistributors. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.  Delivery      and performance have occurred. Unless the purchase order requires specific      installation or customer acceptance, the Company recognizes revenue when      the product ships. If the purchase order requires specific installation or      customer acceptance, the Company recognizes revenue when such installation      or acceptance has occurred. Title to the product passes to its customer      upon shipment. This revenue recognition policy does not differ among its      various different product lines. The Company guarantees the functionality      of its product. If its product does not function as marketed when received      by the customer, the Company either makes the necessary repairs on site or      has the product shipped to the Company for the repair work. Once the      product has been repaired and retested for functionality, it is reshipped      to the customer. The Company provides warranties that generally extend for      one year from the date of sale. Such warranties cover the necessary parts      and labor to repair the product as well as any shipping costs that may be      required. The Company maintains a reserve for estimated warranty costs      based on its historical experience and management's current      expectations. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.  The      sales price is fixed or determinable. The purchase order received from the      customer includes the agreed upon sales price. The Company does not accept      customer orders, and therefore does not recognize revenue, until the sales      price is fixed. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.  Collectibility      is reasonably assured. With limited exceptions, the Company requires down      payments on product prior to shipment. In some cases the Company requires      payment in full prior to shipment. The Company also performs credit checks      on new customers and ongoing credit checks on existing customers. The      Company maintains an allowance for doubtful accounts receivable based on      historical experience and management's current    expectations. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.  Revenues      for sales of products that require specific installation and acceptance by      the customer are recognized upon such 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.  A signed purchase agreement and a      deposit or payment in full from customers is required before a product      leaves the premises.  Title passes at time of shipment (F.O.B.      shipping point).  The Company's products contain both hardware      and software components.  The Company does not recognize revenue      for the software components of the products separate from the product as a      whole because the software is incidental to the product, as defined in      paragraph 2 of SOP 97-2. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Recoverability of Inventory.      Since its inception, the Company has purchased several complete      lines of inventory. In some circumstances the Company has been able to      utilize certain items acquired and others remain unused. On a quarterly      basis, the Company attempts to identify inventory items that have shown      relatively no movement or very slow movement. Generally, if an item has      shown little or no movement for over a year, it is determined not to be      recoverable and a reserve is established for that item. In addition, if      the Company identifies products that have become obsolete due to product      upgrades or enhancements, a reserve is established for such products. The      Company intends to make efforts to sell these items at significantly      discounted prices. If items are sold, the cash received would be recorded      as revenue, but there would be no cost of sales on such items due to the      reserve that has been recorded. At the time of sale, the inventory would      be reduced for the item sold and the corresponding inventory reserve would      also be reduced. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Recoverability of Goodwill and      Other Intangible Assets. The Company's intangible assets consist of      goodwill, product and technology rights, engineering and design costs, and      patent costs. Intangibles with a determined life are amortized on a      straight-line basis over their determined useful life and are also      evaluated for potential impairment if events or circumstances indicate      that the carrying amount may not be recoverable. Intangibles with an      indefinite life, such as goodwill, are not amortized but are tested for      impairment on an annual basis or when events and circumstances indicate      that the asset may be impaired. Impairment tests include comparing the      fair value of a reporting unit with its carrying net book value, including      goodwill. To date, the Company's determination of the fair value of the      reporting unit has been based on the estimated future cash flows of that      reporting unit. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Allowance for Doubtful      Accounts. The Company records an allowance for doubtful accounts to      offset estimated uncollectible accounts receivable. Bad debt expense      associated with the increases in the allowance for doubtful accounts is      recorded as part of general and administrative expense. The Company's      accounting policy generally is to record an allowance for receivables over      90 days past due unless there is significant evidence to support that the      receivable is collectible. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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      result of certain factors discussed in this section. The Company's fiscal      year is from January 1 through December31. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company is engaged in the design, development, manufacture and sale of      high technology diagnostic eye care products. Given the "going concern"      status of the Company, management has focused efforts on those products      and activities that will, in its opinion, achieve the most resource      efficient short-term cash flow. As seen in the results for the twelve      months ended December 31, 2008, diagnostic products have been the major      focus and the PhotonTM      and other extensive research and development projects have been put on      hold pending future evaluation when the Company's financial position      improves. The Company does not focus on a specific diagnostic product or      products but, instead, on this entire diagnostic product      group. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| During      the year ended December 31, 2008, the Company recorded a decrease in the      warranty accrual of $163,000. This decrease was a result of a      comprehensive analysis by management regarding historic warranty costs.      Historically, the Company has recorded a monthly warranty expense and      related increase to the warranty accrual. However, in recent periods the      usage of the warranty accrual has continued to increase. After reviewing      the recent historical data, management determined that the warranty      accrual should be decreased by $163,000 to $64,000.  Management      will continue to closely monitor the warranty accrual usage to ensure that      the proper amount has been accrued. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| During      the twelve months ended December 31, 2008, management made certain      adjustments to the financial statements, including a decrease in the      reserve for obsolete or estimated non-recoverable inventory of $13,000.      The Company also recorded a net increase in the allowance for doubtful      accounts receivable of $34,000 and no change in accruals to settle      outstanding disputes. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company's ultrasound diagnostic products include a P2200 pachymetric      analyzer, a P2000 Ultrasound A-Scan biometric analyzer, a P2500      combination A/Scan and Pachymeter, a P37 Ultrasound A/B Scan, a P37-II      Ultrasound A/B Scan, a P2700 Ultrasound A/B Scan, a P3700 Ultrasound A/B      Scan, a P40 Ultrasound Biomicroscope, a P45 Plus Ultrasound Biomicroscope,      and a P60 Ultrasound Biomicroscope, the technology for which was acquired      from Humphrey Systems in 1998. The Company introduced the P45 Plus in the      fall of 2000, which combines the A/B Scan, and the biomicroscope into one      instrument. The Company introduced the P60 in March 2005, which represents      the fourth generation of UBM devices and has better visual clarity and      image flexibility than earlier versions. In addition, the Company markets      its Blood Flow AnalyzerTM      acquired in the purchase of Ocular Blood Flow Ltd. in June 2000. Other      diagnostic products are the DiconTMLD400      Auto Perimeter and the DiconTM      CT 200e Corneal Topographer, which were acquired in the acquisition of      Vismed d/b/a Dicon in June 2000. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Because      of the "going concern" status of the Company, management has focused      efforts on those products and activities that will, in its opinion,      achieve the most resource efficient short-term cash flow to the Company.      As reflected in the results for the fiscal year ended December 31, 2008,      diagnostic products are currently the Company's major focus and the      PhotonTM      and other extensive research and development projects have been put on      hold pending future evaluation when the financial position of the Company      improves. Due to the lack of current evidence to support recoverability,      the Company has recorded an inventory reserve to offset the inventory      associated with the Precisionist Thirty ThousandTM      and the PhotonTM      as well as certain other inventory items that are estimated to be      non-recoverable due to the lack of significant turnover of such items in      recent periods. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Activities      for the twelve months ended December 31, 2008 and 2007 included sales of      the Company's products and related accessories and disposable      products.  Stephen L. Davis was named President on November 18,      2008.  Mr. Davis replaced Raymond L. Cannefax who was terminated      by the Board of Directors.  Mr. Davis previously served as the      Company's Vice President of Sales and Marketing from May 2007 to February      2008.  On March 20, 2006, the Company named Luis A. Mostacero as      Vice President of Finance. Mr. Mostacero previously served as the      Company's Controller from April 2004 to September 2005. On January 8,      2008, Mr. Mostacero was also appointed as Chief Financial      Officer.  Mr. Mostacero resigned on January 16, 2009, to      pursue other opportunities.  Mr. Davis has been appointed the      Company's Treasurer until a new Treasurer is appointed.  On      October 11, 2006, Christina O'Connor was appointed as Vice President of      International Sales and Julio C. Maximo as Vice President of      Operations.  Ms. O'Connor resigned on July 7, 2008, to pursue      other opportunities.  On January 4, 2007, Alfred B. Franklin was      appointed as Vice President of Domestic Sales. Mr. Franklin resigned on      May 10, 2007, to pursue otheropportunities. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| On      May 7, 2002, the Company received a letter from the FDA requesting further      clinical information regarding the PhotonTM.      The Company is in the process of generating the additional clinical      information in response to the letter. The Company cannot market or sell      the PhotonTM      in the United States until FDA approval is granted. On November 4,      2002, the Company received FDA approval for expanded indications of use of      the Blood Flow AnalyzerTM      for pulsatile ocular blood flow, volume and pulsatility equivalence index.      Also, the Company is continuing its efforts to educate the payors of      Medicare claims throughout the country about the Blood Flow AnalyzerTM,      its purposes and the significance of its performance in patient care in      order to achieve reimbursements to the providers. These efforts should      lead to a more positive effect onsales. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In      April 2001, the Company received written authorization from the CPT      Editorial Research and Development Department of the American Medical      Association to use a common procedure terminology or CPT code number 92120      for its Blood Flow AnalyzerTM,      for reimbursement purposes for doctors using the      device.  However, certain insurance payors have elected not to      reimburse doctors using the Blood Flow AnalyzerTM.      The Company believes the reasons why insurance payors initially elected      not to reimburse doctors using the CPT code were the relatively high      volume of claims that began to be submitted under CPT code number 92120      compared to the limited volume of claims previously submitted under this      code, and the time consumed by the Blood Flow AnalyzerTM      test, which some payors may have believed was less than what is allowed      under CPT code number 92120. This trend began shortly after insurance      payors were presented with reimbursement requests under this code, and the      Company believes these reasons were the basis for the initiation of      nonpayment. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      impact of this nonpayment by certain payors on the Company's future      operations is a lower volume of sales, particularly in those states where      reimbursement is not yet approved or is delayed. Currently, there is      reimbursement by insurance payors in 20 states and partial reimbursement      in six other states. As insurance payors have the prerogative whether to      provide reimbursement to doctors using the Blood Flow AnalyzerTM,      the Company is continuing to work with insurance payors in states where      there is no reimbursement to doctors using the CPT code to demonstrate the      value of the instrument. However, some insurance payors are currently not      providing reimbursement to doctors where a regional or state administrator      of Medicare has elected not to provide Medicare coverage for the Blood      Flow AnalyzerTM.      The Company is continuing to work with the regional and state      administrators of Medicare who have denied Medicare coverage for the Blood      Flow AnalyzerTM      to demonstrate the value of theinstrument. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| There      were a number of factors that contributed to the decrease in sales of the      Company's diagnostic products. The U.S. recessionary economic trend has      impacted the Company's domestic sales. Additionally, the Company      restructured its sales organization and sales channels by decreasing its      direct sales force who are full-time employees to two direct sales      employees and five independent sales representatives as of December 31,      2008. The dependent sales force has been reduced because the Company does      not have sufficient revenues to justify a larger direct sales force. One      of the challenges for fiscal 2009 will be the judicious reestablishment of      the sales force in anticipation of increased  sales. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company intends to increase its efforts to sell its diagnostic products      through independent sales representatives and ophthalmic equipment      distributors, which are paid commissions only for their sales. As of      December 31, 2008, the Company had 30 ophthalmic and medical product      distributors outside the United States. The Company hopes to benefit from      these recently hired sales representatives and distributors in the United      States as they gain familiarity, through training, of the Company's      diagnostic products. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Outstanding      Commitments to Issue Shares |
|----------------------------------------------|

| The      following table identifies the Company's outstanding commitments to issue      shares, including the shares  underlying the convertible notes      and warrants issuable upon conversion of the notes and exercise of      the  warrants.  All references to share and pre-share      data for all periods presented in this report have been adjusted to give      effect to the 1-for-100 reverse stock split, effective December 5,      2008. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                          | Underlying      Shares                                                                                                                                  |
|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| Security                      | of      Common Stock                                                                                                                                    |
|                          |                                                                                                                                                    |
| Notes      (1)                | 966,705,263                                                                                                                                             |
| Warrants      (2)             | 637,594                                                                                                                                                 |
| Preferred      Stock (3)      | 8,624                                                                                                                                                   |
| Stock      Options (4)        |                         114,550 |
|     Total | 967,466,031                                                                                                                                             |

| (1) | Assumes      full conversion of $4,132,665 of notes issued to AJW Partners, LLC, AJW      Offshore, Ltd., AJW Qualified Partners, LLC, and New Millennium Capital      Partners 11, LLC at a conversion price of $.0009 per share (based upon a      market price of $.0095 as of December 31, 2008 with a 55%      discount). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Consisting      of warrants exercisable at prices ranging from $.10 per share to $675.00      per share, including warrants issued to AJW Partners, LLC, AJW Offshore,      Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II,      LLC to purchase 165,344 shares of common stock at an exercise price of      $20.00 per share, exercisable through the period from April 27, 2010 to      June 30, 2010, and warrants to purchase 120,000 shares of common stock at      an exercisable price of $10.00 per share, exercisable through the period      from February 28, 2011 to April 20, 2012, warrants to purchase 100,000      shares of common stock at an exercise price of $.50 per share, exercisable      through June 11, 2012, warrants to purchase 150,000 shares of common stock      at an exercise price of $.10 per share, exerciseable through December 24,      2012, and warrants to purchase 150,000 shares of common stock at an      exercise price of $.10 per share, exercisable through June 16,      2015. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Consisting      of 68 shares of common stock issuable upon conversion of 5,627 shares of      Series A preferred stock, 108 shares of common stock issuable upon      conversion of 8,986 shares of Series B preferred stock, 88 shares of      common stock issuable upon conversion of 5,000 shares of Series D      preferred stock, 133 shares of common stock issuable upon conversion of      250 shares of Series E preferred stock, 2,346 shares of common stock      issuable upon conversion of 4,398.75 shares of Series F preferred stock,      and 5,882 shares of common stock issuable upon conversion of 588,235      shares of Series G preferred stock. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Consisting      of stock options granted to executive officers and employees to purchase      92,050 shares of common stock at exercise prices ranging from $1.00 per      share to $10.00 per share, and stock options granted to directors to      purchase 22,500 shares of common stock at exercise prices ranging from      $9.00 per share to $275.00 pershare. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| There      are a total of 967,466,031 shares underlying our convertible notes,      warrants, preferred stock and stock options, assuming full conversion of      the outstanding notes and preferred stock and the exercise of all the      outstanding warrants and stock options. The number of the Company's      authorized shares of common stock is 1,400,000,000 shares. The large      number of the Company's shares of common stock underlying its notes,      warrants, preferred stock and stock options will require the Company to      increase the number of authorized shares. Failure to obtain stockholder      approval to increase the number of authorized shares could result in the      noteholders commencing legal action against the Company and foreclosing on      all of its assets to recover damages. Any such action would require the      Company to curtail or cease itsoperations. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Convertible      Notes |
|------------------------|

| April 27, 2005 Sale of      $2,500,000 in Convertible Notes. To obtain funding for the      Company's ongoing operations, the Company entered into a securities      purchase agreement with four accredited investors on April 27, 2005 for      the sale of (i) $2,500,000 in convertible notes and (ii) warrants to      purchase 165,344 shares of its common stock. The sale of the convertible      notes and warrants is to occur in three traunches and the investors      provided the Company with an aggregate of $2,500,000 as      follows: |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | $850,000      was disbursed on April 27, 2005; |
|---------|------------------------------------------------|

| • | $800,000      was disbursed on June 23, 2005 after the Company filed a registration      statement on June 22, 2005 to register the shares of common stock issuable      upon conversion of the convertible notes and exercise of warrants;      and |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | $850,000      was disbursed on June 30, 2005, the effective date of the registration      statement.                                                                                                                                            |

| Under      the terms of the securities purchase agreement, the Company agreed it      would not, without the prior written consent of a majority-in-interest of      the investors, negotiate or contract with any party to obtain additional      equity financing (including debt financing with an equity component) that      involves (i) the issuance of common stock at a discount to the market      price of the common stock on the date of issuance (taking into account the      value of any warrants or options to acquire common stock in connection      therewith), (ii) the issuance of convertible securities that are      convertible into an indeterminate number of shares of common stock, or      (iii) the issuance of warrants during the lock-up period beginning April      27, 2005 and ending on the later of (a) 270 days from April 27, 2005, or      (b) 180 days from the date the registration statement is declared      effective. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning April 27, 2005 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing. Each investor  must be      provided written notice describing any proposed equity financing at least      20 business days prior to the closing of such proposed equity financing      and the option must be extended to each investor during the 15-day period      following delivery of such notice. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $2,500,000 in convertible notes bear interest at 8% per annum from the      date of issuance. Interest is computed on the basis of a 365-day year and      is payable quarterly in cash, with six months of interest payable up      front. The interest rate resets to zero percent for any month in which the      stock price is greater than 125% of the initial market price, or $9.45,      for each trading day during that month. Any amount of principal or      interest on the convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due      thereof  until such amount is paid. The notes mature in three      years from the date of issuance, and are convertible into the Company's      common stock at the noteholders' option, at the lower of (i) $9.00 or (ii)      60% of the average of the three lowest intraday trading prices for the      common stock on the OTC Bulletin Board for the 20 trading days before but      not including the conversion date. Accordingly, there is no limit on the      number of shares into which the notes may be  converted. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual property.      Moreover, the Company has a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided  there is no      event of default by the Company and the Company's stock is trading at or      below $9.00 per share. An event of default includes the failure by the      Company to pay the principal or interest on the notes when due or to      timely file a registration statement as required by the Company or obtain      effectiveness with the Securities and Exchange Commission of the      registration statement. Prepayment of the notes is to be made in cash      equal to either (a) 125% of the outstanding principal and accrued interest      for prepayments occurring within 30 days following the issue date of the      notes; (b) 130% of the outstanding principal and accrued interest for      prepayments occurring between 31 and 60 days following the issue date of      the notes; or (c) 145% of the outstanding principal and accrued interest      for prepayments occurring after the 60th day following the issue date of      the notes. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      warrants are exercisable until five years from the date of issuance at a      purchase price of $2.00 per share. The investors may exercise the warrants      on a cashless basis if the shares of common stock underlying the warrants      are not registered pursuant to an effective registration statement. In the      event the investors exercise the warrants on a cashless basis, the Company      will not receive any proceeds therefrom. In addition, the exercise price      of the warrants will be adjusted in the event the Company issues common      stock at a price below market, with the exception of any securities issued      as of the date of the warrants or issued in connection with the callable      secured convertible notes issued pursuant to the securities purchase      agreement. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock. However, the noteholders may repeatedly sell shares of      common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible  notes. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      due date of the convertible note is June 30, 2008, and the note is      currently in default.  The amount of the note is classified as a      current liability on the balance sheet in the Company's financial      statements. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As      of December 31, 2008, there was an outstanding balance of $1,258,000 in      principle and accrued interest on the convertible notes.  During      the years ended December 31, 2008 and 2007, the Company issued 9,709,938      and 2,830,172 shares of common stock for the conversion of $200,910 and      $212,346 of the convertible notes,respectively. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| February 28, 2006 Sale of      $1,500,000 in Convertible Notes. To obtain additional funding for      the Company's ongoing operations, the Company entered into a second      securities purchase agreement on February 28, 2006 with the same four      accredited investors for the sale of (i) $1,500,000 in convertible notes      and (ii) warrants to purchase 120,000 shares of its common stock. The sale      of the convertible notes and warrants is to occur in three traunches and      the investors are obligated to provide the Company with an aggregate of      $1,500,000 as follows: |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | $500,000      was disbursed on February 28, 2006; |
|--------|---------|---------------------------------------------------|

|   | • | $500,000      was disbursed on June 28, 2006 after the Company filed a registration      statement on June 15, 2006 to register the shares of common stock      underlying the convertible notes. The registration statement was      subsequently withdrawn on July 25, 2006 and a new registration statement      was filed on September 15, 2006 to register 600,000 shares of common stock      issuable upon conversion of thenotes. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | $500,000      was disbursed on April 30, 2007, the day prior to the effective date of      the registration statement on May1,2007. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------|

| Under      the terms of the securities purchase agreement, the Company also agreed it      would not, without the prior written consent of a majority-in-interest of      the investors, negotiate or contract with any party to obtain additional      equity financing (including debt financing with an equity component) that      involves (i) the issuance of common stock at a discount to the market      price of the common stock on the date of issuance (taking into account the      value of any warrants or options to acquire common stock in connection      therewith), (ii) the issuance of convertible securities that are      convertible into an indeterminate number of shares of common stock, or      (iii) the issuance of warrants during the lock-up period beginning      February 28, 2006 and ending on the later of (a) 270 days from February      28, 2006, or (b) 180 days from the date the registration statement is      declared effective. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning February 28, 2006 and ending two years after the end of the      above lock-up period unless it first provided each investor an option to      purchase its pro rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing. Each investor must be provided      written notice describing any proposed equity financing at least 20      business days prior to the closing of such proposed equity financing and      the option must be extended to each investor during the 15-day period      following delivery of such notice. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $1,500,000 in convertible notes bear interest at 8% per annum from the      date of issuance. Interest is computed on the basis of a 365-day year and      is payable quarterly in cash, with six months of interest payable up      front. The interest rate resets to zero percent for any month in which the      stock price is greater than 125% of the initial market price, or $2.75,      for each trading day during that month. Any amount of principal or      interest on the convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due thereof until such      amount is paid. The notes mature in three years from the date of issuance,      and are convertible into the Company's common stock at the noteholders'      option, at the lower of (i) $2.00 or (ii) 60% of the average of the three      lowest intraday trading prices for the common stock on the OTC Bulletin      Board for the 20 trading days before but not including the conversion      date. Accordingly, there is no limit on the number of shares into which      the notes may be converted. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual property.      Moreover, the Company has a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided there is no event of      default by the Company and the Company's stock is trading at or below      $2.00 per share. An event of default includes the failure by the Company      to pay the principal or interest on the notes when due or to timely file a      registration statement as required by the Company or obtain effectiveness      with the Securities and Exchange Commission of the registration statement.      Prepayment of the notes is to be made in cash equal to either (a) 125% of      the outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 130% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 60 days following the issue date of the notes; or (c) 145%      of the outstanding principal and accrued interest for prepayments      occurring after the 60th      day following the issue date of thenotes. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      warrants are exercisable until five years from the date of issuance at a      purchase price of $1.00 per share. The investors may exercise the warrants      on a cashless basis if the shares of common stock underlying the warrants      are not registered pursuant to an effective registration statement. In the      event the investors exercise the warrants on a cashless basis, then the      Company will not receive any proceeds therefrom. In addition, the exercise      price of the warrants will be adjusted in the event the Company issues      common stock at a price below market, with the exception of any securities      issued as of the date of the warrants or issued in connection with the      notes issued pursuant to the securities purchase  agreement. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      noteholders have agreed to      restrict their ability to convert their callable secured convertible notes      or exercise their warrants and receive shares of the Company's common      stock such that the number of shares of common stock held by them in the      aggregate and their affiliates after such conversion or exercise does not      exceed 4.99% of the then issued and outstanding shares of common stock.      However, the noteholders may repeatedly sell shares of common stock in      order to reduce their ownership percentage, and subsequently convert      additional convertible notes. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Two      of the three traunches relative to the note totaling $834,275 are due in      2009 and have been classified as a current liability on the balance sheet      in the Company's financialstatements. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As      of December 31, 2008, there was an outstanding balance of $1,334,275 in      principle and accrued interest on the convertible notes.  During      the year ended December 31, 2008 and 2007, the Company issued zero and      600,000 shares of common stock for the conversion of $0.00 and $167,000 of      the convertible notes,respectively. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company received notice from the accredited investors holding the      convertible notes dated February 28, 2006 and the convertible notes dated      June 11, 2007, that on January 22, 2009, E-Lionheart, LLC and other third      parties purchased $500,000 of the convertible notes dated February 28,      2006 and the $500,000 of convertible notes dated June 11,      2007.  The total purchase price of these convertible notes was      $1,514,444.  Between February 18, 2009 and March 27, 2009, the      third parties converted a total $454,147 of  the February 28,      2006 convertible notes at conversion prices ranging from $.0009 to .00105      per share and received a total of 502,169,656 shares of the Company's      common stock pursuant to said conversions.  As of March 31,      2009, the Company had outstanding 517,901,422 shares of common      stock. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| June 11, 2007 Sale of $500,000      in Convertible Notes: To obtain further funding for the Company's      ongoing operations, the Company entered into a third securities purchase      agreement on June 11, 2007 with the same four accredited investors for the      sale of (i) $500,000 in convertible notes and (ii) warrants to purchase      100,000 shares of its common stock. The investors disbursed $500,000 to      the Company on June 11, 2007. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Under      the terms of the June 11, 2007 securities purchase agreement, the Company      agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning June 11, 2007 and ending on the later of (a) 270 days from June      11, 2007, or (b) 180 days from the date the registration statement is      declared effective. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning June 11, 2007 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro-rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing. Each investor must be provided      written notice describing any proposed equity financing at least 20      business days prior to the closing of such proposed equity financing and      the option must be extended to each investor during the 15-day period      following delivery of such notice. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $500,000 in convertible notes bear interest at 8% per annum from the date      of issuance. Interest is computed on the basis of a 365-day year and is      payable quarterly in cash, with six months of interest payable up front.      The interest rate resets to zero percent for any month in which the stock      price is greater than 125% of the initial market price, or $2.75, for each      trading day during that month. Any amount of principal or interest on the      callable secured convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due thereof until such      amount is paid. The convertible notes mature in three years from the date      of issuance, and are convertible into the Company's common stock at the      noteholders' option, at the lower of (i) $.02 or (ii) 50% of the average      of the three lowest intraday trading prices for the common stock on the      OTC Bulletin Board for the 20 trading days before but not including the      conversion date. Accordingly, there is no limit on the number of shares      into which the notes may beconverted. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual property.      Moreover, the Company has a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided there is no event of      default by the Company and its stock is trading at or below $.10 per      share. An event of default includes the failure by the Company to pay the      principal or interest on the convertible notes when due or to timely file      a registration statement as required by the Company or obtain      effectiveness with the Securities and Exchange Commission of the      registration statement. Prepayment of the convertible notes is to be made      in cash equal to either (a) 125% of the outstanding principal and accrued      interest for prepayments occurring within 30 days following the issue date      of the notes; (b) 130% of the outstanding principal and accrued interest      for prepayments occurring between 31 and60 days following the issue date      of the notes; or (c) 145% of the outstanding principal and accrued      interest for prepayments occurring after the 60th day following the issue      date of the notes. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| The      warrants are exercisable until seven years from the date of issuance at a      purchase price of $.50 per share. The investors may exercise the warrants      on a cashless basis if the shares of common stock underlying the warrants      are not then registered pursuant to an effective registration statement.      In the event the investors exercise the warrants on a cashless basis, the      Company will not receive any proceeds therefrom. In addition, the exercise      price of the warrants will be adjusted in the event the Company issues      common stock at a price below market, with the exception of any securities      issued as of the date of the warrants or issued in connection with the      convertible notes issued pursuant to the securities purchase      agreement. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock. However, the noteholders may repeatedly sell shares of      common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendar month. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on June 11, 2007. The      registration statement must be filed with the Securities and Exchange      Commission within 60 days of the June 11, 2007 closing date and the      effectiveness of the registration is to be within 135days of such closing      date. Penalties of 2% of the outstanding principal balance of the      convertible notes plus accrued interest are to be applied for each month      the registration is not effective within the required time. The penalty      may be paid in cash or stock at the Company's  option. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As      of December 31, 2008, there have been no conversions of these convertible      notes.  Upon conversion of the convertible notes, the Company      extinguishes the convertible debt and related embedded      derivatives  and no gain or loss is recorded on the Company's      statements of operations as a result of said  conversion. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company received notice from the accredited investors holding the      convertible notes dated February 28, 2006 and the convertible notes dated      June 11, 2007, that on January 22, 2009, E-Lionheart, LLC and other third      parties purchased $500,000 of the convertible notes dated February 28,      2006 and the $500,000 of convertible notes dated June 11, 2007. The total      purchase price of these convertible notes was  $1,514,444. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| December 19, 2007 Issuance of      $389,010 in Convertible Notes: On December 19, 2007, the Company      was notified by the holders of the convertible notes that there was a past      due interest owing on the outstanding convertible notes. The total amount      of interest owed was.$389,010. To pay this interest, the noteholders were      willing to accept $389,010 in additional convertible notes due on December      31, 2010. Accordingly, on December 19, 2007, the Company issued $389,010      in convertible notes to the noteholders as full payment of the past due      interest. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $389,010 in convertible notes bear interest at 2% per annum from December      31, 2007. Interest is computed on the basis of a 365-day year and is      payable quarterly in cash, with six months of interest payable up front.      The interest rate resets to zero percent for any month in which the stock      price is greater than 125% of the initial market price, or $2.75, for each      trading day during that month. Any amount of principal or interest on the      callable secured convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due thereof until such      amount is paid. The convertible notes mature on December 31, 2010, and are      convertible into the Company's common stock at the noteholders' option, at      the lower of (i) $2.00 or (ii) 50% of the average of the three lowest      intraday trading prices for the common stock on the OTC Bulletin Board for      the 20 trading days before but not including the conversion date.      Accordingly, there is no limit on the number of shares into which the      notes may be converted. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      convertible notes have a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided there is no event of      default by the Company and its stock is trading at or below $4.00 per      share. An event of default includes the failure by the Company to pay the      principal or interest on the convertible notes when due. Prepayment of the      convertible notes is to be made in cash equal to either (a) 135% of the      outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 145% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 60 days following the issue date of the notes; or (c) 150%      of the outstanding principal and accrued interest for prepayments      occurring after the 60th      day following the issue date of thenotes. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      noteholders have agreed to restrict their ability to convert their      convertible notes and receive shares of the Company's common stock such      that the number of shares of common stock held by them in the aggregate      and their affiliates after such conversion does not exceed 4.9% of the      then issued and outstanding shares of common stock. However, the      noteholders may repeatedly sell shares of common stock in order to reduce      their ownership percentage, and subsequently convert additional      convertible notes, provided, however, that such conversions do not exceed      the average daily dollar volume calculated during the ten business days      prior to conversion multiplied by the number of trading days of that      calendar month, per calendarmonth. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| As      of December 31, 2008, there have been no conversions of these convertible      notes.  Upon conversion of the convertible notes, the Company      extinguishes the convertible debt and related embedded derivatives and no      gain or loss is recorded on the Company's statements of operations as a      result of said conversion. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| December 24, 2007 Sale of      $250,000 in Convertible Notes: To obtain further funding for the      Company's ongoing operations, the Company entered into a fourth securities      purchase agreement on December 24, 2007 with the same four accredited      investors for the sale of (i) $250,000 in callable secured convertible      notes and (ii) warrants to purchase 150,000 shares of its common stock.      The investors disbursed $250,000 to the Company on December 24,      2007. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Under      the terms of the December 24, 2007 securities purchase agreement, the      Company agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning December 24, 2007 and ending on the later of (a) 270 days from      December 24, 2007, or (b) 180 days from the date the registration      statement is declared effective. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning December24, 2007 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro-rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing. Each investor must be provided      written notice describing any proposed equity financing at least 20      business days prior to the closing of such proposed equity financing and      the option must be extended to each investor during the 15-day period      following delivery of such notice. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $250,000 in convertible notes bear interest at 8% per annum from the date      of issuance. Interest is computed on the basis of a 365-day year and is      payable quarterly in cash, with six months of interest payable up front.      The interest rate resets to zero percent for any month in which the stock      price is greater than 125% of the initial market price, or $2.75, for each      trading day during that month. Any amount of principal or interest on the      callable secured convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due thereof until such      amount is paid. The convertible notes mature in three years from the date      of issuance, and are convertible into the Company's common stock at the      noteholders' option, at the lower of (i) $2.00 or (ii) 50% of the average      of the three lowest intraday trading prices for the common stock on the      OTC Bulletin Board for the 20 trading days before but not including the      conversion date. Accordingly, there is no limit on the number of shares      into which the notes may beconverted. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual property.      Moreover, the Company has a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided there is no event of      default by the Company and its stock is trading at or below $10.00 per      share. An event of default includes the failure by the Company to pay the      principal or interest on the convertible notes when due or to timely file      a registration statement as required by the Company or obtain      effectiveness with the Securities and Exchange Commission of the      registration statement. Prepayment of the convertible notes is to be made      in cash equal to either (a) 125% of the outstanding principal and accrued      interest for prepayments occurring within 30 days following the issue date      of the notes; (b) 130% of the outstanding principal and accrued interest      for prepayments occurring between 31 and 60 days following the issue date      of the notes; or (c) 145% of the outstanding principal and accrued      interest for prepayments occurring after the 60th      day following the issue date of thenotes. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      warrants are exercisable until seven years from the date of issuance at a      purchase price of $.10 per share. The investors may exercise the warrants      on a cashless basis if the shares of common stock underlying the warrants      are not then registered pursuant to an effective registration statement.      In the event the investors exercise the warrants on a cashless basis, the      Company will not receive any proceeds therefrom. In addition, the exercise      price of the warrants will be adjusted in the event the Company issues      common stock at a price below market, with the exception of any securities      issued as of the date of the warrants or issued in connection with the      convertible notes issued pursuant to the securities purchase      agreement. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock. However, the noteholders may repeatedly sell shares of      common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendar month. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on December 24, 2007. The      registration statement must be filed with the Securities and Exchange      Commission within 60 days of the December 24, 2007 closing date and the      effectiveness of the registration is to be within 135 days of such closing      date. Penalties of 2% of the outstanding principal balance of the      convertible notes plus accrued interest are to be applied for each month      the registration is not effective within the required time. The penalty      may be paid in cash or stock at the Company's  option. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As      of December 31, 2008, there have been no conversions of these convertible      notes.  Upon conversion of the convertible notes, the Company      extinguishes the convertible debt and related  embedded      derivatives and no gain or loss is recorded on the Company's statements of      operations as a result of saidconversion. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| June 16, 2008 Sale of $310,000      in Convertible Notes:  To obtain additional funding for      the Company's ongoing operations, the Company entered into a fifth      securities purchase agreement on June 16, 2008 with three accredited      investors for the sale of (i) $310,000 in convertible notes and (ii)      warrants to purchase 100,000 shares of its common stock.  The      sale of the convertible notes and warrants is to occur in three traunches      and the investors are obligated to provide the Company with an aggregate      of $310,000 as follows: |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | $110,000      were disbursed on June 16, 2008; |
|--------|---------|------------------------------------------------|

|   | • | $100,000      were disbursed on July 14, 2008 after the Company filed a Schedule 14A      preliminary proxy statement for a reverse stock split with the Securities      and Exchange Commission; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | $100,000      was disbursed on January 20, 2009. |
|--------|---------|--------------------------------------------------|

| Under      the terms of the June 16, 2008 securities purchase agreement, the Company      agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning June 16, 2008 and ending on the later of (a) 270 days from      June 16, 2008, or (b) 180 days from the date the registration statement is      declared effective. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning June 16, 2008 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro-rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing.  Each investor must be      provided written notice describing any proposed equity financing at least      20 business days prior to the closing of such proposed equity financing      and the option must be extended to each investor during the 15-day period      following delivery of such notice. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      $310,000 in convertible notes bear interest at 8% per annum from the date      of issuance.  Interest is computed on the basis of a 365-day      year and is payable quarterly in cash, with six months of interest payable      up front.  The interest rate resets to zero percent for any      month in which the stock price is greater than 125% of the initial market      price, or $2.75, for each trading day during that month.  Any      amount of principal or interest on the callable secured convertible notes      that is not paid when due will bear interest at the rate of 15% per annum      from the date due thereof until such amount is paid.  The      convertible notes mature in three years from the date of issuance, and are      convertible into the Company's common stock at the noteholders' option, at      the lower of (i) $2.00 or (ii) 45% of the average of the three lowest      intraday trading prices for the common stock on the OTC Bulletin Board for      the 20 trading days before but not including the conversion      date.  Accordingly, there is no limit on the number of shares      into which the notes may beconverted. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual      property.   Moreover, the Company has a call option under      the terms of the notes.  The call option provides the Company      with the right to prepay all of the outstanding convertible notes at any      time, provided there is no event of default by the Company and its stock      is trading at or below $2.00 per share.  An event of default      includes the failure by the Company to pay the principal or interest on      the convertible notes when due or to timely file a registration statement      as required by the Company or obtain effectiveness with the Securities and      Exchange Commission of the registration statement.  Prepayment      of the convertible notes is to be made in cash equal to either (a) 125% of      the outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 130% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 60 days following the issue date of the notes; or (c) 145%      of the outstanding principal and accrued interest for prepayments      occurring after the 60th      day following the issue date of thenotes. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      warrants are exercisable until seven years from the date of issuance at a      purchase price of $.10 per share.  The investors may exercise      the warrants on a cashless basis if the shares of common stock underlying      the warrants are not then registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the convertible notes issued      pursuant to the securities purchaseagreement. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock.  However, the noteholders may repeatedly sell      shares of common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendar month. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on June 16,      2008.  The registration statement must be filed with the      Securities and Exchange Commission within 60 days of the June 16, 2008      closing date and the effectiveness of the registration is to be within 135      days of such closing date.  Penalties of 2% of the outstanding      principal balance of the convertible notes plus accrued interest are to be      applied for each month the registration is not effective within the      required time.  The penalty may be paid in cash or stock at the      Company's option. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As      of December 31, 2008, there have been no conversions of these convertible      notes.  Upon conversion of the convertible notes, the Company      extinguishes the convertible debt and related embedded derivatives and no      gain or loss is recorded on the Company's statements of operations as a      result of said conversion. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| August 29, 2008 Issuance of      $191,913 in Convertible Notes: On August 29, 2008, the Company was      notified by the holders of the convertible notes that there was a past due      interest owing on the outstanding convertible notes. The total amount of      interest owed was $191,913. To pay this interest, the noteholders were      willing to accept $191,913 in additional convertible notes due on August      29, 2011.  Accordingly, on August 29, 2008, the Company issued      $191,913 in convertible notes to the noteholders as full payment of the      past due interest. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| • | The      fixed conversion feature that allows the investor to convert the notes at      a fixed price per share; |
|---------|------------------------------------------------------------------------------------------------------------------|

| • | The      variable conversion feature that allows the investor to convert the notes      at a specified percentage of the market price at the time of      conversion; |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | The      variable interest rate provision that calls for no interest to be paid if      the stock price exceeds a predetermined amount for a given number of      months; and |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | The      value of the warrants issued in conjunction with each    funding. |
|---------|----------------------------------------------------------------------------|

----

----

| %      BelowMarket | Price      PerShare                    | With      55%Discount | Number      ofShares Issuable           | %      of OutstandingShares*     |
|--------------------|----------------------------------------|-----------------------|-----------------------------------------|----------------------------------|
| 25%50%75%          |  .007125.00475       .002375 | .003206.002138.001069 | 1,289,040,8001,932,958,3003,865,916,700 |   8,503%12,750%25,501% |

----

----

----

----

----

----

----

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|                                                         | Page   |
|--------------------------------------------------------------|--------|
|                                                         |   |
|                                                         |   |
| Report      of Independent Registered Public Accounting Firm | F-2    |
|                                                         |   |
| Balance      Sheets                                          | F-3    |
|                                                         |   |
| Statements      of Operations                                | F-4    |
|                                                         |   |
| Statements      of Stockholders’ Equity                | F-5    |
|                                                         |   |
| Statements      of Cash Flows                                | F-6    |
|                                                         |   |
| Notes      to Financial Statements                           | F-7    |

----

----

----

|                                                                                               |   | December      31,2008 |        |   | December      31,2007 |   |
|----------------------------------------------------------------------------------------------------|--------|-----------------------|-------------|--------|-----------------------|--------|
| Assets                                                                                             |   |                  |        |   |                  |   |
|                                                                                               |   |                  |        |   |                  |   |
| Current      assets:                                                                               |   |                  |        |   |                  |   |
|    Cash                                                                             |   | $                     | 27,000      |   |                  | $      | 321,000 |   |
|    Receivables,      net                                                            |   |                  | 207,000     |   |                  |   | 624,000 |   |
|    Inventories,      net                                                            |   |                  | 659,000     |   |                  |   | 847,000 |   |
|    Prepaid      and other assets                                                    |   |                  | 16,000      |   |                  |   | 27,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      current assets                                                                          |   |                  | 909,000     |   |                  |   | 1,819,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Property      and equipment, net                                                                   |   |                  | 11,000      |   |                  |   | 16,000 |   |
| Goodwill                                                                                           |   |                  | 339,000     |   |                  |   | 339,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      assets                                                                                  |   | $                     | 1,259,000   |   |                  | $      | 2,174,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Liabilities and Stockholders’      (Deficit)                                                 |   |                  |        |   |                  |   |   |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Current      liabilities:                                                                          |   |                  |        |   |                  |   |   |   |
|    Accounts      payable                                                            |   | $                     | 463,000     |   |                  | $      | 370,000 |   |
|    Related      party payable                                                       |   |                  | 131,000     |   |                  |   | 46,000 |   |
|    Accrued      liabilities                                                         |   |                  | 559,000     |   |                  |   | 644,000 |   |
|    Convertible      note payble, net of debt discount of $39,000 and $240,000       |   |                  | 2,052,000   |   |                  |   | 1,203,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      current liabilities                                                                     |   |                  | 3,205,000   |   |                  |   | 2,263,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
|    Convertible      notes payable, net of debt discount of $239,000 and    $588,000 |   |                  | 1,802,000   |   |                  |   | 1,897,000 |   |
|    Derivative      liabilities                                                      |   |                  | 10,000      |   |                  |   | 210,000 |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      long-term liabilities                                                                   |   |                  | 1,812,000   |   |                  |   | 2,107,000 |   |
| Total      liabilities                                                                             |   |                  | 5,017,000   |   |                  |   | 4,370,000 |   |
| Commitments      and contingencies                                                                 |   |                  | -           |   |                  |   |   |   |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Stockholders’      (Deficit):                                                                |   |                  |        |   |                  |   |   |   |
| Preferred      stock, $.001 par value, 5,000,000 shares authorized,                                |   |                  |        |   |                  |   |   |   |
|    612,497      shares issued and outstanding (aggregate liquidation           |   |                  |        |   |                  |   |   |   |
|    preference      of $456,000)                                                     |   |                  | 1,000       |   |                  |   | 1,000 |   |
| Common      stock, $.001 par value, 1,400,000,000 shares authorized,                               |   |                  |        |   |                  |   |   |   |
|    15,159,807      and 5,449,869 respectively                                       |   |                  | 15,000      |   |                  |   | 5,000 |   |
| Additional      paid-in capital                                                                    |   |                  | 58,359,000  |   |                  |   | 58,202,000 |   |
| Accumulated      deficit                                                                           |   |                  | (62,133,000 | )      |                  |   | (60,404,000 | ) |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      stockholders’ (Deficit)                                                           |   |                  | (3,758,000  | )      |                  |   | (2,196,000 | ) |
|                                                                                               |   |                  |        |   |                  |   |   |   |
| Total      liabilities and stockholders’ (Deficit)                                           |   | $                     | 1,259,000   |   |                  | $      | 2,174,000 |   |

----

----

|                                                                                   |   | 2008   |       |   | 2007   |   |
|----------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                                                   |   |   |       |   |   |   |
|                                                                                   |   |   |       |   |   |   |
| Sales                                                                                  |   | $      | 1,259,000  |   |   | $      | 1,872,000 |   |
| Cost      of sales                                                                     |   |   | 704,000    |   |   |   | 1,020,000 |   |
|                                                                                   |   |   |       |   |   |   |   |   |
| Gross      profit                                                                      |   |   | 555,000    |   |   |   | 852,000 |   |
|                                                                                   |   |   |       |   |   |   |   |   |
| Operating      expenses:                                                               |   |   |       |   |   |   |   |   |
|       General      and administrative                    |   |   | (922,000   | )      |   |   | (1,012,000 | ) |
|       Marketing      and selling                         |   |   | (500,000   | )      |   |   | (662,000 | ) |
|       Research      and development                      |   |   | (255,000   | )      |   |   | (344,000 | ) |
|                                                                                   |   |   |       |   |   |   |   |   |
| Total      operating expenses                                                          |   |   | (1,677,000 | )      |   |   | (2,018,000 | ) |
|                                                                                   |   |   |       |   |   |   |   |   |
| Operating      loss                                                                    |   |   | (1,122,000 | )      |   |   | (1,166,000 | ) |
| Other      income (expense):                                                           |   |   |       |   |   |   |   |   |
|       Other      income                                  |   |   | 10,000     |   |   |   | - |   |
|       Interest      expense - Accretion of debt discount |   |   | (515,000   | )      |   |   | (771,000 | ) |
|       Interest      income                               |   |   | 3,000      |   |   |   | 11,000 |   |
|       Interest      expense                              |   |   | (312,000   | )      |   |   | (221,000 | ) |
|       Gain      on derivative valuation                  |   |   | 207,000    |   |   |   | 413,000 |   |
|       Gain      on settlement of liabilities             |   |   | -          |   |   |   | 91,000 |   |
|                                                                                   |   |   |       |   |   |   |   |   |
| Total      other income (expense)                                                      |   |   | (607,000   | )      |   |   | (477,000 | ) |
|                                                                                   |   |   |       |   |   |   |   |   |
| Income      (loss) before provision for income taxes                                   |   |   | (1,729,000 | )      |   |   | (1,643,000 | ) |
| Provision      for income taxes                                                        |   |   | -          |   |   |   | - |   |
|                                                                                   |   |   |       |   |   |   |   |   |
| Net      (loss)                                                                        |   | $      | (1,729,000 | )      |   | $      | (1,643,000 | ) |
|                                                                                   |   |   |       |   |   |   |   |   |
| Basic      and fully diluted loss per share:                                           |   |   |       |   |   |   |   |   |
|      Earnings      (loss) per common share - basic            |   | $      | (0.15      | )      |   | $      | (0.62 | ) |
|      Earnings      (loss) per common share - diluted          |   | $      | (0.15      | )      |   | $      | (0.62 | ) |
|      Weighted      average common shares - basic              |   |   | 11,394,793 |   |   |   | 2,647,360 |   |
|     Weighted      average common shares - diluted                  |   |   | 11,394,793 |   |   |   | 2,647,360 |   |

----

----

|                                                                                                |   | Preferred      Stock(See      Note 8) |   |   | Common      Shares |   |       | Amount |   |   | AdditionalPaid-In Capital |   |   | AccumulatedDeficit |       |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------|--------|------------|--------|--------|--------|--------------------------------|--------|--------|--------------------|------------|
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |
| Balance      at January 1, 2007                                                                |   |                                  | 1,000  |   |               |   | 2,019,590  |   |   |   | 2,000                          |   |   |               | 57,901,000 |   |   |   | (58,761,000 | ) |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Issuance of common      stock for:                                                                  |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Stock      option valuation                                                                         |   |                                  | -      |   |               |   | -          |   |   |   | -                              |   |   |               | 14,000     |   |   |   | - |   |
| Conversion      of convertible debentures                                                           |   |                                  | -      |   |               |   | 3,430,172  |   |   |   | 3,000                          |   |   |               | 376,000    |   |   |   | - |   |
| Unamortized      discount associated to convertible debenture conversions                           |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               | (100,000   | ) |   |   |   |   |
| Pro      rata portion of  derivative liability associated with debenture      conversions |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               | 11,000     |   |   |   |   |   |
| Conversion      of preferred stock                                                                  |   |                                  | -      |   |               |   | 107        |   |   |   | -                              |   |   |               |       |   |   |   | - |   |
| Net      loss                                                                                       |   |                                  | -      |   |               |   | -          |   |   |   | -                              |   |   |               | -          |   |   |   | (1,643,000 | ) |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Balance      at December 31, 2007                                                                   |   |                                  | 1,000  |   |               |   | 5,449,869  |   |   |   | 5,000                          |   |   |               | 58,202,000 |   |   |   | (60,404,000 | ) |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Issuance of common      stock for:                                                                  |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Stock      option valuation                                                                         |   |                                  | -      |   |               |   | -          |   |   |   | -                              |   |   |               | 14,000     |   |   |   | - |   |
| Conversion      of convertible debentures                                                           |   |                                  | -      |   |               |   | 9,709,938  |   |   |   | 10,000                         |   |   |               | 185,000    |   |   |   | - |   |
| Unamortized      discount associated to convertible debenture conversions                           |   |                                  |   |   |               |   | -          |   |   |   | -                              |   |   |               | (42,000    | ) |   |   |   |   |
| Net      loss                                                                                       |   |                                  | -      |   |               |   | -          |   |   |   | -                              |   |   |               | -          |   |   |   | (1,729,000 | ) |
|                                                                                                |   |                                  |   |   |               |   |       |   |   |   |                           |   |   |               |       |   |   |   |   |   |
| Balance      at December 31, 2008                                                                   |   |                                  | 1,000  |   |               |   | 15,159,807 |   |   |   | 15,000                         |   |   |               | 58,359,000 |   |   |   | (62,133,000 | ) |

----

----

|                                                                                                            |   | 2008   |       |   | 2007   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                                                                            |   |   |       |   |   |   |
| Cash      flows from operating activities:                                                                      |   |   |       |   |   |   |
| Net      income (loss)                                                                                          |   | $      | (1,729,000 | )      |   | $      | (1,643,000 | ) |
| Adjustments      to reconcile net income (loss) to net                                                          |   |   |       |   |   |   |   |   |
| cash      used in operating activities:                                                                         |   |   |       |   |   |   |   |   |
|           Depreciation      and amortization                  |   |   | 5,000      |   |   |   | 5,000 |   |
|           Stock      option valuation                         |   |   | 14,000     |   |   |   | 14,000 |   |
|           Change      in fair value of derivative liabilities |   |   | (207,000   | )      |   |   | (413,000 | ) |
|           Accretion      of debt discount                     |   |   | 515,000    |   |   |   | 772,000 |   |
|           Provision      for losses on receivables            |   |   | 45,000     |   |   |   | 56,000 |   |
|           (Gain)      loss on settlement of liabilities       |   |   | -          |   |   |   | (91,000 | ) |
| (Increase)      decrease in:                                                                                    |   |   |       |   |   |   |   |   |
|           Accounts      Receivables                           |   |   | 372,000    |   |   |   | (251,000 | ) |
|           Inventories                                         |   |   | 188,000    |   |   |   | 98,000 |   |
|           Prepaid      and other assets                       |   |   | 11,000     |   |   |   | (16,000 | ) |
| Increase      (decrease) in:                                                                                    |   |   |       |   |   |   |   |   |
|           Accounts      payable                               |   |   | 178,000    |   |   |   | 17,000 |   |
|           Accrued      liabilities                            |   |   | 104,000    |   |   |   | 317,000 |   |
| Net      cash used in operating activities                                                                      |   |   | (504,000   | )      |   |   | (1,135,000 | ) |
|                                                                                                            |   |   |       |   |   |   |   |   |
| Cash      flows from investing activities:                                                                      |   |   |       |   |   |   |   |   |
|                                                                                                            |   |   | -          |   |   |   | - |   |
| Net      cash used in investing activities                                                                      |   |   | -          |   |   |   | - |   |
|                                                                                                            |   |   |       |   |   |   |   |   |
| Cash      flows from financing activities:                                                                      |   |   |       |   |   |   |   |   |
|           Proceeds      from issuance of convertible notes    |   |   | 210,000    |   |   |   | 1,250,000 |   |
| Net      cash provided by financing activities                                                                  |   |   | 210,000    |   |   |   | 1,250,000 |   |
|                                                                                                            |   |   |       |   |   |   |   |   |
| Net      change in cash                                                                                         |   |   | (294,000   | )      |   |   | 115,000 |   |
|                                                                                                            |   |   |       |   |   |   |   |   |
| Cash,      beginning of year                                                                                    |   |   | 321,000    |   |   |   | 206,000 |   |
|                                                                                                            |   |   |       |   |   |   |   |   |
| Cash,      end of year                                                                                          |   | $      | 27,000     |   |   | $      | 321,000 |   |

----

| 1.     Organization      andSignificant      Accounting Policies | OrganizationParadigm      Medical Industries, Inc. (the Company) is a Delaware Corporation      incorporated in October 1989.  The Company is engaged in the      design, development, manufacture, and sale of high technology surgical and      diagnostic eye care products.  Its surgical equipment is      designed to perform minimally invasive cataract surgery and is comprised      of surgical devices and related instruments and accessories, including      disposable products.  Its diagnostic products include a Blood      Flow Analyzer, a pachymeter, an A/B Scan, ultrasound biomicroscopes,      perimeters, and a corneal topographer. Fair      Value of Financial InstrumentsOn      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value      Measurements. SFAS No. 157 defines fair value, establishes a three-level      valuation hierarchy for disclosures of fair value measurement and enhances      disclosure requirements for fair value measures. The three levels are      defined as follows: · Level      1 inputs to the valuation methodology are quoted prices (unadjusted) for      identical assets or liabilities in active markets. · Level      2 inputs to the valuation methodology include quoted prices for similar      assets and liabilities in active markets, and inputs that are observable      for the asset or liability, either directly or indirectly, for      substantially the full term of the financial instrument. · Level      3 inputs to valuation methodology are unobservable and significant to the      fair measurement. The      fair value of the Company's cash and cash equivalents, receivables,      accounts payable and accrued liabilities approximate carrying value based      on their effective interest rates compared to current market      prices. 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.  |
|-------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                            | Cash      EquivalentsFor      purposes of the statement of cash flows, cash includes all cash and      investments with original maturities to the Company of three months or      less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

----

| 1.          Organization andSignificant Accounting      PoliciesContinued  | 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 accounts and believes it is not exposed to      any significant credit risk on cash and cash      equivalents. Accounts      ReceivableAccounts      receivable are carried at original invoice amount less an estimate made      for doubtful receivables based on a review of all outstanding amounts on a      monthly basis.  Specific reserves are estimated by management      based on certain assumptions and variables, including the customer’s      financial condition, age of the customer’s receivables, and changes in      payment histories.  Trade receivables are written off when      deemed uncollectible.  Recoveries of trade receivables      previously written off are recorded when received. A      trade receivable is considered to be past due if any portion of the      receivable balance has not been received by the contractual pay      date.  Interest is not charge on trade receivables that are past      due. Allowance for Doubtful      Accounts:The      Company records an allowance for doubtful accounts to offset estimated      uncollectible accounts receivable. Bad debt expense associated with the      increases in the allowance for doubtful accounts is recorded as part of      general and administrative expense.  The Company’s      accounting policy generally is to record an allowance for receivables over      90 days past due unless there is significant evidence to support that the      receivable is collectible. During      2008, the Company collected $36,000 in receivables that were previously      allowed in the allowance for doubtful accounts.  During 2008,      the Company decreased net allowance for doubtful accounts by      $34,000. The      Company has taken measures to reduce the amount of uncollectible accounts      receivable such as more thorough and stringent credit approval, improved      training and instruction by sales personnel, and frequent direct      communication with the customer subsequent to delivery of the system. The      allowance for doubtful accounts was27%   of total      outstanding receivables as of December 31, 2008 and 15% as of December 31,      2007. The allowance for doubtful accounts decreased from $109,000 at      December 31, 2007 to $75,000 at December 31, 2008.  |
|----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1.          Organization andSignificant Accounting      PoliciesContinued | InventoriesInventories      are stated at the lower of cost or market, cost is determined using the      weighted average method. Property      and EquipmentProperty      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, usually between 3-7      years.  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.      Leasehold improvements are depreciated over the lesser of the term of the      lease or the useful life of the related asset. During the      years ended 2008 and 2007 depreciation expense was $5,000 and $5,000      respectively. Newly acquired assets that have a value of $3,000 or more      are capitalized and included on the depreciation  schedule.                                                                                       |
|----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                               |  GoodwillAs      of December 31,  2008, the Company had recorded on their books      goodwill related to the purchase of Ocular Blood Flow, Ltd., during      2001.  In accordance with SFAS 142, “Goodwill and Other      Intangible Assets,” goodwill is not amortized.The Company performs tests for      impairment of goodwill annually or more frequently if events or      circumstances indicate it might be impaired.  Such tests include      comparing the fair value of a reporting unit with its carrying value,      including goodwill.  The analysis of the impairment test of      goodwill did not result in a charge to the statements of operations for      impairment for the years ended December 31, 2008 and 2007,      respectively.Impairment      assessments are performed using a variety of methodologies, including cash      flow analysis and estimates of sales proceeds.  Where      applicable, an appropriate discount rate is used, based      on the Company’s cost of capital rate or location-specific economic      factors. |

----

| 1.          Organization andSignificant Accounting      PoliciesContinued  | Evaluation      of Other Long-Lived AssetsThe      Company evaluates the carrying value of the unamortized balances of other      long-lived assets to determine whether any impairment of these assets has      occurred or whether any revision to the related amortization periods      should be made, in accordance with Statement of Financial Accounting      Standards No. 144,” Accounting for the Impairment or Disposal of      Long-Lived Assets” (‘SFAS 144”), which addresses financial accounting and      reporting for the impairment or disposal of long-lived      assets.  This evaluation is based on management’s projections of      the undiscounted future cash flows associated with each      asset.  If management’s evaluation were to indicate that the      carrying values of these assets were impaired, such impairment would be      recognized by a write down of the applicable asset. Income      TaxesDeferred      income taxes are provided in amounts sufficient to give effect to      temporary differences between financial and tax reporting, principally      related to net operating loss carry forwards, depreciation, impairment of      intangible assets, stock compensation expense, and accrued      liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                     | Stock      – Based CompensationOn      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),      Share-Based Payment, ("SFAS 123(R)") which establishes standards for the      accounting of transactions in which an entity exchanges its equity      instruments for goods or services, primarily focusing on accounting for      transactions where an entity obtains employee services in      share-based payment transactions. SFAS 123(R) requires a public entity to      measure the cost of employee services received in exchange for an award of      equity instruments, including stock options, based on the grant-date fair      value of the award and to recognize it as compensation expense over the      period the employee is required to provide service in exchange for the      award, usually the vesting period. In March 2005, the SEC issued Staff      Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The      Company has applied the provisions of SAB 107 in its adoption of SFAS      123(R). Stock-based      compensation expense recognized during the period is based on the value of      the portion of share-based payment awards that is ultimately expected to      vest during the period. Stock-based compensation expense recognized in the      Company's consolidated statement of operations for the year ended December      31, 2008 included compensation expense for the share-based payment awards      granted based on the grant date fair value estimated in accordance with      the provisions of SFAS 123(R). Stock based compensation expense for the      years ended December 31, 2008 and 2007 was $14,000 and $14,000,      respectively.  |

----

| 1.          Organization andSignificant Accounting      PoliciesContinued | Basic      and Fully Diluted Loss Per ShareNet      loss per common share is computed on the weighted average number of common      stock and common stock equivalent shares outstanding during each year.      Common stock equivalents consist of convertible preferred stock, and      common stock options and warrants. Common stock equivalent shares are      excluded from the computation when their effect is      anti-dilutive. Common      stock equivalents consisting of options and warrants to purchase the      Company’s common stock were 66,214,392 and 65,534,392; shares of common      stock and preferred stock convertible into 862,438 and 862,438 shares of      common stock, and outstanding commitments to issue shares underlying the      convertible notes into 966,705,263 and 36,372,800 shares of common stock      at December 31, 2008 and 2007, respectively, have not been included in the      fully diluted loss per share  because their inclusion would have      been anti-dilutive. The      following table is a reconciliation of basic earnings per share for the      years ended December 31, 2008 and2007. |
|----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                             |   | Years      ended December 31, |       |
|------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                             |   | 2008                          |       |   | 2007 |   |
|                                                             |   |                          |       |   |   |   |
| Net      loss                                                    |   | $                             | (1,729,000 | ) |   | $ | (1,643,000 | ) |
|                                                             |   |                          |       |   |   |   |   |   |
| Basic      and fully diluted weighted average shares outstanding |   |                          | 11,394,793 |   |   |   | 2,647,360 |   |
|                                                             |   |                          |       |   |   |   |   |   |
| Basic      and fully diluted loss per share                      |   | $                             | (0.15      | ) |   | $ | (0.62 | ) |
|                                                             |   |                          |       |   |   |   |   |   |

|   | Revenue      RecognitionRevenues      for sales of products that require specific installation and acceptance by      the customer are recognized upon such 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.  A signed purchase agreement and a      deposit or payment in full from customers is required before a product      leaves the premises.  Title passes at time of shipment (F.O.B.      shipping point).  The products of the Company contain both      hardware and software components.  The Company does not      recognize revenue for the software components of the products separate      from the product as a whole because the software is incidental to the      product, as defined in paragraph 2 of SOP97-2. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1.          Organization andSignificant Accounting      PoliciesContinued  | Research      and DevelopmentCosts      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.  The total research and development expenses for the      years ended December 2008 and 2007 was $255,000 and $344,000,      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                     | Concentration      of RiskThe      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.  |
|                                                                                                     | A      significant portion of the Company’s product sales is in foreign      countries.  The economic and political instability of some      foreigncountries      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 years ended December 31, 2008 and 2007 no  single customer      represented more than 10% of total net sales for the respective years      .  Accounts receivable are due from medical distributors,      surgery centers, hospitals, optometrists and ophthalmologists located      throughout the U.S. and a number of foreign countries.  The      receivables are generally due within thirty days for domestic customers      with extended terms offered for some international      customers.  The Company maintains an allowance for estimated      potentially uncollectibleamounts.                                                                                                                                                                                                                                                                                                                                                                             |

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| 1.          Organization andSignificant Accounting      PoliciesContinued | WarrantyThe      Company provides product warranties on the sale of certain products that      generally extend for one year from the date of sale.  The      Company maintains a reserve for estimated warranty costs based on      historical experience and management’s best  estimates |
|----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | Years      ended December 31, |     |
|-----------------------------------------------|--------|-------------------------------|----------|
|                                          |   | 2008                          |     |   | 2007 |   |
|                                          |   |                          |     |   |   |   |
| Beginning      warranty liability balance     |   | $                             | 227,000  |   |   | $ | 155,000 |   |
|                                          |   |                          |     |   |   |   |   |   |
| Less:  Reductions      for payments |   |                          | (163,000 | ) |   |   | (20,000 | ) |
|                                          |   |                          |     |   |   |   |   |   |
| Plus:  Increase      for accrual    |   |                          | -        |   |   |   | 92,000 |   |
|                                          |   |                          |     |   |   |   |   |   |
| Ending      warranty liability balance        |   | $                             | 64,000   |   |   | $ | 227,000 |   |

|   |  Use      of Estimates in the Preparation of Financial StatementsThe      preparation of financial statements in conformity with accounting      principles generally accepted in the United States of America 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.                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ContingenciesThe      Company has adopted the guidance in Statement of Financial Accounting      Standards No. 5, “Accounting for Contingencies,” when booking for loss      contingencies.  The Company accrues a charge to income when (1)      information available prior to issuance of the financial statements      indicates that it is probable that an asset has been impaired or a      liability has been incurred at the date of the financial statements, and      (2) the amount of loss can be reasonably estimated.  Loss      contingencies related to litigation for the year ended December 31, 2008      and 2007 were $236,000 and 255,000.  |

----

| 1.          Organization andSignificant Accounting      PoliciesContinued | Derivative      Financial InstrumentsThe      Company’s derivative financial instruments consist of embedded derivatives      related to the Secured Convertible Term Notes (“the Notes”) entered into      agreements on April 27, 2005; June 23, 2005; June 30, 2005; February 28,      2006; June 28, 2006; April 30, 2007; June 11, 2007; December 19, 2007;      December 24, 2007, June 16, 2008, July 14, 2008, and August 29,      2008.  These Notes contain interrelated embedded derivatives,      which include the fixed conversion feature, the variable conversion      feature, the variable interest feature, and the contingent put      feature.  Although the put feature was determined to be an      embedded derivative which requires bifurcation, we believe the likelihood      of this feature being exercised is remote and accordingly no value was      ascribed to this particular put feature.  We are required to      continue to evaluate our accounting and valuation for this put      feature.  We will continue to monitor the probability of this      particular put feature being exercised and      its impact to our valuation of embedded derivatives in future      periods.In the event the value      of the put feature becomes material in the future, we will use a different      model to value this feature along with the other embedded      derivatives. Based      on the complex nature of these terms      (including the put      feature),      the Company chose to employ a binomial lattice model to value these      features.  The Company used the lattice model because it allows      for the consideration of the dynamic and interrelated nature of the unique      terms of these securities.  It takes into consideration that in      each discrete period of time a stock can either go up or down (described      as its “volatility”) and produces a range of potential future stock prices      (and thus multiple values at those future points in time). A binomial      lattice model assumes the price of the stock underlying the derivative      follows one of the two price paths (stock price can either go up or      down).  There are three general steps in constructing a binomial      lattice model: (1) calculation of the stock price lattice, (2) calculation      of the potentially applicable option values at each node based on the      terms and conditions of the specific security, and (3) progressively      calculating the security value at each node starting at the maturity of      the security and working back to the present testing for the greater of      the current period value or the probability weighted holding value of the      security.  The following key inputs and assumptions were used to      calculate the fair values of the embedded derivatives and the      warrants:  |
|----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 1.          Organization andSignificant Accounting      PoliciesContinued |   |
|----------------------------------------------------------------------------------------------------|--------|

|                 §   | Stock      Price:  This is the stock price as of the respective      valuationdate. |
|--------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|

|                 §   | Fixed      Conversion Price:  The fixed conversion price used in the      valuation analysis was set equal to fixed conversion price (ranging from      $0.2 to $0.09) per share for each of the Notes.  This is the      fixed price at which the Investor can convert the Note into common      stock. |
|--------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 §   | Volatility:  Volatility      is a measure of the standard deviation of the stocks continuously      compounded return over the life of the security.  The ideal      volatility for an accurate calculation of fair value is the future      volatility of the security.  This cannot be known with      certainty, so an approximation is derived using historical return      volatility for a period of time equal to the remaining life of the      instrument as a proxy, and professional judgment.  As part of      our valuation, we performed extensive analysis of the historical      volatility of returns for the Company’s stock.  Based on our      analysis, we chose a standard deviation of 200% as our best estimate of      future volatility. |
|--------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 §   | Risk-Free      Rate:  The appropriate risk free rate is the interest      rate of a U.S. treasury note with a maturity equal to the maturity of the      respective security.  As of December 31, 2008, the risk free      interest rates ranged from 0.11% to 0.88%.  As of December 31,      2007, the risk free interest rates ranged from 3.06%    to3.49%. |
|--------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 §   | Time to      Maturity:  The time to maturity is measured based on the      remaining term of the security as of the valuationdate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 §   | 20-day      Minimum Price vs. Closing Stock Price:  The variable      conversion feature allows the Investor to convert the Notes at a price      equal to 60% - 50% (ranges per note) of the average of the lowest three      trading prices during the twenty trading days preceding a conversion      notice.  We analyzed the historical relationship between the      common stock closing price and the lowest trading price.  Based      on this analysis, we determined that on average the lowest trading price      in any 20-day period during the time period analyzed was approximately 70%      of the closing price.  We used this as a conservative proxy for      the average of the three lowest closing prices during the 20-day      period.  This result was used in the test of the stock price      relative to the fixed conversionprice. |

----

|                 §   | Monthly      Intraday Trading Price:  The variable interest rate      provision waives interest for a given month if the intraday trading price      of the common stock exceeds $0.0945 or $0.0275 (depending on Note) per      share for every day within a given month.  We assumed that our      various node prices were equivalent to this intraday trading      price. |
|--------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 §   | Trading      Liquidity:  We assumed that adequate stock trading      liquidity is available for the Investors to sell converted / exercised      shares. |
|--------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 §   | Probability      of Contingent Put Feature: We assumed that the      likelihood of this feature being exercised is remote and accordingly no      value was ascribed to this particular put feature.  We will      continue to monitor the probability of this particular put feature being      exercised and its impact to our valuation of embedded derivatives in      future periods. |
|--------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      warrants were valued using the Black-Scholes Option Pricing Model with the      following assumptions for 2008 and 2007, respectively: dividend yield of      0% and 0%; annual volatility of 200% and 200%; and risk free interest      rates ranging from of 0.37% to 1.8% and 3.06% to  3.7%. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 1.          Organization andSignificant Accounting      PoliciesContinued | The      accounting treatment of derivative instruments requires that the Company      record the derivatives and related warrants at their fair values as of the      inception date of the agreement and at a fair value of each subsequent      balance sheet date. In addition, under the provisions of SFAS No. 133,      “Accounting for      Derivative Instruments and Hedging Activities”, as a result of      entering into the Notes, the Company is required to classify all other      non-employee stock options and warrants as derivative liabilities and mark      them to market at each reporting date. Any change in the fair value will      be recorded as non-operating, non-cash income or expense at each reporting      date. If the fair value of the derivatives is lower at the subsequent      balance sheet date, the Company will record a non-operating, non-cash      income. In the event that the Company is required to      convert the debentures into common stock, the Company is required to      eliminate the pro rata portion of the derivative liability associated with      the conversion, with a corresponding entry recorded to additional      paid-in-capital.  |
|----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.          Going Concern                                                      | Going      ConcernThe      accompanying financial statements have been prepared on a going concern      basis, which contemplates the realization of assets and the satisfaction      of liabilities in the normal course of business.Historically,      the Company has not demonstrated the ability to generate sufficient cash      flows from operations to satisfy its liabilities and sustain operations,      and the Company has incurred significant losses from      operations.  The company had a working capital deficit of      $2,296,000 and has used $504,000 in cash in operating activities as of      December 31, 2008.  These factors raise substantial doubt about      the Company’s ability to continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

----

| 2.          Going ConcernContinued                        | Management’s      focus on the going concern that has plagued the organization for recent      years concerning the inability of the company to generate sufficient cash      flow from operations is a primary one. In the past three years, little has      been done to create and maintain a domestic sales force within the US. In      the international market, sales have diminished due to the company’s      inability or unwillingness to update or find replacements for its current      product offerings. Management’s plan is two-fold; complete a full product      review of current products and take steps to re-engineer those products      selected within a rapid time frame and re-introduce them to the world      markets. If products are found to be incapable of being re-engineered,      management will take steps to remove them from product listings.      Management will take the necessary steps to locate new products      manufactured by another organization to sell in the markets through its      sales organizations. This important step will provide Paradigm the      opportunity to generate sales, revenues and time to complete the final      step, that of beginning to develop its own additional devices for sale in      the market. This “partnering” benefit will help with sales and revenue but      will not be enough to make up for prior years omissions of product      development and essential partnering efforts. Therefore, the organization      will require additional funding to support these efforts and that funding      has been arranged and completed in April of 2009. It will be management’s      primary responsibility to carefully manage these capital infusions to      assure that they begin to serve as a safety net rather than the only      source of cash for growth. It is the goal of management to closely manage      its capital resources during the remainder of 2009 and to begin to      generate the sales and continuing revenue to move into 2010 more      self-sufficient and move closer to profitability. As mentioned earlier,      the addition of 20 new independent sales representatives in the US market      and the addition of 15 new international distributors in the international      market will provide the proper platform to introduce both re-engineered      and “partnered” products to the respectivemarkets. |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.          Detail of CertainBalance Sheet Accounts |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

| Receivables                                                  |   | 2008   |     |   | 2007   |   |
|--------------------------------------------------------------|--------|--------|----------|--------|--------|--------|
|     Trade      receivables               |   | $      | 282,000  |   |   | $      | 733,000 |   |
|     Allowance      for doubtful accounts |   |   | (75,000  | )      |   |   | (109,000 | ) |
|                                                         |   |   |     |   |   |   |   |   |
|                                                         |   | $      | 207,000  |   |   | $      | 624,000 |   |
|                                                         |   |   |     |   |   |   |   |   |
|                                                         |   |   |     |   |   |   |   |   |
| Inventories                                                  |   | 2008   |     |   | 2007   |   |
|     Raw      materials                   |   | $      | 514,000  |   |   | $      | 558,000 |   |
|     Finished      goods                  |   |   | 376,000  |   |   |   | 533,000 |   |
|     Reserve      for obsolence           |   |   | (231,000 | )      |   |   | (244,000 | ) |
|                                                         |   |   |     |   |   |   |   |   |
|                                                         |   | $      | 659,000  |   |   | $      | 847,000 |   |

----

| Accrued      liabilities:                     |   | 2008   |    |   | 2007   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|
| Litigation      reserve                       |   | $      | 236,000 |   |   | $      | 256,000 |   |
| Interest      expense on notes payable        |   |   | 116,000 |   |   |   | - |   |
| Payroll      and employment benefits          |   |   | 24,000  |   |   |   | 64,000 |   |
| Sales      tax payable                        |   |   | 4,000   |   |   |   | 20,000 |   |
| Customer      deposits                        |   |   | 57,000  |   |   |   | 20,000 |   |
| Accrued      royalties                        |   |   | 1,000   |   |   |   | 3,000 |   |
| Warranty      and return allowance            |   |   | 64,000  |   |   |   | 227,000 |   |
| Consulting      and other accrued liabilities |   |   | 57,000  |   |   |   | 54,000 |   |
|                                          |   |   |    |   |   |   |   |   |
| Total      accrued liabilities                |   | $      | 559,000 |   |   | $      | 644,000 |   |

|                                           |   | 2008   |       |   | 2007   |   |
|------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Machinery      and equipment                   |   | $      | 765,000    |   |   | $      | 765,000 |   |
| Computer      equipment and software           |   |   | 663,000    |   |   |   | 663,000 |   |
| Furniture      and fixtures                    |   |   | 252,000    |   |   |   | 252,000 |   |
| Leasehold      improvements                    |   |   | 166,000    |   |   |   | 166,000 |   |
|                                           |   |   |       |   |   |   |   |   |
|                                           |   |   | 1,846,000  |   |   |   | 1,846,000 |   |
|                                           |   |   |       |   |   |   |   |   |
| Accumulated      depreciation and amortization |   |   | (1,835,000 | )      |   |   | (1,830,000 | ) |
|                                           |   |   |       |   |   |   |   |   |
|                                           |   | $      | 11,000     |   |   | $      | 16,000 |   |

----

| 5.          LeaseObligations | During      the years ended December 31, 2008 and 2007, the Company did not lease      equipment under noncancellable capital leases.  Any leases      previously issued provided 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 are as  follows: |
|--------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | 2008   |    |   | 2007   |   |
|------------------------------------|--------|--------|---------|--------|--------|--------|
| Computer      and other equipment  |   | $      | 765,000 |   |   | $      | 765,000 |   |
| Less      accumulated amortization |   |   | 166,000 |   |   |   | 166,000 |   |
|                               |   |   |    |   |   |   |   |   |
|                               |   | $      | 931,000 |   |   | $      | 931,000 |   |

|                                         | Amortization      expense on assets under capital leases during the years ended      December 31, 2008 and 2007 was $5,000 and $0      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|----------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                         | The      Company leases office and warehouse space under a month-to-month operating      lease agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                         | Rent      expense related to noncancelable operating leases was approximately      $110,000 and $108,000 for the years ended December 31, 2008 and 2007,      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|  6.     IncomeTaxes |  Income      TaxesThe      Financial Accounting Standards Board (FASB) has issued Financial      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An      Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the      accounting for uncertainty in income taxes recognized in an enterprise’s      financial statements in accordance with FASB Statement No. 109, Accounting      for Income Taxes. FIN 48 requires a company to determine whether it is      more likely than not that a tax position will be sustained upon      examination based upon the technical merits of the position. If the      more-likely-than-not threshold is met, a company must measure the tax      position to determine the amount to recognize in the financial statements.      As a result of the implementation of FIN 48, the Company performed a      review of its material tax positions. At the adoption date of January 1,      2007, the Company had no unrecognized tax benefit which would affect the      effective tax rate.  As of December 31, 2008, the Company had no      accrued interest and penalties related to uncertain tax      positions. Deferred      tax assets and the valuation allowance as of December 31, 2008 and 2007      are as follows: |

----

|                                                         |   | 2008   |        |   | 2007   |   |
|--------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Deferred      tax asset:                                     |   |   |        |   |   |   |
|     Net      operating loss carryforward |   |   | 16,176,000  |   |   |   | 15,888,000 |   |
|     Valuation      allowance             |   |   | (16,176,000 | )      |   |   | (15,888,000 | ) |
|                                                         |   |   | -           |   |   |   | - |   |
|                                                         |   |   |        |   |   |   |   |   |
|                                                         |   |   |        |   |   |   |   |   |
|                                                         |   |   | 2008        |   |   |   | 2007 |   |
| The      components of income tax expense are as follows:    |   |   |        |   |   |
|                                                         |   |   |        |   |   |   |   |   |
|     Current      federal tax             |   |   | -           |   |   |   | - |   |
|     Current      state tax               |   |   | -           |   |   |   | - |   |
|     Change      in NOL benefit           |   |   | (288,000    | )      |   |   | (855,000 | ) |
|     Change      in allowance             |   |   | 288,000     |   |   |   | 855,000 |   |
|                                                         |   |   | -           |   |   |   | - |   |

|                                               | A      valuation allowance has been established for the net deferred tax asset      due to the uncertainty of the Company's ability to realize such      assets.  At December 31, 2008, the Company has available net      operating loss carryforwards of approximately $56 million for federal      income tax purposes the begin to expire in 2015.  The      utilization of the net operating loss carryforward is dependent upon the      tax laws in effect at the time of the operating loss carryforwrds 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 a change in ownership. |
|----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  7.          CapitalStock |  Capital      StockThe      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 1,400,000,000      authorized shares. On      December 5, 2008, the Company’s board of directors approved a 1-for-100      reverse stock split, which became effective on December 5, 2008. All      references to share and per-share data for all periods presented in this      report have been adjusted to give effect to this reverse      split.                                                                                                                                 |

----

| 7.          CapitalStockContinued | Series      A Preferred StockOn      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. Total liquidation preference at December 31, 2008 was      $6,000. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                  |  Series B      Preferred StockOn      May 9, 1994, the Company established a series of non-voting preferred      shares designated as 12% Series B Preferred Stock, consisting of 500,000      shares with $.001 par value.  The Series B Preferred Stock has      the following rights and privileges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                  |  1. The      holders of the shares are entitled to dividends at the rate of forty-eight      cents ($.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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

----

| 7.          CapitalStockContinued | 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.  Total liquidation      preference at December 31, 2008 was $36,000. |
|-------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  |  1. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                  |  2. The      holders of the shares have no voting rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                  |  3. 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.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                  |  Series      C Preferred StockIn      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.  As of December 31, 2007 there were no      Series CPreferred      Stock issued and outstanding.  The Series C Preferred Stock have      the following rights and privileges:                                                                                                                                                                                                                                                                                 |
|                                                  |  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.                                                                                                                                                                                                                                                                                                                                                                             |
|                                                  | 1. 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.                                                                                                                                                                                                                                                                  |
|                                                  |  2. Each      share was 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. 3. The      holders of the shares have no votingrights.                                                                                                                                                                                                                                    |

----

| 7.          CapitalStockContinued | Series      D Preferred StockIn      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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                  |  2. Upon      the liquidation of the Company, the holders of the Series D Preferred      Stock are entitled to receive an amount per share equalto      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.  Total liquidation preference at December 31,      2008 was $9,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                  |  3. Each      share was 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.  The Company in 1999 recorded $872,000      as a beneficial conversion feature related to the differences in the      conversion price of the preferred stock to common stock. 4. The      holders of the shares have no voting rights. |
|                                                  |  Series      E Preferred StockIn      May 2001, the Company authorized the issuance of a total of 50,000 shares      of Series E Preferred Stock $.001 par value, $100 stated      value.  The Series E Preferred Stock has the following      rightsAnd      privileges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

----

| 7.          CapitalStockContinued | 1. The      holders of the shares are entitled to dividends at the rate of 8% 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 E 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.  Total liquidation      preference at December 31, 2008 was $13,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                  |  3. Each      share is convertible, at the option of the holder at any time until      January 1, 2005, into approximately 53.33 shares of Common Stock at an      initial conversion price, subject to adjustment for stock splits, stock      dividends and certain combination or recapitalization of the common stock,      equal to $1.875 per share of common stock.  The Series E      Preferred Stock shall be converted into Common Stock subject to adjustment      (a) on January 1, 2005 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 E 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 E Preferred Stock is at least      $3.50 per share.  The Company in 2001 recorded $1,482,000 as a      beneficial conversion feature related to the differences in the conversion      price of the preferred stock to common stock. 4. The      holders of the shares have no voting rights. 5. The      holders of the shares also were issued warrants to purchase shares of      common stock equal to 1,000 warrants for every 200 shares purchased at an      exercise price of $4.00 per share.  Each warrant is exercisable      until May 23, 2006. |
|                                                  |  Series      F Preferred StockIn      August 2001, the Company authorized the issuance of a total of 50,000      shares of Series F Preferred Stock $.001 par value, $100 stated      value.  The Series F Preferred Stock has the following rights      and privileges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

| 7.          CapitalStockContinued | 1. The      holders of the shares are entitled to dividends at the rate of 8% per      share per annum of the aggregate stated value. The dividends are      non-cumulative and, therefore, deficiencies individend      payments from one year are not carried forward to the next      year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  |  2. Upon      the liquidation of the Company, the holders of the Series F 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.  Total liquidation      preference at December 31, 2008 was $235,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                  |                    Each share is convertible, at the option of the holder at any time until      January 1, 2005, into approximately 53.33 shares of Common Stock at an      initial conversion price, subject to adjustment for stock splits, stock      dividends and certain combination or recapitalization of the common stock,      equal to $1.875 per share of common stock.  The Series F      Preferred Stock shall be converted into Common Stock subject to adjustment      (a) on January 1, 2005 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 F 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 F Preferred Stock is at least      $3.50 per share.  The Company in 2001 recorded $1,105,000 as a      beneficial conversion feature related to the differences in the conversion      price of the preferred stock to common stock. |
|                                                  |  3. The      holders of the shares have no voting rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                  |  Series      G Preferred StockIn      August 2003, the Company authorized the issuance of a total of 2,000,000      shares of Series G Preferred Stock $.001 par value, $1.00 stated      value.  The Series G Preferred Stock has the following rights      and privileges: 1. The      holders of the shares are entitled to dividends at the rateof7%      per share per annum of the aggregate stated      value.  Thedividends      are non-cumulative and, therefore, deficiencies individend      payments from one year are not carried forward to the next      year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

----

| 7.          CapitalStockContinued | 2. Upon      the liquidation of the Company, the holders of the Series G 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 of $.25 per share plus declared      but unpaid dividends.  Total liquidation preference at December      31, 2008      was $147,000. Each      share is convertible, at the option of the holder at any time until August      1, 2005, into 1 share of common stock at an initial conversion price,      subject to adjustment for dividends, equal to one share of common stock      for each share of Series G Preferred Stock.  The Series G      Preferred Stock shall be converted into common stock subject to adjustment      (a) on August 1, 2005 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 G Preferred Stock were registered and (ii)      the average closing price of the common stock for the 15-day period      immediately prior to the date in which notice of redemption is given by      the Company to the holders of the Series G Preferred Stock is at least      $.50 per share.  In 2003, the Company recorded a beneficial      conversion feature of $217,000 related to the differences in the      conversion price of the preferred stock to commonstock. |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  |  3. The      holders of the shares have no votingrights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

----

| 7.          CapitalStockContinued | The      following table summarizes preferred stock activity during the years ended      December 31, 2008 and2007: |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|

|                               | Series      A | Series      B | Series      C | Series      D | Series      E | Series      F | Series      G   |
|------------------------------------|---------------|---------------|---------------|---------------|---------------|---------------|-----------------|
|                               | Shares        | Amount        | Shares        | Amount        | Shares        | Amount        | Shares          | Amount | Shares | Amount | Shares | Amount | Shares | Amount |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Balance      at January 1, 2007    |  5,627   |  $6.00   |  8,986   |  $9.00   |  -       |  $-      |  5,000     |  $5.00 |  250 |  $1.00 |  4,598.75 |  $5.00 |  588,235 |  $1,000 |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Conversion      of preferred stock |  -       |  -       |  -       |  -       |  -       |  -       |  -         |  - |  - |  - |  (200.00) |  - |  - |  - |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Balance      at December 31, 2007  |  5,627   |  6.00    |  8,986   |  9       |  -       |  -       |  5,000     |  5 |  250 |  1 |  4,398.75 |  5 |  588,235 |  1,000 |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Balance      at December 31, 2008  |  5,627   |  $6      |  8,986   |  $9      |  -       |  $-      |  5,000     |  $5 |  250 |  $1 |  4,398.75 |  $5 |  588,235 |  $1,000 |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Authorized                         |  500,000 |          |  500,000 |          |  30,000  |          |  1,140,000 |   |  50,000 |   |  50,000 |   |  2,000,000 |   |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |
| Liquidation      preference        | 1             |  $6,000  | 4             |  $36,000 | 100           |  $-      | 1.75            |  $9,000 | 53.33 |  $13,000 | 53.33 |  $235,000 | 0.25 |  $147,000 |
|                               |          |          |          |          |          |          |            |   |   |   |   |   |   |   |

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| 8.          ConvertibleNotes | Convertible      NotesApril 27,      2005 Sale of $2,500,000 in Callable Secured Convertible      Notes:  To obtain funding for the Company's ongoing      operations, the Company entered into a securities purchase agreement with      four accredited investors on April 27, 2005 for the sale of (i) $2,500,000      in convertible notes and (ii) warrants to purchase 16,534,392 shares of      its common stock.  The sale of the convertible notes and      warrants is to occur in three traunches and the investors provided the      Company with an aggregate of $2,500,000 as follows:•      $850,000      was disbursed on April 27, 2005;•      $800,000      was disbursed on June 23, 2005 after the Company filed a registration      statement on June 22, 2005 to register the shares of common stock issuable      upon conversion of the convertible notes and exercise of warrants;      and•      $850,000      was disbursed on June 30, 2005, the effective date of the registration      statement.Under      the terms of the securities purchase agreement, the Company agreed it      would not, without the prior written consent of a majority-in-interest of      the investors, negotiate or contract with any party to obtain additional      equity financing (including debt financing with an equity component) that      involves (i) the issuance of common stock at a discount to the market      price of the common stock on the date of issuance (taking into account the      value of any warrants or options to acquire common stock in connection      therewith), (ii) the issuance of convertible securities that are      convertible into an indeterminate number of shares of common stock, or      (iii) the issuance of warrants during the lock-up period beginning April      27, 2005 and ending on the later of (a) 270 days from April 27, 2005, or      (b) 180 days from the date the registration statement is declared      effective.In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning April 27, 2005 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing.  Each investor must be      provided written notice describing any proposed equity financing at least      20 business days prior to the closing of such proposed equity financing      and the option must be extended to each investor during the 15-day period      following delivery of suchnotice. |
|--------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      $2,500,000 in convertible notes bear interest at 8% per annum from the      date of issuance. Interest is computed on the basis of a 365-day year and      is payable quarterly in cash, with six months of interest payable up      front.  The interest rate resets to zero percent for any month      in which the stock price is greater than 125% of the initial market price,      or $.0945, for each trading day during that month.  Any amount      of principal or interest on the convertible notes that is not paid when      due will bear interest at the rate of 15% per annum from the date due      thereof until such amount is paid.  The notes mature in three      years from the date of issuance, and are convertible into the Company's      common stock at the noteholders' option, at the lower of (i) $.09 or (ii)      60% of the average of the three lowest intraday trading prices for the      common stock on the OTC Bulletin Board for the 20 trading days before but      not including the conversion date.  Accordingly, there is no      limit on the number of shares into which the notes may be      converted.The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual property.      Moreover, the Company has a call option under the terms of the      notes.  The call option provides the Company with the right to      prepay all of the outstanding convertible notes at any time, provided      there is no event of default by the Company and the Company's stock is      trading at or below $.09 per share. An event of default includes the      failure by the Company to pay the principal or interest on the notes when      due or to timely file a registration statement as required by the Company      or obtain effectiveness with the Securities and Exchange Commission of the      registration statement. Prepayment of the notes is to be made in cash      equal to either (a) 125% of the outstanding principal and accrued interest      for prepayments occurring within 30 days following the issue date of the      notes; (b) 130% of the outstanding principal and accrued interest for      prepayments occurring between 31 and 60 days following the issue date of      the notes; or (c) 145% of the outstanding principal and accrued interest      for prepayments occurring after the 60th day following the issue date of      the notes. |
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| 8.          ConvertibleNotesContinued  | The      warrants are exercisable until five years from the date of issuance at a      purchase price of $.20 per share.  The investors may exercise      the warrants on a cashless basis if the shares of common stock underlying      the warrants are not registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the callable secured convertible      notes issued pursuant to the securities purchase agreement.The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock.  However, the noteholders may repeatedly sell      shares of common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes.The      note due date was June 30, 2008, therefore, the Company      is   in default. Since this Note is in default the amount      of $1,256,248 has been classified as a current liability in the balance      sheet.As of December 31,      2008, there was an outstanding balance of   $1,256,248 in      principal and accrued interest remaining on the convertible      notes.  During the years ended December 31, 2008 and 2007, the      Company issued 9,709,938 and 2,830,172 shares of common stock for the      conversion of $200,910 and $212,346 of the convertible notes,      respectively.February      28, 2006 Sale of $1,500,000 in Callable Secured Convertible      Notes:  To obtain additional funding for the Company's      ongoing operations, the Company entered into a second securities purchase      agreement on February 28, 2006 with the same four accredited investors for      the sale of (i) $1,500,000 in convertible notes and (ii) warrants to      purchase 12,000,000 shares of its common stock.  The sale of the      convertible notes and warrants is to occur in three traunches and the      investors are obligated to provide the Company with an aggregate of      $1,500,000 as follows:•      $500,000      was disbursed on February 28,2006; |
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| 8.          ConvertibleNotesContinued | •      $500,000      was disbursed on June 28, 2006 after the Company filed a registration      statement on June 15, 2006 to register the shares of common stock      underlying the convertible notes.  The registration statement      was subsequently withdrawn on July 25, 2006 and a new registration      statement was filed on September 15, 2006 to register 60,000,000 shares of      common stock issuable upon conversion of the notes.•      $500,000      was disbursed on April 30, 2007, the day prior to the effective date of      the registration statement on May 1, 2007.Under      the terms of the securities purchase agreement, the Company also agreed it      would not, without the prior written consent of a majority-in-interest of      the investors, negotiate or contract with any party to obtain additional      equity financing (including debt financing with an equity component) that      involves (i) the issuance of common stock at a discount to the market      price of the common stock on the date of issuance (taking into account the      value of any warrants or options to acquire common stock in connection      therewith), (ii) the issuance of convertible securities that are      convertible into an indeterminate number of shares of common stock, or      (iii) the issuance of warrants during the lock-up period beginning      February 28, 2006 and ending on the later of (a) 270 days from February      28, 2006, or (b) 180 days from the date the registration statement is      declared effective.In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning February 28, 2006 and ending two years after the end of the      above lock-up period unless it first provided each investor an option to      purchase its pro rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing.  Each investor must be      provided written notice describing any proposed equity financing at least      20 business days prior to the closing of such proposed equity financing      and the option must be extended to each investor during the 15-day period      following delivery of such notice.The      $1,500,000 in convertible notes bear interest at 8% per annum from the      date of issuance. Interest is computed on the basis of a 365-day year and      is payable quarterly in cash, with six months of interest payable up      front.  The interest rate resets to zero percent for any month      in which the stock price is greater than 125% of the initial market price,      or $.0275, for each trading day during that month. Any amount of principal      or interest on the convertible notes that is not paid when due will bear      interest at the rate of 15% per annum from the date due thereof until such      amount is paid.  The notes mature in three years from the date      of issuance, and are convertible into the Company's common stock at the      noteholders' option, at the lower of (i) $.02 or (ii) 60% of the average      of the three lowest intraday trading prices for the common stock on the      OTC Bulletin Board for the 20 trading days before but not including the      conversion date. Accordingly, there is no limit on the number of shares      into which the notes may beconverted. |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual      property.  Moreover, the Company has a call option under the      terms of the notes.  The call option provides the Company with      the right to prepay all of the outstanding convertible notes at any time,      provided there is no event of default by the Company and the Company's      stock is trading at or below $.02 per share.  An event of      default includes the failure by the Company to pay the principal or      interest on the notes when due or to timely file a registration statement      as required by the Company or obtain effectiveness with the Securities and      Exchange Commission of the registration statement.  Prepayment      of the notes is to be made in cash equal to either (a) 125% of the      outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 130% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 60 days following the issue date of the notes; or (c) 145%      of the outstanding principal and accrued interest for prepayments      occurring after the 60th day following the issue date of the      notes.The      warrants are exercisable until five years from the date of issuance at a      purchase price of $.10 per share.  The investors may exercise      the warrants on a cashless basis if the shares of common stock underlying      the warrants are not registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, then the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the notes issued pursuant to the      securities purchaseagreement. |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      noteholders have agreed to restrict their ability to convert their      callable secured convertible notes or exercise their warrants and receive      shares of the Company's common stock such that the number of shares of      common stock held by them in the aggregate and their affiliates after such      conversion or exercise does not exceed 4.99% of the then issued and      outstanding shares of common stock.  However, the noteholders      may repeatedly sell shares of common stock in order to reduce their      ownership percentage, and subsequently convert additional convertible      notes.Two      of the tree traunches of the Note of $334,275 and $500,000 will be due on      February 28, 2009 and June 28, 2009, respectively; therefore, the amounts      have been classified as a current liability in the balance      sheet.As of December 31,      2008, there was an outstanding balance of $1,334,275 in principal and      accrued interest on the convertible notes.  During the year      ended December 31, 2008 and 2007, the Company issued zero and 600,000 shares of      common stock for the conversion of zero and $167,000 of the      convertible notes, respectively. June 11,      2007 Sale of $500,000 in Callable Secured Convertible Notes: To      obtain further funding for the Company's ongoing operations, the Company      entered into a third securities purchase agreement on June 11, 2007 with      the same four accredited investors for the sale of (i) $500,000 in      callable secured convertible notes and (ii) warrants to purchase      10,000,000 shares of its common stock. The investors disbursed $500,000 to      the Company on June 11, 2007.Under      the terms of the June 11, 2007 securities purchase agreement, the Company      agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning June 11, 2007 and ending on the later of (a) 270 days from June      11, 2007, or (b) 180 days from the date the registration statement is      declared effective. |
|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning June 11, 2007 and ending two years after the end of the above      lock-up period unless it first provided each investor an option to      purchase its pro-rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing. Each investor must be provided      written notice describing any proposed equity financing at least 20      business days prior to the closing of such proposed equity financing and      the option must be extended to each investor during the 15-day period      following delivery of such notice.The      $500,000 in convertible notes bear interest at 8% per annum from the date      of issuance.  Interest is computed on the basis of a 365-day      year and is payable quarterly in cash, with six months of interest payable      up front.  The interest rate resets to zero percent for any      month in which the stock price is greater than 125% of the initial market      price, or $.0275, for each trading day during that month.  Any      amount of principal or interest on the callable secured convertible notes      that is not paid when due will bear interest at the rate of 15% per annum      from the date due thereof until such amount is paid.  The      convertible notes mature in three years from the date of issuance, and are      convertible into the Company's common stock at the noteholders' option, at      the lower of (i) $.02 or (ii) 50% of the average of the three lowest      intraday trading prices for the common stock on the OTC Bulletin Board for      the 20 trading days before but not including the conversion      date.  Accordingly, there is no limit on the number of shares      into which the notes may be converted.The      $500,000 in convertible notes are secured by the Company's assets,      including the Company's inventory, accounts receivable and intellectual      property. Moreover, the Company has a call option under the terms of the      notes. The call option provides the Company with the right to prepay all      of the outstanding convertible notes at any time, provided there is no      event of default by the Company and its stock is trading at or below $.10      per share.  An event of default includes the failure by the      Company to pay the principal or interest on the convertible notes when due      or to timely file a registration statement as required by the Company or      obtain effectiveness with the Securities and Exchange Commission of the      registration statement.  Prepayment of the convertible notes is      to be made in cash equal to either (a) 125% of the outstanding principal      and accrued interest for prepayments occurring within 30 days following      the issue date of the notes; (b) 130% of the outstanding principal and      accrued interest for prepayments occurring between 31 and 60 days      following the issue date of the notes; or (c) 145% of the outstanding      principal and accrued interest for prepayments occurring after the      60th  day following the issue date of the  notes. |
|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      warrants are exercisable until seven years from the date of issuance at a      purchase price of $.005 per share.  The investors may exercise      the warrants on a cashless basis if the shares of common stock underlying      the warrants are not then registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the convertible notes issued      pursuant to the securities purchase agreement.The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock.  However, the noteholders may repeatedly sell      shares of common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendar month.The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on June 11, 2007. The      registration statement must be filed with the Securities and Exchange      Commission within 60 days of the June 11, 2007 closing date and the      effectiveness of the registration is to be within 135 days of such closing      date. Penalties of 2% of the outstanding principal balance of the      convertible notes plus accrued interest are to be applied for each month      the registration is not effective within the required time.  The      penalty may be paid in cash or stock at the Company's option.As of December 31,      2008 and 2007, there have been no conversions of these convertible notes.      Upon conversion of the convertible notes, the Company extinguishes the      convertible debt and related embedded derivatives and no gain or loss is      recorded on the Company’s statements of operations as a result of said      conversion. |
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| 8.          ConvertibleNotesContinued | December      19, 2007 issuance of $389,010 in Callable Secured Convertible      Notes:  On December 19, 2007 the Company was notified by      the holders of the convertible notes that there was a past due interest      owing on the outstanding convertible notes. The total amount of interest      was $389,010.  To pay the interest, the noteholders were willing      to accept $389,010 in additional convertible notes due on December 31,      2010. Accordingly, on December 19, 2007, the Company issued $389,010 in      convertible notes to the noteholders as full payment of the past due      interest.The      $389,000 in convertible notes bear interest at 2% per annum from the date      of issuance.  Interest is computed on the basis of a 365-day      year and is payable quarterly in cash, with six months of interest payable      up front.  The interest rate resets to zero percent for any      month in which the stock price is greater than 125% of the initial market      price, or $.0275, for each trading day during that month.  Any      amount of principal or interest on the callable secured convertible notes      that is not paid when due will bear interest at the rate of 15% per annum      from the date due thereof until such amount is paid. The convertible notes      mature on December 31, 2007, and are convertible into the Company's common      stock at the noteholders' option, at the lower of (i) $.02 or (ii) 50% of      the average of the three lowest intraday trading prices for the common      stock on the OTC Bulletin Board for the 20 trading days before but not      including the conversion date.  Accordingly, there is no limit      on the number of shares into which the notes may beconverted.The      $389,000 in convertible notes has a call option under the terms of the      notes. The call option provides the Company with the right to prepay all      of the outstanding convertible notes at any time, provided there is no      event of default by the Company and its stock is trading at or below $.04      per share.  An event of default includes the failure by the      Company to pay the principal or interest on the convertible notes when      due.  Prepayment of the convertible notes is to be made in cash      equal to either (a) 135% of the outstanding principal and accrued interest      for prepayments occurring within 30 days following the issue date of the      notes; (b) 145% of the outstanding principal and accrued interest for      prepayments occurring between 31 and 60 days following the issue date of      the notes; or (c) 150% of the outstanding principal and accrued interest      for prepayments occurring after the 60th day following the issue date of      the notes.The      noteholders have agreed to restrict their ability to convert their      convertible notes and receive shares of the Company's common stock such      that the number of shares of common stock held by them in the aggregate      and their affiliates after such conversion or exercise does not exceed      4.9% of the then issued and outstanding shares of common stock. However,      the noteholders may repeatedly sell shares of common stock in order to      reduce their ownership percentage, and subsequently convert additional      convertible notes, provided, however, that such conversions do not exceed      the average daily dollar volume calculated during the ten business days      prior to conversion multiplied by the number of trading days of      that calendar month, per calendarmonth. |
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| 8.          ConvertibleNotesContinued | As of December 31,      2008 and 2007, there have been no conversions of these convertible notes.      Upon conversion of the convertible notes, the Company extinguishes the      convertible debt and related embedded derivatives and no gain or loss is      recorded on the Company’s statements of operations as a result of said      conversion.December      24, 2007 Sale of $250,000 in Callable Secured Convertible      Notes:  To obtain further funding for the Company's      ongoing operations, the Company entered into a fourth securities purchase      agreement on December 24, 2007 with the same four accredited investors for      the sale of (i) $250,000 in callable secured convertible notes and (ii)      warrants to purchase 15,000,000 shares of its common stock. The investors      disbursed $250,000 to the Company on December 24, 2007.Under      the terms of the December 24, 2007 securities purchase agreement, the      Company agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning December 24, 2007 and ending on the later of (a) 270 days from      December 24, 2007, or (b) 180 days from the date the registration      statement is declaredeffective |
|-----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | In      addition, the Company agreed not to conduct any equity financing      (including debt financing with an equity component) during the period      beginning December 24, 2007 and ending two years after the end of the      above lock-up period unless it first provided each investor an option to      purchase its pro-rata share (based on the ratio of each investor's      purchase under the securities purchase agreement) of the securities being      offered in any proposed equity financing.  Each investor must be      provided written notice describing any proposed equity financing at least      20 business days prior to the closing of such proposed equity financing      and the option must be extended to each investor during the 15-day period      following delivery of such notice.The      $250,000 in convertible notes bear interest at 8% per annum from the date      of issuance.  Interest is computed on the basis of a 365-day      year and is payable quarterly in cash, with six months of interest payable      up front.  The interest rate resets to zero percent for any      month in which the stock price is greater than 125% of the initial market      price, or $.0275, for each trading day during that month.  Any      amount of principal or interest on the callable secured convertible notes      that is not paid when due will bear interest at the rate of 15% per annum      from the date due thereof until such amount is paid. The convertible notes      mature in three years from the date of issuance, and are convertible into      the Company's common stock at the noteholders' option, at the lower of (i)      $.02 or (ii) 50% of the average of the three lowest intraday trading      prices for the common stock on the OTC Bulletin Board for the 20 trading      days before but not including the conversion date.  Accordingly,      there is no limit on the number of shares into which the notes may be      converted. |
|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      $250,000 in convertible notes are secured by the Company's assets,      including the Company's inventory, accounts receivable and intellectual      property. Moreover, the Company has a call option under the terms of the      notes. The call option provides the Company with the right to prepay all      of the outstanding convertible notes at any time, provided there is no      event of default by the Company and its stock is trading at or below $.10      per share.  An event of default includes the failure by the      Company to pay the principal or interest on the convertible notes when due      or to timely file a registration statement as required by the Company or      obtain effectiveness with the Securities and Exchange Commission of the      registration statement. Prepayment of the convertible notes is to be made      in cash equal to either (a) 125% of the outstanding principal and accrued      interest for prepayments occurring within 30 days following the issue date      of the notes; (b) 130% of the outstanding principal and accrued interest      for prepayments occurring between 31 and 60 days following the issue date      of the notes; or (c) 145% of the outstanding principal and accrued      interest for prepayments occurring after the 60th day following the issue      date of the notes.The      warrants are exercisable until seven years from the date of issuance at a      purchase price of $.001 per share.  The investors may exercise      the warrants on a cashless basis if the shares of common stock underlying      the warrants are not then registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the convertible notes issued      pursuant to the securities purchase agreement.The      noteholders have agreed to restrict their ability to convert their      convertible notes or exercise their warrants and receive shares of the      Company's common stock such that the number of shares of common stock held      by them in the aggregate and their affiliates after such conversion or      exercise does not exceed 4.99% of the then issued and outstanding shares      of common stock. However, the noteholders may repeatedly sell shares of      common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendarmonth. |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8.          ConvertibleNotesContinued | The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on December 24,      2007.  The registration statement must be filed with the      Securities and Exchange Commission within 60 days of the December 24, 2007      closing date and the effectiveness of the registration is to be within 135      days of such closing date. Penalties of 2% of the outstanding principal      balance of the convertible notes plus accrued interest are to be applied      for each month the registration is not effective within the required time.      The penalty may be paid in cash or stock at the Company’s      option.As of December 31,      2008 and 2007, there have been no conversions of these convertible notes.      Upon conversion of the convertible notes, the Company extinguishes the      convertible debt and related embedded derivatives and no gain or loss is      recorded on the Company’s statements of operations as a result of said      conversion.June 16,      2008 Sale of $310,000 in Callable Secured Convertible Notes: To      obtain additional funding for the Company's ongoing operations, the      Company entered into a fifth securities purchase agreement on June 16,      2008 with three accredited investors for the sale of (i) $310,000 in      convertible notes and (ii) warrants to purchase 10,000,000 shares of its      common stock.  The sale of the convertible notes and warrants is      to occur in three traunches and the investors are obligated to provide the      Company with an aggregate of $310,000 as  follows: |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | $110,000      were disbursed on June 16,2008; |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|

|                                     ·   | $100,000      were disbursed on July 14, 2008 after the Company filed a Schedule 14A      preliminary proxy statement for a reverse stock split with the Securities      and Exchange Commission; and |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | $100,000      was disbursed on January 20,2009. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|

|   | Under      the terms of the June 16, 2008 securities purchase agreement, the Company      agreed that it would not, without the prior written consent of a      majority-in-interest of the investors, negotiate or contract with any      party to obtain additional equity financing (including debt financing with      an equity component) that involves (i) the issuance of common stock at a      discount to the market price of the common stock on the date of issuance      (taking into account the value of any warrants or options to acquire      common stock in connection therewith), (ii) the issuance of convertible      securities that are convertible into an indeterminate number of shares of      common stock, or (iii) the issuance of warrants during the lock-up period      beginning June 16, 2008 and ending on the later of (a) 270 days from      June 16, 2008, or (b) 180 days from the date the registration statement is      declared effective. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | In addition, the Company agreed      not to conduct any equity financing (including debt financing with an      equity component) during the period beginning June 16, 2008 and ending two      years after the end of the above lock-up period unless it first provided      each investor an option to purchase its pro-rata share (based on the ratio      of each investor's purchase under the securities purchase agreement) of      the securities being offered in any proposed equity      financing.  Each investor must be provided written notice      describing any proposed equity financing at least 20 business days prior      to the closing of such proposed equity financing and the option must be      extended to each investor during the 15-day period following delivery of      such notice.The $310,000 in convertible notes      bear interest at 8% per annum from the date of      issuance.  Interest is computed on the basis of a 365-day year      and is payable quarterly in cash, with six months of interest payable up      front.  The interest rate resets to zero percent for any month      in which the stock price is greater than 125% of the initial market price,      or $.0275, for each trading day during that month.  Any amount      of principal or interest on the callable secured convertible notes that is      not paid when due will bear interest at the rate of 15% per annum from the      date due thereof until such amount is paid.  The convertible      notes mature in three years from the date of issuance, and are convertible      into the Company's common stock at the noteholders' option, at the lower      of (i) $.02 or (ii) 45% of the average of the three lowest intraday      trading prices for the common stock on the OTC Bulletin Board for the 20      trading days before but not including the conversion      date.  Accordingly, there is no limit on the number of shares      into which the notes may beconverted. |
|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | The      convertible notes are secured by the Company's assets, including the      Company's inventory, accounts receivable and intellectual      property.   Moreover, the Company has a call option under      the terms of the notes.  The call option provides the Company      with the right to prepay all of the outstanding convertible notes at any      time, provided there is no event of default by the Company and its stock      is trading at or below $.02 per share.  An event of default      includes the failure by the Company to pay the principal or interest on      the convertible notes when due or to timely file a registration statement      as required by the Company or obtain effectiveness with the Securities and      Exchange Commission of the registration statement.  Prepayment      of the convertible notes is to be made in cash equal to either (a) 125% of      the outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 130% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 60 days following the issue date of the notes; or (c) 145%      of the outstanding principal and accrued interest for prepayments      occurring after the 60th day following the issue date of the      notes.The warrants are exercisable      until seven years from the date of issuance at a purchase price of $.001      per share.  The investors may exercise the warrants on a      cashless basis if the shares of common stock underlying the warrants are      not then registered pursuant to an effective registration      statement.  In the event the investors exercise the warrants on      a cashless basis, the Company will not receive any proceeds      therefrom.  In addition, the exercise price of the warrants will      be adjusted in the event the Company issues common stock at a price below      market, with the exception of any securities issued as of the date of the      warrants or issued in connection with the convertible notes issued      pursuant to the securities purchase agreement.The noteholders have agreed to      restrict their ability to convert their convertible notes or exercise      their warrants and receive shares of the Company's common stock such that      the number of shares of common stock held by them in the aggregate and      their affiliates after such conversion or exercise does not exceed 4.99%      of the then issued and outstanding shares of common      stock.  However, the noteholders may repeatedly sell shares of      common stock in order to reduce their ownership percentage, and      subsequently convert additional convertible notes, provided, however, that      such conversions do not exceed $75,000 per calendar month, or the average      daily dollar volume calculated during the ten business days prior to      conversion multiplied by the number of trading days of that calendar      month, per calendar month. |
|-----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | The      Company is required to register the shares of its common stock issuable      upon the conversion of the convertible notes and the exercise of the      warrants that were issued to the noteholders pursuant to the securities      purchase agreement the Company entered in to on June 16,      2008.  The registration statement must be filed with the      Securities and Exchange Commission within 60 days of the June 16, 2008      closing date and the effectiveness of the registration is to be within 135      days of such closing date.  Penalties of 2% of the outstanding      principal balance of the convertible notes plus accrued interest are to be      applied for each month the registration is not effective within the      required time.  The penalty may be paid in cash or stock at the      Company's option.As of December 31, 2008, there      have been no conversions of these convertible notes.  Upon      conversion of the convertible notes, the Company extinguishes the      convertible debt and related embedded derivatives and no gain or loss is      recorded on the Company's statements of operations as a result of said      conversion.August 29,      2008 Issuance of $191,913 in Callable Convertible Notes: On      August 29, 2008, the Company was notified by the holders of the      convertible notes that there was a past due interest owing on the      outstanding convertible notes. The total amount of interest owed was      $191,913. To pay this interest, the noteholders were willing to accept      $191,913 in additional convertible notes due on August 29,      2011.  Accordingly, on August 29, 2008, the Company issued      $191,913 in convertible notes to the noteholders as full payment of the      past due interest.The $191,913 in convertible      notes bear interest at 2% per annum from August 29, 2008. Interest is      computed on the basis of a 365-day year and is payable quarterly in cash.      Any amount of principal or interest on the callable secured convertible      notes that is not paid when due will bear interest at the rate of 15% per      annum from the date due thereof until such amount is paid. The convertible      notes mature on August 29, 2011, and are convertible into the Company's      common stock at the noteholders' option, at the lower of (i) $.02 or (ii)      45% of the average of the three lowest intraday trading prices for the      common stock on the OTC Bulletin Board for the 20 trading days before but      not including the conversion date. Accordingly, there is no limit on the      number of shares into which the notes may be  converted. |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | The      convertible notes have a call option under the terms of the notes. The      call option provides the Company with the right to prepay all of the      outstanding convertible notes at any time, provided there is no event of      default by the Company and its stock is trading at or below $.00431 per      share. An event of default includes the failure by the Company to pay the      principal or interest on the convertible notes when due. Prepayment of the      convertible notes is to be made in cash equal to either (a) 135% of the      outstanding principal and accrued interest for prepayments occurring      within 30 days following the issue date of the notes; (b) 145% of the      outstanding principal and accrued interest for prepayments occurring      between 31 and 90 days following the issue date of the notes; or (c) 150%      of the outstanding principal and accrued interest for prepayments      occurring after the 90th day following the issue date of the      notes.The      noteholders have agreed to restrict their ability to convert their      convertible notes and receive shares of the Company's common stock such      that the number of shares of common stock held by them in the aggregate      and their affiliates after such conversion does not exceed 4.9% of the      then issued and outstanding shares of common stock. However, the      noteholders may repeatedly sell shares of common stock in order to reduce      their ownership percentage, and subsequently convert additional      convertible notes, provided, however, that such conversions do not exceed      the average daily dollar volume calculated during the ten business days      prior to conversion multiplied by the number of trading days of that      calendar month, per calendar month.   The      Notes include certain features that are considered embedded derivative      financial instruments. These features are described below, as      follows: |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | The      fixed conversion feature which allows the investor to convert the Notes at      a fixed price per share; |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|

|                                     ·   | The      variable conversion feature, which allows the investor to convert the      Notes at a specified percentage of the market price at the time of      conversion; |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | The      variable interest rate provision that calls for no interest to be paid if      the stock price exceeds a predetermined amount for a given      months; |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     ·   | The contingent put      feature, which upon the occurrence of certain events of default, including      (i) the Company’s failure to pay the principle and interest thereon when      due on the Notes; (ii) bankruptcy, insolvency, reorganization, liquidation      proceedings instituted by or against the Company; (iii) any money judgment      is entered against the Company for more than $50,000, which remains      unvacated, unbonded, or unstayed for more than twenty days; and (iv) the      delisting of the Company’s common stock, allows the investor to require      the Company to redeem the convertible notes at 130% of the principal      amount.  Although the put feature was determined to be an      embedded derivative which requires bifurcation, we believe the likelihood      of this feature being exercised is remote and accordingly no value was      ascribed to this particular put feature.  We are required to      continue to evaluate our accounting and valuation for this put      feature.  We will continue to monitor the probability of this      particular put feature being exercised and its impact to our valuation of      embedded derivatives in futureperiods. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | The      value of the warrants issued in conjunction with each    funding. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|

|   | The      initial fair value assigned to the embedded derivatives and      warrants   was $4,169,000, which consisted of the fair      values of the  embedded derivatives of $2,588,000 and the fair      value of the warrants of $1,582,000.  The Company recorded the      first $2,500,000 of fair value of the derivatives and warrants to debt      discount (equal to the total proceeds received as of June 30, 2005), which      will be amortized to interest expense over the term of the      Notes.  The remaining balance of $1,669,000 was recorded as loss      of derivative valuation for the period ended June 30, 2005.As      of December 31, 2005, the carrying amount on the Notes was $340,000,      net of the unamortized debt discount of $1,698,000. Interest expense on      the Notes totaled $739,000 for the period ended      December 31, 2005, which consisted of $369,000 of normal accretion      of the Note discount, and $370,000 of accrued interest on the outstanding      Note balance for the period.  The fair value of the embedded      derivatives and warrants decreased to $195,000 during the year ended      December 31, 2005, which consists of a fair value of the embedded      derivatives of $137,000 and the fair value of the warrants of      $58,000.  The corresponding decrease in derivative value was      reflected as a gain on derivative valuation on the statements of      operations in the amount of$3,975,000. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | During      2006, the Company entered into another securities purchase agreement in      the amount $1,000,000.  The initial fair value assigned to the      embedded derivatives and warrants was $541,000, for this Note, which      consisted of the fair values of the embedded derivatives of $464,000 and      the fair value of the warrants of $77,000.  The Company recorded      the $541,000 of fair value of the derivatives and warrants to debt      discount, which will be amortized to interest expense over the term of the      Notes.As      of December 31, 2006, the carrying amount on the Notes was $1,421,000, net      of the unamortized debt discount of $1,235,000.  Interest      expense on the Notes totaled $935,000 for      the period ended December 31, 2006, which consisted of $721,000 of normal      accretion of the Note discount, and $214,000 of      accrued interest on the outstanding Note balance for the      period.  The fair value of the embedded derivatives and warrants      decreased by a total of $536,000 during      the year ended December 31, 2006, which consists of a decrease in the fair      value of the embedded derivatives of $451,000 and      the fair value of the warrants of $85,000.  Accordingly, the      Company recorded a gain on derivative valuation to the statement of      operations of $536,000 for      the year ended December 31, 2006.During      2007, the Company entered into four securities purchase agreements in the      aggregate amount of $1,639,000.  The initial fair value assigned      to the embedded derivatives and warrants was $466,000, for these Notes,      which consisted of the fair values of the embedded  derivatives      of $344,000 and the fair value of the warrants of $122,000.  The      Company recorded $466,000 of fair value of the derivatives and warrants to      debt discount, which will be amortized to interest expense over the term      of the Notes.At      December 31, 2007, the carrying amount on the Notes was $3,100,000,      net of the unamortized debt discount of $828,000.  Interest      expense on the Notes totaled $992,000 for the period ended      December 31, 2007, which consisted of $771,000      normal accretion of the Note discount, and $221,000 of accrued interest      on the outstanding Note balance for the period.  The fair value      of the embedded derivatives and warrants decreased by a total of $413,000 during the year      ended December 31, 2007, which consists of a decrease in the fair value of      the embedded derivatives of $391,000 and the fair value      of the warrants of $22,000.  Accordingly, the Company recorded a      gain on derivative valuation to the statement of operations of $413,000 for the year ended      December 31, 2007. |
|-----------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 8.          ConvertibleNotesContinued | At      December 31, 2008, the carrying amount on the Notes was $3,854,000, net of      the unamortized debt discount of $278,000.  Interest      expense on the Notes totaled $827,000 for the      period ended December 31, 2008, which consisted of $515,000 normal      accretion of the Note discount, and $312,000 of      accrued interest on the outstanding Note balance for the      period.  The fair value of the embedded derivatives and warrants      decreased by a total of $207,000 during the      year ended December 31, 2008, which consists of a decrease in the fair      value of the embedded derivatives of $139,000 and the      fair value of the warrants of $68,000.  Accordingly, the Company      recorded a gain on derivative valuation to the statement of operations of      $207,000 for the      year ended December 31, 2008.The      market price of the Company’s common stock significantly impacts the      extent to which the Company may be required or may be permitted to convert      the unrestricted and restricted portion of the Notes into shares of the      Company’s common stock. The lower the market price of the Company’s common      stock at the respective times of conversion, the more shares the Company      will need to issue to convert the principal and interest payments then due      on the Notes. If the market price of the company’s common stock falls      below certain thresholds, the Company will be unable to convert any such      repayments of principal and interest into equity, and the Company will be      forced to make such repayments in cash. The Company’s operations could be      materially impacted, in an adverse way, if the Company is forced to make      repeated cash payments on theNotes. |
|-----------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 9.          Stock Option Planand Warrants | Stock      Option Plan and WarrantsThe      Option Plan provides for the grant of incentive stock options and      non-qualified stock options to employees and 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.The      Company granted the following options and warrants during the year ended      December 31, 2008: |
|---------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | Warrants      to purchase 100,000 shares of common stock at an exercise price of $0.10      per share in return for the sale of callable secured convertible      notes. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      Company granted the following options and warrants during the year ended      December 31, 2007: |
|--------|-----------------------------------------------------------------------------------------------------------|

|                                     ·   | Warrants      to purchase 40,000 shares of common stock at an exercise price of $10.00      per share in return for the sale of callable secure convertible notes,      exercisable through April 26,2012. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | Warrants      to purchase 100,000 shares of common stock at an exercise price of $0.50      per share in return for the sale of callable secure convertible notes,      exercisable through June 11,2012. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     ·   | Warrants      to purchase 150,000 shares of common stock at an exercise price of $0.10      per share in return for the sale of callable secure convertible notes,      exercisable through December 24,2014. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Options      to the Company’s President and Chief Executive Officer to purchase 90,000      share of common stock at an exercise price of $1.00, exercisable through      July 1, 2010. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 9.          Stock Option Planand WarrantsContinued | A      schedule of the options and warrants is as  follows: |
|------------------------------------------------------------------------|-------------------------------------------------------------|

|                                  |   | Number      of Options |    |   | Number      of Warrants |   |    | Exercise      price per share |   |
|---------------------------------------|--------|------------------------|---------|--------|-------------------------|--------|---------|-------------------------------|--------|
| Outstanding      at January 1, 2007   |   |                   | 70,050  |   |                    |   | 250,594 |                          |   |   | 1.00-675.00 |   |
| Granted                               |   |                   | 45,000  |   |                    |   | 290,000 |                          |   |   | 0.10-10.00 |   |
| Exercised                             |   |                   | -       |   |                    |   | -       |                          |   |   | - |   |
| Expired                               |   |                   | -       |   |                    |   | (250    | )                             |   |   | 15.00-15.00 |   |
| Forfeited                             |   |                   | (50     | )      |                    |   | -       |                          |   |   | 10.00-10.00 |   |
|                                  |   |                   |    |   |                    |   |    |                          |   |   |   |   |
| Outstanding      at December 31, 2007 |   |                   | 115,000 |   |                    |   | 540,344 |                          |   |   | 0.10-675.00 |   |
| Granted                               |   |                   | -       |   |                    |   | 100,000 |                          |   |   | 0.10-0.10 |   |
| Exercised                             |   |                   | -       |   |                    |   | -       |                          |   |   | - |   |
| Expired                               |   |                   | (50     | )      |                    |   | (2,750  | )                             |   |   | 15.00-400.00 |   |
| Forfeited                             |   |                   | (400    | )      |                    |   | -       |                          |   |   | 1.00-21.00 |   |
| Outstanding      at December 31, 2008 |   |                   | 114,550 |   |                    |   | 637,594 |                          |   |   | 0.10-675.00 |   |

----

| 9.         Stock Option Planand WarrantsContinued | The      following table summarizes information about stock options and warrants      outstanding at December 31,2008: |
|------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|

| Outstanding                      |                 |   |              |   |    |                                                 |   |   |                         |   |   | Exercisable       |   |   |                         |   |
|----------------------------------|----------------------|--------|-------------------|--------|---------|------------------------------------------------------|--------|--------|------------------------------|--------|--------|-------------------|--------|--------|------------------------------|--------|
| Range      ofexercise      price |                 |   | Numberoutstanding |   |    | Weightedaverageremainingcontractuallife      (years) |   |   | Weightedaverageexerciseprice |   |   | Numberexercisable |   |   | Weightedaverageexerciseprice |   |
|                             |                 |   |              |   |    |                                                 |   |   |                         |   |   |              |   |   |                         |   |
|                             | $      0.10-75.00    |   |              |   | 742,144 |                                                 |   |   | 3.61                         |   |   | $                 | 7.00   |   |                         |   | 741,644 |   |   | $ | 7.00 |   |
|                             | $      200.00-500.00 |   |              |   | 9,500   |                                                 |   |   | 0.87                         |   |   | $                 | 304.00 |   |                         |   | 9,500 |   |   | $ | 304.00 |   |
|                             | $      600.00-675.00 |   |              |   | 500     |                                                 |   |   | 1.42                         |   |   | $                 | 675.00 |   |                         |   | 500 |   |   | $ | 675.00 |   |
|                             |                 |   |              |   |    |                                                 |   |   |                         |   |   |              |   |   |                         |   |   |   |   |   |   |   |
|                             |                 |   |              |   |    |                                                 |   |   |                         |   |   |              |   |   |                         |   |   |   |   |   |   |   |
|                             | $      0.10-675.00   |   |              |   | 752,144 |                                                 |   |   | 3.57                         |   |   | $                 | 11.00  |   |                         |   | 751,644 |   |   | $ | 11.00 |   |

|   | The      fair value of each option and warrant grant, outside of those granted in      conjunction with the Notes are estimated at the date of grant using the      Black-Scholes option pricing model with the following      assumptions: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Years      ended December 31, |       |
|--------------------------------------|--------|-------------------------------|------------|
|                                 |   | 2008                          |       |   | 2007 |   |
|                                 |   |                          |       |   |   |   |
| Expected      dividend yield         |   | $                             | -          |   |   | $ | - |   |
| Expected      stock price volatility |   |                          | 208%-266   | % |   |   | 210%-214 | % |
| Risk-free      interest rate         |   |                          | 4.32%-4.32 | % |   |   | 4.14%-5.37 | % |
| Expected      life of options        |   | 3-7      years                |       |   | 3-7      years |   |

|   | The      aggregate intrinsic value of stock warrants and options outstanding and      exercisable at December 31, 2008 and 2007 totaled $0 and $0; and $0 and      $0, respectively. The weighted average grant date fair value of warrants      and options granted during the periods ended December 31, 2008 and 2007 is      $0.00 and $0.01, respectively.  The fair value of warrants      vested during the periods ended December 31, 2008 and 2007 totaled      $189,150 and $60,390,respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 10.        Gain on Settlementof Liabilities | Due      to the Company’s ongoing cash flow difficulties, during 2008 and 2007 most      vendors and suppliers were contacted with attempts to negotiate reduced      payments and settlements of outstanding accounts payable and accrued      expenses.  While some vendors refused to negotiate and demanded      payment in full, some vendors were willing to settle for a reduced      amount.  The accounts payable forgiven by vendors and suppliers      and accrued expenses settled resulted in a gain of $0 and $91,000 in 2008      and 2007, respectively.  |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 11.        Related PartyTransactions        | A      law firm, of which the chairman of the board of directors of the Company      is a shareholder, has rendered legal services to the      Company.  The Company paid this firm $60,000 and $156,000, for      the years ended December 31, 2008 and 2007, respectively.  As of      December 31, 2008, the Company owed this firm $131,000, which is included      in accountspayable.                                                                                                                                                                                          |

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|                                                              |   | Years      ended December 31, |    |
|-------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                              |   | 2008                          |    |   | 2007 |   |
|                                                              |   |                          |    |   |   |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION:           |   |
|                                                              |   |                          |    |   |   |   |
| Cash      paid for interest                                       |   |                          |    |   |   |   |
|     Interest                                  |   | $                             | 3,000   |   |   | $ | 11,000 |   |
|     Income      taxes                         |   | $                             | -       |   |   | $ | - |   |
|                                                              |   |                          |    |   |   |   |   |   |
| NON-CASH      FINANCING AND INVESTING ACTIVITIES:                 |   |
|                                                              |   |                          |    |   |   |   |   |   |
| Settlement      of liabilities                                    |   | $                             | -       |   |   | $ | 91,000 |   |
| Convertible      notes issued in satisfaction of accrued interest |   | $                             | 191,913 |   |   | $ | 389,010 |   |

| 13.        Export Sales | In      accordance with Paragraph 38(a) of SFAS 131 “Disclosures about Segments of      an Enterprise and Related Information,” The company has the following      information regarding revenues to external customers. Revenues are      attributed to countries based on location of customer.Total      sales include export sales by major geographic area as      follows: |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                        |   | Years      Ended December 31, |         |
|---------------------------------------------|--------|-------------------------------|--------------|
| Geographic      Area                        |   | 2008                          |         |   | 2007 |   |
|                                        |   |                          |         |   |   |   |
| Europe:                                     |   |                          |         |   |   |   |
| Belgium                                     |   | $                             | -            |   |   | $ | - |   |
| Bulgaria                                    |   |                          | 19,600.00    |   |   |   | 28,400 |   |
| France                                      |   |                          | -            |   |   |   | 34,224 |   |
| Germany                                     |   |                          | 1,650.00     |   |   |   | - |   |
| Greece                                      |   |                          | 25,155.00    |   |   |   | 11,750 |   |
| Italy                                       |   |                          | 870.00       |   |   |   | 38,040 |   |
| Poland                                      |   |                          | 13,850.00    |   |   |   | 37,000 |   |
| Russia                                      |   |                          | 18,400.00    |   |   |   | 204,540 |   |
| Spain                                       |   |                          | -            |   |   |   | 7,200 |   |
| Turkey                                      |   |                          | 43,215.00    |   |   |   | 102,940 |   |
| United      Kingdom                         |   |                          | 207,615.00   |   |   |   | 255,717 |   |
|  Sub      total                        |   |                          | 330,355.00   |   |   |   | 719,811 |   |
|                                        |   |                          |         |   |   |   |   |   |
| Far      East:                              |   |                          |         |   |   |   |   |   |
| Bangladesh                                  |   | $                             | -            |   |   | $ | 560 |   |
| China                                       |   |                          | -            |   |   |   | 91,600 |   |
| India                                       |   |                          | 110,400.00   |   |   |   | 16,800 |   |
| Pakistan                                    |   |                          | -            |   |   |   | 8,200 |   |
| South      Korea                            |   |                          | 25,749.00    |   |   |   | 42,500 |   |
| Taiwan                                      |   |                          | (25,250.00   | ) |   |   | 32,650 |   |
| Austria                                     |   |                          | 180.00       |   |   |   | - |   |
| Vietnam                                     |   |                          | 10,600.00    |   |   |   | 80,600 |   |
| Sub      total                              |   |                          | 121,679.00   |   |   |   | 272,910 |   |
|                                        |   |                          |         |   |   |   |   |   |
| Middle      East:                           |   |                          |         |   |   |   |   |   |
| Egypt                                       |   | $                             | -            |   |   | $ | 9,540 |   |
| Israel                                      |   |                          | -            |   |   |   | 2,800 |   |
| Jordan                                      |   |                          | -            |   |   |   | - |   |
| Saudi      Arabia                           |   |                          | 34,089.00    |   |   |   | 65,700 |   |
| UAE                                         |   |                          | -            |   |   |   | 10,600 |   |
| Sub      total                              |   |                          | 34,089.00    |   |   |   | 88,640 |   |
|                                        |   |                          |         |   |   |   |   |   |
| North      America:                         |   |                          |         |   |   |   |   |   |
| Canada                                      |   | $                             | 60,535.00    |   |   | $ | 44,750 |   |
| Mexico                                      |   |                          | 31,250.00    |   |   |   | - |   |
| USA                                         |   |                          | 640,184.00   |   |   |   | 636,879 |   |
| Sub      total                              |   |                          | 731,969.00   |   |   |   | 681,629 |   |
|                                        |   |                          |         |   |   |   |   |   |
| Central, South      America, and Caribbean: |   |                          |         |   |   |
| Argentina                                   |   | $                             | 6,000.00     |   |   | $ | 21,915 |   |
| Brazil                                      |   |                          | -            |   |   |   | 36,698 |   |
| El      Salvador                            |   |                          | 4,600.00     |   |   |   | 8,749 |   |
| Ecuador                                     |   |                          | 12,750.00    |   |   |   | - |   |
| Honduras                                    |   |                          | -            |   |   |   | - |   |
| Puerto      Rico                            |   |                          | 5,400.00     |   |   |   | 26,798 |   |
| Venezuela                                   |   |                          | 12,400.00    |   |   |   | 14,850 |   |
| Colombia                                    |   |                          | -            |   |   |   | - |   |
| Sub      total                              |   |                          | 41,150.00    |   |   |   | 109,010 |   |
|                                        |   |                          |         |   |   |   |   |   |
| Total                                       |   | $                             | 1,259,242.00 |   |   | $ | 1,872,000 |   |

----

| 13.        Export SalesContinued | Percentage      and amount of revenues to external customers by product, as required by      SFAS 131, paragraph 37, are asfollows: |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| PRODUCT                                                  |   | MODEL                                  |               |    | 2008   |      |    | 2007    |   |
|----------------------------------------------------------|--------|----------------------------------------|--------------------|---------|--------|-----------|---------|---------|--------|
|                                                     |   |                                   |               |    |   |      |    |    |   |
| Humphrey      Systems: P55 & A/B Scan                |   | Pachymeter      (P55), A/B Scan (P37)  |               |    |   | 270,640   |    |    |   | 548,902 |   |
| MEDA      Systems                                        |   | P2000,      P2200, P2500, P2700, P3700 |               |    |   | 21        | %       |    |   | 29 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |
| Dicon      diagnostic: Perimeter and corneal topographer |   | LD,      TKS, CT                       |               |    |   | 295,527   |    |    |   | 388,179 |   |
|                                                     |   |                                   |               |    |   | 23        | %       |    |   | 21 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |
| UBM      biomicroscope:                                  |   |                                   | P40,      P45, P60 |    |   |      | 257,951 |    |   |   | 512,644 |   |
|                                                     |   |                                   |               |    |   |      | 20      | %       |   |   | 27 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |   |
| Blood      Flow Analyzer:                                |   | BFA                                    |               |    |   | 58,330    |    |    |   | 256,511 |   |
|                                                     |   |                                   |               |    |   |      | 5       | %       |   |   | 14 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |   |
| Glaid                                                    |   |                                   |               |    |   |      | 197,477 |    |   |   | - |   |
|                                                     |   |                                   |               |    |   |      | 16      | %  |   |   | 0 | %  |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |   |
|                                                     |   | Sub-Total                              |               |    |   | 1,079,925 |    |    |   | 1,706,236 |   |
|                                                     |   |                                   |               |    |   |      | 86      | %       |   |   | 91 | % |
| Cataract      removal sales (Precisionist and SIStem)    |   | PHO,      SIS (Surgical)               |               |    |   | -         |    |    |   | - |   |
|                                                     |   |                                   |               |    |   |      | 0       | %       |   |   | 0 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |   |
| Service,      parts, disposables, and other              |   |                                   |               | 179,318 |   |      |    | 165,318 |   |
|                                                     |   |                                   |               |    |   |      | 14      | %       |   |   | 9 | % |
|                                                     |   |                                   |               |    |   |      |    |    |   |   |   |   |
|                                                     |   | Total      YTD Sales                   |               |    |   | 1,259,243 |    |    |   | 1,871,554 |   |
|                                                     |   |                                   |               |    |   |      | 100     | %       |   |   | 100 | % |

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| 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 nondiscriminatory no matching contributions at this      time.  During the years ended December 31, 2008 and 2007,      the Company made no contributions to the Plan. AgreementsOn      June 12, 2006, the Company entered into a Worldwide OEM Agreement with      MEDA Co., Ltd., one of China's leading developers and producers of      ultrasound devices.  Under the terms of the agreement, MEDA      agrees to jointly engineer, develop and manufacture the Company's next      generation of the Ultrasound BioMicroscope, as well as other proprietary      new products and enhancement of the Company's current      products.  The products to be manufactured by MEDA, at agreed      upon costs, and supplied to the Company for resale include the following      new products: an ultrasound biomicroscope, two ultrasound A/B Scans, a      biometric A-Scan and a pachymeter. The      agreement provides that the Company and MEDA agree to jointly develop and      collaborate in the improvement and enhancement of the Company's products      and, in the interest of product development, enhancement and      differentiation, MEDA agrees to give consideration to potential software      development or enhancements made available to the Company for its      products.  Moreover, in the interest of product improvement,      MEDA agrees to collaborate with the Company and its designated engineers,      employees and consultants to consider and potentially implement jointly or      individually the development of product enhancements to the Company's      products to be manufactured by MEDA. The      software and hardware modifications designed jointly by the Company and      MEDA will be considered the joint intellectual property of the Company and      MEDA and may be used, without restriction, unless otherwise previously      agreed to, by either party.  MEDA also agrees to provide a      twelve month warranty on all products that it manufactures for the      Company.  If defects cannot be corrected at the Company's      facilities, the products may be returned to MEDA for the purposes of      carrying out such repairs as required, and MEDA agrees to return the      repaired products to the Company or its designated agent or distributor      within ten working days from the date of receiving such products, at no      cost to the Company, and MEDA will pay return freight      costs. |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitmentsand    Contengencies | MEDA      further agrees to endeavor to answer any technical inquiries concerning      the products it has manufactured.  MEDA also agrees to train the      Company's technical service engineers and designated international      distributors as soon as possible after the signing of this agreement, and      as future needs arise and as MEDA can reasonably fit such training into      the regular schedules of its employees.  MEDA agrees to      determine the need for future training on new products as necessary and      will offer such training in Tiangin, China.  For training      conducted outside China, the Company or its designated distributors and/or      service centers will be responsible for the traveling, living and hotel      expenses for MEDA's engineers.  Training is at no charge to the      Company.  The training will also be made available to the      Company's designated repair agencies in order to provide service and      repair on a worldwide basis.  Such agencies will be considered      authorized repair facilities for the products manufactured by      MEDA. MEDA      provides the Company with several ultrasound devices.  These      devices include the P37-II A/B Scan, the P2000 A-Scan Biometric Analyzer,      P2200 Pachymeter and the P2500, which is a combined A-Scan and      pachymeter.  MEDA also manufactures the P2700, P3700, and P37-II      A/B Scans and the P50 Ultrasound Biomicroscope.  The agreement      provides exclusive distribution rights to the Company throughout most of      the world, including the United States and Canada, once FDA approval is      received on these devices. The      agreement shall be effective for three years from date of      execution.  At the end of the three year term, representatives      of the Company and MEDA will confer to determine whether to extend the      term of the agreement.  This will have a practical effect of      extending the term of the agreement for an additional 120      days.  If mutual agreement for extending the term of the      agreement is not reached within 120 days after the end of the three year      term, then the agreement will be deemed terminated.  However, if      within the 120 day period, the Company and MEDA mutually agree to extend      the term of the agreement, then thereafter either party may terminate the      agreement by providing at least twelve months' prior written notice to the      other party.  All outstanding orders at the time of notification      will be supplied under the terms of the agreement, and MEDA will continue      to fulfill all orders from the Company until the twelve month notice      period hasexpired. |
|------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | On      January 31 and February 1, 2007, the Company received FDA 510(k) premarket      approval for a new generation of ultrasound devices.  This      approval allows the new devices to be sold in the United      States.  The new ultrasound devices, which are to be      manufactured by MEDA and sold by the Company in the United States, include      the P2000 A-Scan (used to measure axial length of the eye), the P2200      Pachymeter (used for measuring corneal thickness), the P2500      A-Scan/Pachymeter (a combination of the two stand alone devices), the      P2700 AB/Scan (an ultrasound imaging device for detecting abnormalities      within the eye) and the P37-II (a more advanced AB/Scan used to provide      portability for ophthalmology veterinary applications) and the P50      Ultrasound Biomicroscope for high frequency imaging of the anterior      chamber of the eye. On      September 25, 2006, the Company entered into a Worldwide OEM Agreement      with Tinsley, a division of Hartest Precision Instruments Limited, and one      of Europe's leading developers and producers of visual fields analysis      devices or perimeters.  Under the terms of the agreement,      Tinsley agrees to engineer, develop and manufacture the Company's newest      perimeter, the LD700 Visual Fields Analyzer.  The product is to      be manufactured by Tinsley at agreed upon costs and supplied to the      Company for resale. On      August 14, 2007, the Company entered into an agreement with Equity Source      Partners, LLC of Jericho, New York.  Under the terms of the      agreement, Equity Source Partners will act as the exclusive financial      advisor to the Company and will assist the Company in raising private      capital, creating a strategy for growing its core business, pursuing a      follow on offering, and providing general strategic corporate      advice.  Among the strategic advisory services Equity Source      Partners will provide are to assist in identifying and introducing the      Company to third parties in connection with potential strategic      relationships, provide advice concerning issues relating to potential      strategic relations, capital raises and potential investment banking      contacts, and establish contact with prospective providers of      capital.  Among the financing services Equity Source Partners      will perform is to solicit prospective providers of capital on the      Company's behalf. The      term of the agreement is for twelve months unless extended by mutual      consent.  As compensation for its services, the Company agrees      to provide equity Source Partners with an advisory fee equal to an      aggregate of 3% of the outstanding shares of the Company's common      stock.  In addition, the Company agrees to pay Equity Source      Partners a cash fee equal to 7.5% of the gross proceeds from the sale of      securities to investors that were introduced to the Company by Equity      Source Partners and a cash fee equal to 3% of the gross proceeds received      from the sale of securities to investors that were not introduced by      Equity Source Partners.  The agreement terminated on August 14,      2008 when it was not extended by mutual consent for an additional time      period. |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | On      January 16, 2008, the Company entered into a consulting agreement with      Corcoran Consulting Group, which specializes in medical reimbursement      issues for optometry and ophthalmology. The Company plans to work with      Corcoran Consulting Group to create a new common procedure technology, or      CPT code number, for reimbursement purposes for physicians and      practitioners using the Blood Flow AnalyzerTM. In addition, the Company      plans to work with Corcoran Consulting Group to offer educational seminars      for physicians and practitioners who purchase the Blood Flow      AnalyzerTM. On      January 28, 2008, the Company entered into a Distribution Agreement with      LACE Elettronica srl to distribute its Glaid device, a proprietary      electrophysiology instrument for the early detection of glaucoma by means      of measuring the physical condition of the retina's ganglion cells,      including retinal ganglion cell loss. The Glaid device was approved by the      FDA in 2005 and has undergone extensive testing and clinical studies in      the United States, Canada and Italy, including at Bascom Palmer Eye      Institute, University of California at San Diego's      Hamilton Glaucoma Center, and New York State College of      Optometry. Under      the terms of the agreement, the Company has the exclusive right to      distribute the Glaid device in the United States and Canada. The Company      also has a first right of refusal for distribution of the product to      countries outside the United States and Canada where LACE is not currently      selling or marketing the product. These additional distribution      rights are subject to reasonable new minimum quotas. The Distribution      Agreement requires the Company to purchase the Glaid device from LACE at      an agreed upon price and to then sell the product in compliance with      minimum order requirements. The five year quotas for the Glaid device are      27 units, 60 units, 100 units, 120 units, and 120 units for years one      through five of the agreement. Paradigm sales for quota requirements are      to begin as soon as the product is fully completed, with all accessories      and consumables, and ready fordelivery. |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | The      Distribution Agreement is for the term of five years.  At the      end of the five year term, representatives of the Company and LACE will      determine whether to extend the term of the agreement. If mutual agreement      for continuation of the agreement is not reached within 120 days      thereafter, the agreement will be deemed terminated. However, if within      the 120 day period, the Company and LACE mutually agree to continue the      agreement, then either party may terminate the agreement at any time      thereafter by providing at least twelve months' prior written notice to      the other party. All outstanding orders at the time of notification will      be supplied under the terms of the agreement, and LACE will continue to      fulfill all orders from the Company until the twelve month notice period      has expired. LACE      also agrees to provide a twelve month warranty from the day of delivery on      all Glaid devices supplied to the Company. If the defects cannot be      corrected at the Company's facilities or at the facilities of trained      Company repair centers, the products must then be returned to LACE for      purposes of carrying out such repairs as required, and LACE agrees to      return the repaired products to the Company or its designated agent or      distributor within ten working days from the date of receiving such      products, at no cost to the Company, and LACE will pay return freight      costs. The Company additionally agrees to arrange for installation of the      Glaid device at no cost to LACE. The Company further agrees to provide      Company brand specific labeling to be applied to the LACE devices shipped      directly to the Company's customers and distributors.  On March      12, 2009, the Distribution Agreement was mutually terminated by the      Company and LACE due to the difficulties that the companies had in working      together. |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | Legal      ProceedingsIn      2005, the Company settled a class action law suit of approximately $3.5      million.  The Company’s insurance deductible related to the      class action law suit was $250,000.  Since the settlement was in      2005, the Company has made payments totaling $50,000.  The      $200,000 represents the remaining accrual balance of the      deductible. On      June 20, 2003, an action was brought against the Company by CitiCorp      Vendor Finance, Inc., formerly known a Copelco Capital, Inc. in the Third      Judicial District Court, Salt Lake County, State of Utah (Civil No.      030914195). The complaint claims that $49,626 plus interest is due for the      leasing of three copy machines that were delivered to the Company's Salt      Lake City facilities in or about April of 2000. The action also seeks an      award of attorney’s fees and costs incurred in the collection. The Company      filed an answer to the complaint disputing the amounts allegedly owed due      to machine problems and a claimed understanding with the vendor. The      Company returned two of the machines. The Company was engaged in      settlement discussions with CitiCorp until counsel for CitiCorp withdrew      from the case. New counsel for CitiCorp was appointed. Thereafter, there      was a substitution of plaintiff, with CIT Technology Financing Services I,      LLC as the new plaintiff. In June 2008, the Company filed an amended      answer and a third party complaint. Pursuant to a notice from the court      dated January 13, 2009 to show cause why the case should not be dismissed      for failure to prosecute and a hearing held on March 3, 2009, the Company      and CIT Technology Financing Services agreed to dismiss the case without      prejudice. Settlement discussion may continue. The company has accrued      $36,000 for this case until it has been settled. On      December 27, 2007, the Company entered into a settlement agreement with      Larry Hicks to settle the lawsuit that he brought against the Company for      payments due under a consulting agreement with the Company in the Third      Judicial District Court, Salt Lake County, State of Utah (Civil No.      030922220). Under the terms of the settlement agreement, the Company      agreed to pay Mr. Hicks a total of $20,000, of which $7,500 was paid      within seven days of the date of execution of the settlement agreement.      The remaining amount owing of $12,500 was to be paid in five consecutive      quarterly installments of $2,500 each, beginning in the first quarter of      2008 and ending in the first quarter of 2009. Payments of $2,500 each were      made for the quarters ended March 31, 2008, June 30, 2008, September 30,      2008, and December 31, 2008.  The remaining balance of $2,500      due on March 31, 2009 is still outstanding and had not been paid as of the      date of these financialstatements. |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | On      March 19, 2009, an action was brought against the Company by Pilot Freight      Services in the Third Judicial District Court, Salt Lake County, State of      Utah (Civil No. 90405609), for payments due for shipping charges. The      complaint claims the sum of $11,336 is due for unpaid shipping charges,      together with accrued interest from the date the shipping charges became      due, with the last shipping charge becoming due on October 22, 2008. The      Company is in the process of investigating the claims made in the      complaint and intends to file an answer in defense of the      action. The      Company is not a party to any other 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 its      financial condition or results of operations. Employment      AgreementsEffective      July 1, 2007, the Company entered into an amendment of the employment      agreement with Mr. Cannefax, which extended the term of the employment      agreement until January 5, 2009.  Under the terms of the      amendment, Mr. Cannefax's annual base salary increased to $150,000. The      initial base salary in the employment agreement dated January 5, 2006 was      $125,000, which the Board of Directors increased to $140,000 as of July 1,      2006.  The amendment also provided for the granting of additional      stock options to Mr. Cannefax to purchase an additional 4,500,000 shares      of the Company's common stock at $.01 per share. These options vest in      twelve equal monthly installments of 375,000 shares beginning on June 1,      2007 until such shares are vested. On      November 18, 2008, Mr. Raymond P.L. Cannefax was terminated as the      Company’s Chief Executive Officer, therefore his options and warrants were      not forfeited until 90 days after termination, therefore, options and      warrants were outstanding at the end of December 31, 2008. Mr.      Cannefax had served as the Company's President and Chief Executive Officer      from January 5, 2006 to November 18,2008. |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.        Commitments andContengiesContinued | Appointment      of New PresidentOn      November 18, 2008, Stephen L. Davis was appointed as the Company's      President, replacing Raymond P.L. Cannefax who was terminated by the Board      of Directors.  Retirement      AgreementOn      May 6, 1999, the Company's Board of Directors approved resolutions      relating to the retirement of John M. Hemmer, then Vice President of      Finance and Chief Financial Officer of the Company. The board resolutions      provided that Mr. Hemmer's annual salary of $120,000 per annum was to      continue until June 1, 1999, at which time his employment contract and      change of control agreement with the Company would terminate and he would      become an independent consultant to the Company.  As a      consultant, Mr. Hemmer was to receive an initial payment of $12,500 with      annual payments thereafter of $25,000 payable on January 1, 2000, 2001 and      2002, and a final payment of $12,500 payable on January 1, 2003, for a      total consulting contract of $100,000. In      addition, the board resolutions provided that the Company was to issue to      Mr. Hemmer warrants to purchase 125,000 shares of common stock at $2.63      per share, exercisable for a period of five years, and warrants to      purchase 75,000 shares of common stock at $7.50 per share, exercisable for      a period of five years, but such warrants were not to be issued until Mr.      Hemmer exercised all of the warrants to purchase 125,000 common shares at      $2.63 per share. The Company has paid a total of $87,500 to Mr. Hemmer      under the consulting agreement. On      May 30, 2006, the Company entered into an agreement with Mr. Hemmer in      which he acknowledged that the Company owed him a total of $12,500 for      past services he rendered to the Company, including as a consultant, and      the Company agreed to pay him the sum of $12,500 in twelve monthly      installments of $1,000 each and a final monthly payment of      $500.  The Company had paid $7,000 as of December 31, 2006 and      the remaining balance of $5,500 during the year ended December 31,      2007. |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 16.        Recent AccountingPronouncements | Recent      accounting pronouncementsIn      December 2007, the Financial Accounting Standards Board (“FASB”) issued      SFAS No. 141(R), “Business Combinations” (“SFAS 141R”).  SFAS      141R establishes the principles and requirements for how an acquirer      recognizes and measures in its financial statements the identifiable      assets acquired, the liabilities assumed, any noncontrolling interest in      the acquiree, and the goodwill acquired.  SFAS 141R also      establishes disclosure requirements to enable the evaluation of the nature      and financial effects of the business combination.  SFAS 141R is      effective for us on January 1, 2009, and is not expected to have a      material effect on our consolidated financial statements. In      February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for      Financial Assets and Financial Liabilities, including an amendment of FASB      Statement No. 115” (“SFAS 159”).  SFAS 159 permits companies to      choose to measure many financial instruments and certain other items at      fair value that are not currently required to be measured at fair value,      and establishes presentation and disclosure requirements designed to      facilitate comparisons between companies that choose different measurement      attributes for similar types of assets and liabilities.  SFAS      159 is effective for us on January 1, 2008, and is not expected to have a      material effect on our consolidated financial statements. The      implementation of the provisions of these pronouncements is not expected      to have a significant effect on the Company's consolidated financial      statement presentation. In      December 2007, the FASB issued SFAS No. 160, Noncontrolling interest in      consolidated financial statements, an amendment of ARB No.      51.  SFAS 160 will change ther accounting and reporting for      minority interests, which will be recharacterized as noncontrolling      interestand classified as a component of equity.  This new      consolidation method will significantly change the accounting for      transactions with minority interest holders.  SFAS 160 is      effective on January 1, 2009, and is not expected to have a material      effect on the Company’s consolidated financial      statements. |
|------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 16.        Recent AccountingPronouncementsContinued | In      March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative      Instruments and Hedging Activities.  SFAS No. 161 is      intende to improve financial reporting about derivative instruments and      hedging activities by requiring enhanced disclosures to enable investors      to better understand thier effects on an equity’s financial position,      financial performance, and cash flows.  SFAS No. 161 is      effective for financial statements issued for fiscal years and interim      periods beginning after November 15, 2008, whichearly application      encourage.  The Company does not expect that the adoption of      SFAS No. 161 will have a material impact on its consolidated financial      statements. In      May 2008, the FASBissued SFAS 162,  The Hierarchy of General      Accepted Accounting Principles.  SFAS No. 162 identifies      the sources of accounting principles and provides entities with a      framework for selecting for selecting the principles used in preparation      of finanancial statements that are presented in conformity with      GAAP.  The current GAAP hierarchy has been criticized because it      is directed to the auditor rather than the entity, it is complex, and it      ranks FASB Statements of Financial Accounting Concepts, which are subject      to the same level of due process as FASB Statements of Financial      Accounting Standards, below industry practices that are widely recognized      as general accepted but that are not subject to due      process.  The board believes that GAAP hierarchy should be      directed to entities because it is the entity (noits auditors0 that is      responsible for selecting accounting principles for financial statements      that are presented in conformity with GAAP.  The Company does      not expect that adoption of FASB 162 will have a material impact on its      consolidated financial statements. In May 2008, the FASB issued      SFAS No. 163, Accounting      for Financial Guarantee Insurance Contracts.  SFAS 163      requires that an insurance enterprise recognize a claim liability prior to      an event of default (insured event) when there is an evidence that credit      deterioration has occurred in an insured financial      obligation.  This Statement also clarifies how SFAS 60, Accounting and Reporting by      Insurance Enterprises, as amended, applies to financial guarantee      insurance contracts, including the recognition and measurement to be used      to account for premium revenue and claim liabilities.  This      Statement also requires expanded disclosures about financial guarantee      insurance contracts.  SFAS 163 is effective for financial      statements issued for fiscal years beginning after December 15, 2008, and      all interim periods within those fiscal years, except for some disclosures      about the insurance enterprise’s risk-management      activities.  Early application is not permitted.  The      Company does not expect that the adoption of FSP FAS 163 will have a      material impact in its consolidated financial  statements. |
|---------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 17.        Subsequent Events | The      Company received notice from the accredited investors holding the      convertible notes dated February 28, 2006 and the convertible notes dated      June 11, 2007 that on January 22, 2009, E-Lionheart, LLC and other      third parties purchased $500,000 of the convertible notes dated February      28, 2006 and the $500,000 of the convertible notes date June 11,      2007.  The total purchase price of these convertible notes was      $1,514,444.  Between February 18, 2009 and March 27, 2009, the      third parties converted a total of $454,147 of the February 28, 2006      convertible notes at conversion prices ranging from $0.0009 to $0.00105      per share and received a total of 502,169,656 shares of the Company’s      common stock pursuant to said conversions.  As of March 31,      2009, the Company had outstanding 517,901,422 shares of common      stock. On      April 7, 2009, The Company signed a letter of intent with Fairhills      Capital Offshort in which Fairhills Capital Committed to finance up to      $1,800,000 through the purchase of promissory notes from the      Company.  The letter of intent provides that $600,000 in notes      will be purchased every three months over a nine month period, which the      first purchase of $300,000 to be made at closing and the remainder to be      purchased upon the satisfaction of financial objectives to be mutually      determined between the Company and Fairhills Capital.  The      convertible notes will bear interest at 6% per annum.  In      addition, Fairhills Capital will have a right of first refusal on future      financing transactions by the Company for as long as the notes remain      outstanding. |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Name                         | Age | Position                                |
|------------------------------|-----|-----------------------------------------|
| Stephen      L. Davis        | 61  | President      and Treasurer            |
| Randall      A. Mackey, Esq. | 62  | Chairman      of the Board and Director |
| David      M. Silver, PhD.   | 67  | Director                                |
| Keith      D. Ignotz         | 62  | Director                                |
| John      C. Pingree         | 68  | Director                                |

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----

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| Name      andPrincipal Position                                                                                                                                                                                                                                                                                                                                                     | Year                                               | Salary$                                                                                                                                                             | Bonus($)                            | StockAwards                         | OptionAwards($)                           | Non-Equity      IncentivePlanCompensation | Change      in PensionValue      and Non-qualified Deferred Compensation Earnings | All      OtherCompensation          | Total                                                                                                                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|-------------------------------------|-------------------------------------------|-------------------------------------------|----------------------------------------------------------------------------------------|-------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Stephen      L. Davis,  President      and  Treasurer Raymond      P.L.  Cannefax,      former  President      and       Chief Executive Officer Luis      A. Mostecero,  former      Vice President       of Finance,  Treasurer,      and  Chief      Financial  Officer | 2008   200820072006  2008 |  $   20,402    $      132,955    143,330    127,940   $      101,512 | -   ---  - | -   ---  - | -   ---  -  | -   ---  -       | -   ---  -                                                    | -   ---  - | $   20,402   $  132,955    143,330    127,940  $  101,512 |

| Name                                                                                               | Year                             | PerksandOtherPersonalBenefits | TaxReimburse-ments | DiscountedSecuritiesPurchases | Payments/Accrualson      Termin-ation Plans | RegistrantContribu-tions      toDefinedContribu-tionPlans | InsurancePremiums | DividendsorEarningson      Stockor      OptionAwards | Other             |
|----------------------------------------------------------------------------------------------------|----------------------------------|-------------------------------|--------------------|-------------------------------|---------------------------------------------|-----------------------------------------------------------|-------------------|------------------------------------------------------|-------------------|
| Stephen      L. Davis Raymond      P.L.  Cannefax  Luis      A. Mostecero | 2008 200820072006 2008 | - --- -             | - --- -  | - --- -             | - --- -                           | - --- -                                         | - --- - | - --- -                                    | - --- - |

----

|                                                                                                               |                                         | Estimated      Future Payouts UnderNon-Equity      Incentive PlanAwards | Estimated      Future PayoutsUnder      Equity Incentive PlanAwards |                         |                         |                         |
|--------------------------------------------------------------------------------------------------------------------|----------------------------------------------|-------------------------------------------------------------------------|---------------------------------------------------------------------|------------------------------|------------------------------|------------------------------|
| Name                                                                                                               | GrantDate                                    | Threshold($)                                                            | Target ($)                                                     | Maximum($)                   | Threshold(#)                 | Target(#)                    | Maximum($) | All      OtherStockAwards:Number      ofShares      ofStock      orUnits(#) | All      OtherOptionAwards:Number      ofSecuritiesUnder-lyingOptions(#) | Exerciseor      BasePrice      ofOptionAwards($/Sh) |
| Stephen      L.   Davis Raymond      P.L.  Cannefax LuisA.       Mostecero | -  5/1/071/5/06  3/16/09 | -  --  -                                            | -  --  -                                        | -  --  - | -  --  - | -  --  - | -  --  - | -  --  - | -  4,500,0004,500,000     200,000 | -  $.01$.01  $.02 |

| Name                                                                                                                     | Number      of SecuritiesUnderlyingUnexercisedOptions(#)Exercisable |  Number      ofSecuritiesUnderlyingUnexercisedOptions:(#)Unexer-cisable | EquityIncentivePlan      AwardsNumber      ofSecuritiesUnderlyingUnexercisedUnearnedOptions(#) | OptionExercisePrice($)      | OptionExpirationDate        | Number      ofShares      orUnits      ofStockHeld      ThatHave      NotVested(#) | MarketValue      ofShares      orUnits      ofStockThat      HaveNotVested($) | EquityIncentivePlanAwardsNumber      ofUnearnedShares,Units      orOtherRightsThat      HaveNotVested(#) | EquityIncentivePlanAwards:Market      orPayoutValue      ofUnearnedShares,Units      orOtherRights      ThatHave      NotVested($) |
|--------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|-----------------------------|-----------------------------|------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
| Stephen      L.   Davis Raymond      P.L.  Cannefax Luis      A.       Mostecero | 0  0  0                                         | 0  0  0                                                  | -  -  -                                                                    | -  -  - | -  -  - | -  -  -                                                        | -  -  -                                                   | -  -  -                                                                              | -  -  -                                                                                                        |

----

|                                                                  | Option      Awards                                    | Stock      Awards                      |
|-----------------------------------------------------------------------|-------------------------------------------------------|----------------------------------------|
| Name                                                                  | Number      ofShares      Acquiredon      Exercise(#) | Value      Realizedon      Exercise($) | Number      ofShares      Acquiredon      Vesting(#) | Value      Realizedon      Vesting($) |
| Stephen      L. DavisRaymond      P.L. CannefaxLuis      A. Mostecero | 000                                                   | ---                                    | 000 | --- |

| Name                                                                  | Plan Name    | Number      ofYearsCreditedService(#) | Present      Value ofAccumulatedBenefit($) | Payments      DuringLast      Fiscal Year($) |
|-----------------------------------------------------------------------|--------------|---------------------------------------|--------------------------------------------|----------------------------------------------|
| Stephen      L. DavisRaymond      P.L. CannefaxLuis      A. Mostecero | NoneNoneNone | ---                                   | ---                                        | ---                                          |

| Name                                                                                     | FeesEarned      orPaid      InCash($) | StockAwards($) | OptionAwards($) | Non-EquityIncentive      PlanCompensation($) | Change      inPension      ValueandNonqualifiedDeferredCompensationEarnings | All      OtherCompensation($) | Total($) |
|------------------------------------------------------------------------------------------|---------------------------------------|----------------|-----------------|----------------------------------------------|-----------------------------------------------------------------------------|-------------------------------|----------|
| Keith      D. IgnotzRandall      A. MackeyJohn      C. PingreeDavid      M. Silver, PhD. | 0000                                  | ----           | ----            | ----                                         | ----                                                                        | ----                          | 0000     |

----

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|                                             |                                                                                        | Percentage      of |
|--------------------------------------------------|---------------------------------------------------------------------------------------------|--------------------|
| Name and Address (1)                             | Number of Shares                                                                            | Ownership          |
| Stephen      L. Davis                            |                     0 | *                  |
| Dr.      David M. Silver(2)                      |          7,612                                 | *                  |
| Randall      A. Mackey (2)                       |          7,250                                 | *                  |
| Keith      D. Ignotz (2)                         |          5,257                                 | *                  |
| John      C. Pingree (2)                         |          4,315                                 | *                  |
| Executive      officers and directors            |                                                                                        |               |
|    as      a group (five persons) |        24,434                                            | *                  |

| (1) | Unless      otherwise indicated, the address of each listed stockholder is c/o      Paradigm Medical Industries, Inc., 2355 South 1070 West, Salt Lake City,      Utah, 84119. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      amounts shown include shares that may be acquired currently, or within 60      days after March 31, 2009 through the exercise of stock options are      follows: Dr. Silver, 7,250 shares; Mr. Mackey, 7,250 shares; Mr. Ignotz,      5,259 shares; and Mr. Pingree, 2,750shares. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Exhibit               |                                                                                                                                                                                               |
|-----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    No. | Document Description                                                                                                                                                                               |
|                  |                                                                                                                                                                                               |
| 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(l)                                                                                                                                                               |
| 3.2                   | Amended      Certificate of Incorporation                                                                                                                                                          |
| 3.3                   | Bylaws(1)                                                                                                                                                                                          |
| 4.1                   | Specimen      Common Stock Certificate (2)                                                                                                                                                         |
| 4.2                   | Specimen      Series C Convertible Preferred Stock Certificate(3)                                                                                                                                  |
| 4.3                   | Certificate      of the Designations, Powers, Preferences and Rights of the Series C      Convertible Preferred Stock(3)                                                                           |
| 4.4                   | Specimen      Series D Convertible Preferred Stock Certificate (4)                                                                                                                                 |
| 4.5                   | Certificate      of the Designations, Powers, Preferences and Rights of the Series D      Convertible Preferred Stock (5)                                                                          |
| 4.6                   | Certificate      of Designations, Powers, Preferences and Rights of the Series G      Convertible Preferred Stock (6)                                                                              |
| 10.1                  | Exclusive      Patent License Agreement with PhotoMed(1)                                                                                                                                           |
| 10.2                  | 1995      Stock Option Plan (1)                                                                                                                                                                    |
| 10.3                  | April      2005 Securities Purchase Agreement with AJW Partners, LLC, AJW Offshore,      Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II,      LLP (the "Purchasers")(7) |
| 10.4                  | Form      of Convertible Note with each Purchaser(7)                                                                                                                                               |
| 10.5                  | Form      of Stock Purchase Warrant with each Purchaser(7)                                                                                                                                         |
| 10.6                  | Security      Agreement with Purchasers(7)                                                                                                                                                         |
| 10.7                  | Intellectual      Property Security Agreement with Purchasers(7)                                                                                                                                   |
| 10.8                  | Registration      Rights Agreement with Purchasers(7)                                                                                                                                              |
| 10.9                  | Employment      Agreement with Raymond P.L. Cannefax(8)                                                                                                                                            |
| 10.10                 | February      2006 Securities Purchase Agreement with AJW Partners, LLC, AJW Offshore,      Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II,      LLP(9)                 |
| 10.11                 | Form      of Callable Secured Convertible Note with each  Purchaser(9)                                                                                                                             |
| 10.12                 | Form      of Stock Purchase Warrant with each Purchaser(9)                                                                                                                                         |
| 10.13                 | Security      Agreement with Purchasers(9)                                                                                                                                                         |
| 10.14                 | Intellectual      Property Security Agreement with Purchasers(9)                                                                                                                                   |
| 10.15                 | Registration      Rights Agreement with Purchasers(9)                                                                                                                                              |
| 10.16                 | Settlement      Agreement with Dr. Joseph W. Spadafora (10)                                                                                                                                        |
| 10.17                 | Worldwide      OEM Agreement with MEDA Co., Ltd.(11)                                                                                                                                               |

----

| 10.18 | Second      Amendment to the Registration Rights Agreement dated April 27, 2005      (12)                                                                                            |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19 | Second      Amendment to the Registration Rights Agreement dated February 28, 2006      (12)                                                                                         |
| 10.20 | June      2007 Securities Purchase Agreement with AJW Partners, LLC, AJW Offshore,      Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners L1,      LLP (13)     |
| 10.21 | Form      of Convertible Note with each Purchaser (13)                                                                                                                               |
| 10.22 | Form      of Stock Purchase Warrant with each Purchaser (13)                                                                                                                         |
| 10.23 | Security      Agreement with Purchasers (13)                                                                                                                                         |
| 10.24 | Intellectual      Property Agreement with Purchasers (13)                                                                                                                            |
| 10.25 | Registration      Rights Agreement with Purchasers (13)                                                                                                                              |
| 10.26 | December      2007 Securities Purchase Agreement with AJW Partners, LLC, AJW Offshore,      Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II,      LLP (14) |
| 10.27 | Form      of Convertible Note with each Purchaser (14)                                                                                                                               |
| 10.28 | Form      of Stock Purchase Warrant with each Purchaser (14)                                                                                                                         |
| 10.29 | Security      Agreement with Purchasers (14)                                                                                                                                         |
| 10.30 | Intellectual      Property Agreement with Purchasers (14)                                                                                                                            |
| 10.31 | Registration      Rights Agreement with Purchasers (14)                                                                                                                              |
| 10.32 | Agreement      with Equity Source Partners, LLC (15)                                                                                                                                 |
| 10.33 | Distribution      Agreement with LACE Elettronica srl (15)                                                                                                                           |
| 10.34 | Letter      of Intent with Fairhills Capital Offshore, LLC                                                                                                                           |
| 31.1  | Certification      pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the      Sarbanes-Oxley Act of 2002                                                              |
| 31.2  | Certification      pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the      Sarbanes-Oxley Act of 2002                                                              |
| 32.1  | Certification      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbane's-Oxley Act of2002                                                     |
| 32.2  | Certification      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of2002                                                      |

----

| (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 Annual Report on Form 10-KSB, as filed on April 16,      1998.                              |
| (4)  | Incorporated      by reference from Registration Statement on Form SB-2, as filed on April      29, 1999.                       |
| (5)  | Incorporated      by reference from Report on Form 10-QSB, as filed on August 16,      2000.                                    |
| (6)  | Incorporated      by reference from Report on Form 10-QSB, as filed on November 14,      2003.                                  |
| (7)  | Incorporated      by reference from Current Report on Form 8-K, as filed on May 18,      2005.                                  |
| (8)  | Incorporated      by reference from Current Report on Form 8-K, as filed on January 18,      2006.                              |
| (9)  | Incorporated      by reference from Current Report on Form 8-K, as filed on March 1,      2006.                                 |
| (10) | Incorporated      by reference from Registration Statement on Form SB-2, as filed on June      15, 2006.                        |
| (11) | Incorporated      by reference from Current Report on Form 8-K, as filed on June 19,      2006.                                 |
| (12) | Incorporated      by reference from Registration Statement on Form SB-2, as filed on April      16, 2007.                       |
| (13) | Incorporated      by reference from Report on Form 10-QSB, as filed on August 17,      2007.                                    |
| (14) | Incorporated      by reference from Current Report on Form 8-K, as filed on January 7,      2008.                               |
| (15) | Incorporated      by reference from Annual Report on Form 10-KSB, as filed on May 16,      2008.                                |

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|                       | PARADIGM      MEDICAL INDUSTRIES, INC. |
|----------------------------|----------------------------------------|
|                       |                                   |   |
|                       |                                   |   |
|                       |                                   |   |
|                       |                                   |   |
| Dated:      April 14, 2009 | By:                                    | /s/      Stephen L. Davis |
|                       |                                   | Stephen      L. Davis |
|                       |                                   | President |

| Signature                       |   | Title                                     |   | Date                |
|---------------------------------|--------|-------------------------------------------|--------|---------------------|
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
| /s/      Stephen L. Davis       |   | President      and Treasurer              |   | April      14, 2009 |
| Stephen      L. Davis           |   | (Principal      Executive, Financial      |   |                |
|                            |   |         and Accounting Officer) |   |                     |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
| /s/      Randall A. Mackey      |   | Chairman      of the Board and Director   |   | April      14, 2009 |
| Randall      A. Mackey          |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
| /s/      David M. Silver, Ph.D. |   | Director                                  |   | April      14, 2009 |
| David      M. Silver, Ph.D.     |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
| /s/      Keith D. Ignotz        |   | Director                                  |   | April      14, 2009 |
| Keith      D. Ignotz            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
|                            |   |                                      |   |                |
| /s/      John C. Pingree        |   | Director                                  |   | April      14, 2009 |
| John      C. Pingree            |   |                                      |   |                |

----