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

                                   Form 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the year ended December 31, 2000

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

                           Commission File No. 0-28498


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

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

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

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X]  No [ ]

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

Registrant's revenues for the fiscal year ended December 31, 2000 were
$7,989,000.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 6, 2001 was approximately $23,539,000 based on the
closing price on that date on the Nasdaq SmallCap Market.

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<PAGE>

As of March 23, Registrant had outstanding 12,792,876,shares of Common Stock,
5,957 shares of Series A Preferred Stock, 15,236 shares of Series B Preferred
Stock, no shares of Series C Preferred Stock and 46,500 shares of Series D
Preferred Stock.

                       DOCUMENTS INCORPORTED BY REFERENCE:

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


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


                                     PART I

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

General

         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  markets  three  cataract
surgery systems with related, accessories and disposable products. The Company's
flagship  cataract removal system,  the Photon(TM),  is a laser cataract surgery
system  marketed as the next  generation  of cataract  removal.  The  Photon(TM)
product is currently undergoing investigational trials in the United States. The
Photon(TM) is available for sale in many markets  outside of the United  States.
The  Photon(TM)  is  manufactured  and marketed  with the  Precisionist(TM),  an
ultrasonic cataract removal system. Both the Photon(TM) and the Precisionist(TM)
are manufactured as an Ophthalmic  Surgical  Workstation (TM). The Company plans
to market the Ophthalmic  Surgical  Workstation (TM) as a plug-in module for the
Photon(TM) and other lasers for use in eyecare and other medical specialties.

         The Company's  diagnostic products include a pachymeter,  an A-Scan, an
A/B Scan, an UBM biomicroscope, a perimeter, a corneal topographer and the Blood
flow Analyzer (TM). The diagnostic ultrasonic products including the pachymeter,
the A-Scan,  the A/B Scan and the UBM biomicroscope  were acquired from Humphrey
Systems  a  division  of Carl  Zeiss  in 1998.  The  perimeter  and the  corneal
topographer were added when the company  acquired the outstanding  shares of the
stock of Vismed,  Inc. d/b/a/ Dicon (TM) in June of 2000. The Company  purchased
O.B.F.  Labs  in  June  of  2000  whose  principal  product  is the  Blood  Flow
Analyzer(TM).  This  product is  designed  for the  measurement  of  intraocular
pressure and  pulsatile  ocular blood flow volume for detection and treatment of
glaucoma. The Company is currently developing additional applications for all of
its diagnostic products.

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

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

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

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<PAGE>

         The  Precisionist(TM)  Ocular Surgery  Workstation(TM) is the Company's
newest  generation  system,  which  is the  base  for  its  expandable  surgical
"workstation"  platform.  This new fluidics system provides  greater control for
the surgeon and allows the safe  operation  at much  higher  vacuum  settings by
sampling  changes in aspiration  100 times per second.  Greater  vacuum in phaco
surgery  means less use of  ultrasound  or laser energy to fragment the cataract
and less chance for surrounding tissue damage.

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

         In  addition  to  cataract  surgery,  the  Company  believes  that  its
Photon(TM) laser system is capable of being configured with specialty probes for
use in other ophthalmic  surgical  procedures.  In October of 2000, the  Company
received  FDA  approval for the  Photon(TM)  Workstation(TM)  with a 532nm green
laser.  This approval  represents  only one of the potential  applications  that
could represent  substantial growth opportunities  including additional sales of
equipment,  instruments,  accessories and disposables.  However, there can be no
assurance that these  applications will be developed or approved.  Further there
is no guarantee that the laser will be accepted by the ophthalmic surgery market
in this capacity.

         In June 1997,  the Company  received FDA  clearance to market the Blood
Flow  Analyzer(TM) for measurement of intraocular  pressure and pulsatile ocular
blood flow for the  detection  of glaucoma and other  retina  related  diseases.
Ocular  blood flow is  critical,  the  reduction  of which may cause nerve fiber
bundle death  through  oxygen  deprivation  thus  resulting in visual field loss
associated with glaucoma.  The Company's  Blood Flow  Analyzer(TM) is a portable
automated  in-office system that presents an affordable  method for ocular blood
flow testing for the ophthalmic and optometric practitioner. In June of 2000 the
company purchased O.B.F.  Labs, the manufacture of the Blood Flow  Analyzer(TM).
The terms and  conditions of the sales were $100,000 in cash and 100,000  shares
of common stock.

         On June 26, 1998, the Company entered into a Co-Distribution  Agreement
with   Pharmacia   Corporation   ("Pharmacia")   &  Upjohn  Company  and  MAXXIM
Corporation,  which provides for the marketing and sale of a range of ophthalmic
products.  Under  the  terms  of the  Co-Distribution  Agreement,  the  Company,
Pharmacia and MAXXIM will offer a comprehensive  package of products to cataract
surgeons,  including  cataract  surgical  equipment,  intraocular lens implants,
intraocular pharmaceuticals,  surgical instruments and sterile procedural packs.
The Company will provide the  Precisionist(TM)  for  distribution and sale under
the Co-Distribution  Agreement. The Pharmacia products to be distributed as part
of the  Co-Distribution  Agreement include the Healon(R) and  Healon-GV(R),  and
Healon V, the new visco-elastic  solution,  scheduled for introduction  mid-year
2000. Pharmacia also manufactures the CeeOn line of foldable,  small intraocular
lens  implants,  designed to replace the natural  lens removed  during  cataract
surgery.

         On July 23, 1998,  the Company  entered into an Agreement  for Purchase
and Sale of Assets with the  Humphrey  Systems  Division of Carl Zeiss,  Inc. to
acquire the ownership  and  manufacturing  rights to certain  assets of Humphrey
Systems  that are  used in the  manufacturing  and  marketing  of an  ultrasonic
microprocessor-based  line of ophthalmic diagnostic  instruments,  including the
Ultrasonic  Biometer  Model 820, the A/B Scan System  Model 837, the  Ultrasound


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Pachymeter  Model 855,  and the  Ultrasound  Biomicroscope  Model  840,  and all
accessories, packaging and end-user collateral materials for each of the product
lines for the sum of $500,000,  payable in the form of 180,000  shares of Common
Stock which were issued to Humphrey  Systems and 26,316  shares of Common  Stock
which were issued to business broker Douglas Adams.

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

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

         On June 5, 2000, the  Company purchased  Vismed  Inc.  d/b/a Dicon (TM)
under a pooling of interest  accounting  treatment.  The  purchase  included the
Dicon TM) perimeter  product line  consisting  of the LD 400, the TKS 4000,  the
SST(TM),  FieldLink(TM),  FieldView(TM)  and Advanced  FieldView and the corneal
topographer  product line the CT 200(TM),  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 corneal 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.

Background

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

Overview

         Disorders of the Eye: The human eye is a complex organ which  functions
much  like a  camera,  with a lens in front and a  light-sensitive  screen,  the
retina,  in the rear. The  intervening  space contains a transparent  jelly-like
substance,  the vitreous,  which  together with the outer layer,  the sclera and
cornea,  helps the  eyeball to  maintain  its shape.  Light  enters  through the
cornea,  a  transparent  domed  window at the front of the eye.  The size of the
pupil, an aperture in the center of the iris,  controls the amount of light that
is then focused by the lens onto the retina as an upside-down image. The lens is
the internal  optical  component  of the eye and is  responsible  for  adjusting


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focus. The lens is enclosed in a capsule. The retina is believed to contain more
than 130 million  light-receptor  cells.  These cells  convert  light into nerve
impulses  that are  transmitted  right-side  up by the optic nerve to the brain,
where they are interpreted. Muscles attached to the eye control its movements.

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

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

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

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

         Lasers are widely accepted in the ophthalmic community for treatment of
certain eye disorders and are popular for surgical applications because of their


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

Products

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

         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  ("FDA")  relating  to the  human  clinical  trials  of its
Photon(TM)  Laser Cataract  System.  The warning letter  concerns the conditions
found by the FDA during several audits at Company's  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 requested  clarification of two issues.  The Company believes that these
issues have been  resolved.  Subsequent  to the  warning  letter the Company has
received  approval  to  continue  its  clinical  trials  and is the  process  of
collecting more data.

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

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



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<PAGE>

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

         Photon(TM)    Workstation:    The   Precisionist(TM)   Ocular   Surgery
Workstation(TM)  (the  Workstation(TM))  which comprises the base system for the
Precisionist(TM)  is the first system to the knowledge of the Company which uses
the expansive  capabilities  of today's  advanced  computer  technology to offer
seamless open  architecture  expandability  of the system  hardware and software
modules.  The  Workstation(TM)  utilizes an embedded computer  developed for the
Company and controlled by a proprietary software system developed by the Company
that  interfaces  with  all  components  of  the  system:  ultrasound,  fluidics
(irrigation),   aspiration,   venting,   coagulation  and  anterior   vitrectomy
(pneumatic).  Each  component is controlled  as a peripheral  module within this
fully  integrated  system.  This  approach  allows for  seamless  expansion  and
refinement  of the  Workstation(TM)  with the ability to add other  hardware and
software features. Expansion such as the Company's Photon(TM) laser system, when
approved by the FDA, and  hardware  for  additional  surgical  applications  are
easily  implemented by means of a  pre-existing  expansion rack which resides in
the base of the  Workstation.  These expanded  capabilities  could include,  but
would not be limited to laser  systems,  video  surgical  fiber  optic  imaging,
cutting and electrosurgery  equipment.  However,  there is no guarantee that the
Workstation(TM) will be accepted in the market place.

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


                                       7
<PAGE>

The  Company  intends to refine  the laser  delivery  system and laser  cataract
surgical technique used on soft cataracts through expanded research and clinical
studies.  As far as the  Company  can  determine,  no  integrated  single  laser
photofragmenting  probe is  presently  available  on the market  that uses laser
energy directly,  contained in an enclosed probe, to plasmatize  cataract tissue
at a  precise  location  inside  the eye  while  simultaneously  irrigating  and
aspirating the site.

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

         Surgical Instruments,  Accessories and Disposables:  In addition to the
cataract surgery equipment, the Company is aggressively pursuing development and
product   introductions  for  a  range  of  cataract  surgery   instruments  and
accessories  that will be sold with its  surgical  systems  and will  complement
other  competitive  systems.  In January 1998,  the Company  received FDA 510(k)
clearance  for a line  of  proprietary  titanium  ultrasonic  phaco  needles  it
produces at its Salt Lake City  facility.  The needles were released for sale in
May 1998 in a sterile  Phaco PAK (TM).  In May 1998,  the Company  received  FDA
510(k) clearance for a line of  irrigation/aspiration  probes and tips.  Product
release occurred in October 1998. These products and additional instruments were
previously  sourced  from  third-party  vendors.  The Company  believes  that by
developing  its  own   instruments   and  accessories  it  can  improve  product
performance, introduce innovative differentiation and improve sales margins. The
Company's  surgical  systems utilize or will utilize  accessory  instruments and
disposables,  some of  which  are  proprietary  to the  Company.  These  include
replacement ultrasound tips, sleeves, tubing sets and fluidics packs, instrument
drapes and laser cataract  probes.  The Company intends to expand its disposable
accessories as it further penetrates the cataract surgery market and expands the
treatment applications for its Workstation.

         Diagnostic  Eye Care  Products:  Glaucoma is a 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
visual field.  Recently,  retinal blood  circulation has been indicated as a key
component in the presence of glaucoma.  Several  companies produce color Doppler
equipment in the $80,000 price range  intended to provide  measurement of ocular
blood flow activity in order to diagnose and treat glaucoma at an earlier stage.

         In June 1997,  the Company  received FDA  clearance to market the Blood
Flow  Analyzer(TM) for early detection and treatment  management of glaucoma and
other retina related diseases. The device measures not only intraocular pressure
but also  pulsatile  ocular blood flow,  the  reduction of which may cause nerve
fiber bundle death through  oxygen  deprivation  thus  resulting in visual field
loss  associated  with  glaucoma.  The Company's  Blood Flow  Analyzer(TM)  is a
portable  automated  in-office  system that  presents an  affordable  method for
ocular blood flow testing for the ophthalmic and optometric practitioner that is
marketed for around $10,000.

         Blood Flow  Analyzer(TM):  This was the Company's first  diagnostic eye
care device. The device is manufactured for the Company and is being marketed by
the Company  pursuant to a license  agreement.  The device is a portable desktop
system that utilizes a proprietary  patented pneumatic Air Membrane  Applanation
Probe(TM) (the "AMAP TM") which is attached to any model of standard examination
slitlamp  which is then placed on the cornea of the patient's eye to measure the
intraocular  pressure  within  the eye.  The device is unique in that it reads a
series of intraocular pressure pulses over a short period of time (approximately


                                       8
<PAGE>

five to ten seconds) and  generates a wave form profile  which can be correlated
to blood flow volume  within the eye. The blood flow volume is  calculated  by a
proprietary  software  algorithm  developed by David M. Silver,  Ph.D., at Johns
Hopkins. The device presents a numerical  intraocular pressure reading and blood
flow  analysis  rating in a concise  printout  which is affixed  to the  patient
history file. In addition, the data generated by the device can be downloaded to
a personal computer system for advanced database development and management. The
Company markets the Blood Flow  Analyzer(TM) as a stand-alone Model 100 SE unit,
and packaged with a custom built computer  system as the Model 100 LE. The Blood
Flow  Analyzer(TM)  utilizes  a  single-use  disposable  cover for its  AMAP(TM)
corneal  probe  which is shipped in  sterile  packages.  The AMAP (TM) probe tip
cover  provides  accurate  readings and acts as a  prophylactic  barrier for the
patient.  The device has been issued a patent in the European Economic Community
and the United  States and has a patent  pending in Japan.  The FDA  cleared the
Blood Flow  Analyzer(TM)  for  marketing in June 1997 and the Company  commenced
selling the system in September 1997. In addition to the Humphrey products, this
diagnostic product will permit the Company to expand its market to approximately
35,000  optometry  practitioners  in  the  United  States  in  addition  to  the
approximately   18,000  ophthalmic   practitioners  who  currently  perform  eye
surgeries and are candidates for the Company's  surgical systems.  International
sales of the Blood Flow Analyzer(TM) will be further expanded in 1999.

         Dicon(TM) perimeters consists of the LD 400, the TKS 4000, the SST(TM),
FieldLink(TM),  FieldView(TM)  and  Advanced  FieldView  Perimeters  are used to
determine retinal sensitivity testing the visual pathway. Perimeters have become
standard  of  care  in the  detection  and  monitoring  of  Glaucoma  worldwide.
Perimetry is reimbursable  worldwide.  The Dicon(TM) 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.

         Dicon(TM)  corneal  topographers  include the CT 200(TM) and 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.

         Pachymetric Analyzer: Paradigm produces two Ultrasonic Pachymeters used
for measurement of corneal thickness.  The Model P55 is positioned as a standard
office pachymeter. This device is targeted to the refractive surgery market.

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

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

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


                                       9
<PAGE>

The UBM related surgical filtering procedures are fully reimbursable by Medicare
and insurance  providers.  This  untapped new market  positions the Company as a
leader in the rapidly expanding glaucoma imaging and treatment  segment.  In the
fall of 2000 the company  introduced  the P45 which combines the UBM, the A-Scan
and the B-Scan all in one  instrument.  The Company  believes  that by combining
functions that the P45 will appeal to a broader market.

         In  July  of  2000,  the  Company   received  ISO  9001  and  EN  46001
certification using TUV as the notified body. Under ISO 9001 certification,  all
of the Companies  products are now CE marked.  The CE mark allows the Company to
ship product for revenue into the European Community.

Marketing and Sales

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

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

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

         Marketing    Organization:    The   Company    markets   its   products
internationally  through a network of dealers and  domestically  through  direct
sales  representatives.  As of  December  31,  2000,  the Company had ten direct
domestic  sales  representatives  in the United  States and  twenty-one  foreign
dealers.  This is in addition to the  fifty-three  Paradigm,  Pharmacia & Upjohn
Alliance representatives and eighty MAXXIM representatives  domestically.  These
sales  representatives are assigned exclusive  territories and have entered into
contracts  with the Company that contain  performance  quotas.  The Company also
plans to  continue  to market its  products  by  identifying  customers  through
internal market research, trade shows and direct marketing programs. The Company
also utilizes a Clinical Advisory Board comprised of leading ophthalmic surgeons
in the United States and Europe who speak at conventions, train ophthalmologists
and visit foreign doctors and dealers to promote the Company's products.



                                       10
<PAGE>

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

         The Company  disseminated  the innovative  capabilities of its products
through  advertisement and printed materials at the Company's  exhibition at the
annual  meeting of the American  Academy of  Ophthalmology  in Dallas,  Texas in
October 2000.  The theme of the Company's  advertisement  for its Ocular Surgery
Workstation(TM) was "The Future of Phaco is Laser Cataract Surgery." The Company
will expand upon the concept of the  "Workstation(TM)"  with additional advanced
laser and surgical capabilities. The Company has also continued its campaign for
the Blood Flow  Analyzer(TM)  in  addition to having a full  diagnostic  product
line.

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

         Manufacturing and Raw Materials: Currently, the Company a 29,000 square
foot  facility in Salt Lake City, a 26,000 square foot facility in San Diego and
a small facility in England. These facilities accommodate the Company's expanded
manufacturing,  marketing and engineering capabilities. The Company manufactures
under system of quality  control and testing,  which  complies  with the Quality
System Requirements (QSR) guidelines  established by the FDA, as well as similar
guidelines established by foreign governments, including CE Mark and IS0-9001.

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

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

         Co-Distribution  Agreement  with  Pharmacia  Company  and  MAXXIM:  The
Company has entered  into a  Co-Distribution  Agreement as of June 26, 1998 with
Pharmacia  Company and MAXXIM,  which  provides for the  marketing and sale of a
range of ophthalmic products. Under the terms of the Co-Distribution  Agreement,
the Company, Pharmacia and MAXXIM will offer a comprehensive package of products
to cataract surgeons,  including cataract surgical  equipment,  intraocular lens
implants,   intraocular   pharmaceuticals,   surgical  instruments  and  sterile
procedural packs. The Company will provide the Precisionist(TM) for distribution
and sale under the  Co-Distribution  Agreement.  The  Pharmacia  products  to be
distributed  as part of the  Co-Distribution  Agreement  include  Healon(R)  and
HealonGV(R)  viscoelastic  solution  and  the  CeeOn  line  of  foldable,  small
intraocular  lens implants,  designed to replace the natural lens removed during


                                       11
<PAGE>

cataract  surgery.  It is too  soon  to  determine  the  full  effect  of  these
agreements  on the  Company.  However,  some  possible  benefits  may  be  lower
marketing costs for the Company's products and a greater appeal of the Company's
products  to  hospitals  and other  buyers who prefer a  comprehensive  and more
cost-effective package.

Research and Development

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

         The Company believes its research and development  capabilities provide
it with the  ability  to  respond  to  regulatory  developments,  including  new
products,  new product  features devised from its users and new applications for
its products on a timely and proprietary  basis. The Company intends to continue
investing in research and  development  and to strengthen its ability to enhance
existing products and develop new products. The Company spent $771,000 in fiscal
year ended  December 31, 1998,  and $1,220,000 in fiscal year ended December 31,
1999 and $1,425,000 in fiscal year ended December 31, 2000.

Competition

         General.  The Company is subject to competition in the cataract and the
glaucoma surgery markets,  and the glaucoma diagnostic market from two principal
sources:  (i) manufacturers of competing ultrasound systems used when performing
cataract   treatments  and  (ii)  developers  of  technologies   for  ophthalmic
diagnostic and surgical  instruments used for treatment.  The surgical equipment
industry is dominated by a few large companies that are well  established in the
marketplace,  have  experienced  management,  are well  financed  and have  well
recognized trade names and product lines. The Company believes that the combined
sales of five entities  account for over 90% of the ophthalmic  surgery  market.
The remaining  market is fragmented among emerging  smaller  companies,  some of
which are foreign. The ophthalmic diagnostic market has a similar composition.

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

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


                                       12
<PAGE>

cataract  system will utilize  probes and cassette packs designed for single-use
and semi-disposable instruments priced at a level consistent with the demands of
health  care cost  containment.  This will allow the  health  care  providers  a
substantial  measure of cost  containment,  while providing the Company with the
quality control and income capability of cassette sales.

         The typical  list price of a  competitive  advanced  ultrasonic  system
ranges from approximately $25,000 to $60,000. Lower cost models generally have a
list price ranging from approximately $15,000 to $25,000. The list price for the
Precisionist Thirty Thousand(TM) ocular surgery system is $49,950. The Company's
Photon(TM)  Laser Phaco(TM) will be sold at a price of  approximately  $100,000.
The international market, with significantly lower medical budgets, has not been
able  to  justify  the  expense  of  using  disposable   components.   Budgetary
constraints have limited current  manufacturers from gaining a significant share
of the international  ultrasound equipment market, and have provided a niche for
the emerging smaller companies discussed above.

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

         Laser Equipment  Manufacturers.  To the Company's knowledge,  there are
several  other  companies  attempting  to develop  laser  equipment for cataract
surgery.  These companies can be differentiated by the laser wavelength employed
for the cataract surgery.  Based on the information  currently  available to the
Company,  Er:YAG  laser  wavelength  appears  to  offer a less  viable  means of
removing cataracts than the Nd:Yag wavelength used by the Photon. One competitor
uses a Nd:YAG  wavelength,  however the laser is used only vibrate an ultrasonic
needle.  Thus the  device  remains  an  ultrasonic  system  subject to same risk
factors of phaco,  thereby  eliminating  the benefits of using a laser to remove
the  cataract.  The  Company  also  believes  that its  product is  sufficiently
distinctive and, if properly  marketed,  can capture a significant  share of the
cataract  surgical  device  market.  However,  there  are  substantial  risks in
undertaking  a new  venture in an  established  and already  highly  competitive
industry.   In  the  short-term,   the  Company  is  seeking  to  exploit  these
opportunities.  Depending upon further developments,  the Company may ultimately
exploit  those  opportunities  through a merger with a stronger  entity  already
established or one that desires to enter the medical industry.

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

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

         The  Company  is  subject  to  intense  competition  in the  ophthalmic
diagnostic market from  well-financed,  established  companies with recognizable
trade names and product lines and new and developing technologies.  The industry
is dominated by several large  entities which the Company  believes  account for
the  majority of  diagnostic  equipment  sales.  The  Company  expects to derive
revenues from the sale of its newly acquired ultrasound diagnostic equipment and
blood flow analyzer.  The blood flow analyzer is designed to detect  glaucoma in


                                       13
<PAGE>

an earlier stage than is presently  possible.  In addition,  the device performs
tonometry and blood flow  analysis.  The blood flow analyzer has a list price of
$10,450.  Other ophthalmic diagnostic devices that do not detect glaucoma in the
early stages of the disease as does the Company's  analyzer retail at comparable
prices.  The Company thus believes that it can compete in the diagnostic  market
place  based  upon the lower  price and  improved  diagnostic  functions  of the
analyzer.

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


Intellectual Property Protection

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

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

         The Blood Flow  Analyzer(TM)  has been granted a patent in the European
Economic Community and the United States and has a patent pending in Japan.

         The Dicon(TM) perimeter and the Dicon(TM) corneal topographer each have
US patent with a wide scope of claims.

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

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

Regulation

         The Company's  surgical and diagnostic systems are regulated as medical
devices by the FDA under the FDC Act. As such,  these devices require  Premarket
clearance  or  approval  by the FDA  prior to their  marketing  and  sale.  Such


                                       14
<PAGE>

clearance or approval is premised on the  production of evidence  sufficient for
the Company to show reasonable  assurance of safety and effectiveness  regarding
its  products.  Pursuant  to the FDC Act,  the FDA  regulates  the  manufacture,
distribution  and  production  of medical  devices in the United  States and the
export of medical devices from the United States.  Noncompliance with applicable
requirements  can  result  in fines,  injunctions,  civil  penalties,  recall or
seizure  of  products,  total or partial  suspension  of  production,  denial of
Premarket clearance or approval for devices, recommendations by the FDA that the
Company  not be  allowed  to  enter  into  government  contracts,  and  criminal
prosecution.

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

         There are two principal  methods by which FDA approval may be obtained.
One method is to seek FDA approval through a Premarket notification filing under
Section  510(k) of the FDC Act. If a  manufacturer  or  distributor of a medical
device can establish that a proposed device is  "substantially  equivalent" to a
legally  marketed  Class I or Class II medical device or to a pre-1976 Class III
medical device for which the FDA has not called for a PMA, the  manufacturer  or
distributor  may seek FDA Section 510(k)  Premarket  clearance for the device by
filing a Section 510(k) Premarket notification.  The Section 510(k) notification
and the claim of  substantial  equivalence  will likely have to be  supported by
various  types  of data  and  materials,  possibly  including  clinical  testing
results,  obtained  under  an  IDE  granted  by the  FDA.  The  manufacturer  or
distributor may not place the device into interstate  commerce until an order is
issued by the FDA granting Premarket  clearance for the device.  There can be no
assurance that the Company will obtain Section  510(k)  Premarket  clearance for
any of the future devices for which the Company seeks such  clearance  including
the Photon(TM) Laser.

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

         The alternate method to seek approval is to obtain  Premarket  approval
from the FDA.  If a  manufacturer  or  distributor  of a medical  device  cannot
establish that a proposed device is substantially  equivalent to another legally
marketed device,  whether or not the FDA has made a determination in response to
a Section 510(k) notification, the manufacturer or distributor will have to seek
Premarket  approval for the proposed device. A PMA application  would have to be
submitted and be supported by extensive data, including preclinical and clinical
trial data to prove the safety and  efficacy  of the device.  If human  clinical
trials of a proposed  device are required and the device presents a "significant
risk," the  manufacturer  or the  distributor of the device will have to file an
IDE application with the FDA prior to commencing human clinical trials.  The IDE
application must be supported by data, typically including the results of animal
and  mechanical  testing.  If the IDE  application  is approved,  human clinical
trials may begin at a specific number of investigational sites, and the approval
letter could include the number of patients approved by the FDA. An IDE clinical


                                       15
<PAGE>

trial can be divided into  several  parts or Phases.  Sometimes,  a company will
conduct a feasibility study to confirm that a device functions  according to its
design and operating parameters. This is usual clinical trial site. If the Phase
I results are promising,  the applicant may, with the FDA's  permission,  expand
the number of  clinical  trial sites and the number of patients to be treated to
assure reasonable stability of clinical results.  Phase II studies are performed
to confirm  predictability of results and the absence of adverse reactions.  The
applicant may, upon receipt of the FDA's authorization,  subsequently expand the
study to a third  phase  with a larger  number  of  clinical  trial  sites and a
greater number of patients. This involves longer patient follow-up times and the
collection of more patient data. Product claims,  labeling and core data for the
PMA are derived primarily from this portion of the clinical trial. The applicant
may also, upon receipt of the FDA's permission,  consolidate one or more of such
portions of the study.  Sponsors of clinical  trials are permitted to sell those
devices distributed in the course of the study,  provided such compensation does
not exceed  recovery  of the costs of  manufacture,  research,  development  and
handling.  Although both approval  methods may require  clinical  testing of the
device in question  under an approved IDE, the Premarket  approval  procedure is
more complex and time consuming.

         Upon  receipt  of the  PMA  application,  the  FDA  makes  a  threshold
determination  whether  the  application  is  sufficiently  complete to permit a
substantive review. If the FDA determines that the PMA is sufficiently  complete
to permit a substantive  review,  the FDA will "file" the application.  Once the
submission is filed,  the FDA has by  regulation 90 days to review it;  however,
the  review  time is often  extended  significantly  by the FDA  asking for more
information or clarification of information  already provided in the submission.
During  the  review  period,  an  advisory   committee  may  also  evaluate  the
application  and  provide  recommendations  to the FDA as to whether  the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's QSR requirements prior to approval of a PMA.
While the FDA has responded to PMA applications within the allotted time period,
PMA reviews  generally take  approximately 12 to 18 months or more from the date
of filing to approval.  The PMA process is lengthy and expensive,  and there can
be no assurance  that such  approval  will be obtained for any of the  Company's
products determined to be subject to such requirements.  A number of devices for
which PMA approval has been sought by other  companies  have never been approved
for marketing.

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

         All lasers  manufactured  for the Company are subject to the  Radiation
Control  for Health and Safety Act  administered  by the Center for  Devices and
Radiological Health of the FDA. The law requires laser manufacturers to file new
product and annual reports and to maintain quality control,  product testing and
sales records,  to incorporate  certain design and operating  features in lasers
sold to 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,


                                       16
<PAGE>

environmental  protection,  fire  hazard  control and  disposal  of  potentially
hazardous  substance.  There can be no  assurance  that the Company  will not be
required to incur significant costs to comply with such laws and regulations and
that such compliance will not have a material  adverse effect upon the Company's
ability to conduct business.

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

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

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

Regulatory Status of Products

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

         The  Company  acquired  permission  from  the  FDA to  manufacture  the
Photon(TM)  Laser Cataract  System the device and approval to export outside the
United States under an open IDE granted by the FDA in September  1994.  Although
the Photon(TM)  laser cataract system is uniquely  configured in an original and
proprietary  manner, the laser system, a Nd:YAG laser, is not proprietary to the
device or the  Company  and is widely  used in the  medical  industry  and other
industries as well. Of particular  significance is the fact that this particular
component  has  received  previous  market  clearance  from  the FDA  for  other
ophthalmic  and medical  applications.  Also of  significance  is the  Company's
belief  that the  surgical  treatment  method  used  with the  Photon(TM)  laser
cataract is similar to the current  ultrasound  cataract  treatment  employed by
ophthalmologists.

         The Company submitted a Premarket  Notification  510(k)  application to
the FDA for the  Photon(TM)  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 IDE application to provide for a "modest clinical
study" in order to collect  the data  required by the FDA for  clearance  of the


                                       17
<PAGE>

Photon(TM)  laser  cataract  system.  The FDA granted this IDE 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. 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  ("FDA")  relating  to the  human  clinical
trials of its Photon(TM) Laser Cataract System.  The warning letter concerns the
conditions  found by the FDA during several audits at Company's  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 requested  clarification of two issues. The Company
believes that these issues have been resolved.  Subsequent to the warning letter
the Company has received  approval to continue  its  clinical  trials and is the
process of collecting more data.

         Through the clinical trials the Company  discovered that the Photon(TM)
laser cataract system may not effectively  remove harder grade  cataracts.  Hard
cataracts can be removed using the already existing ultrasound capability of the
Workstation(TM).  The Company has requested and received FDA approval to conduct
Phase II clinical  studies at seven sites in hopes of refining  the laser system
and  surgical  method to remove  cataracts  and  provide  the  statistical  data
required to approve the  Photon(TM)  laser  system for laser  cataract  removal.
There is no guarantee, however, that the Company will be successful in improving
the laser system to remove harder grade cataracts.

Employees

         As of December 31, 2000, the Company had 80 full-time  employees.  This
number does not include the  Company's  manufacturer's  representatives  who are
independent  contractors rather than employees of the Company.  The Company also
utilizes  several  consultants and advisors.  There can be no assurance that the
Company will be successful in recruiting or retaining key personnel. None of the
Company's  employees  is a member  of a labor  union and the  Company  has never
experienced any business interruption as a result of any labor disputes.

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

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

         The Company  maintains a facility located at 10373 Roselle Street,  San
Diego, California. This facility consists of approximately 25,952 square feet of
leased office space under a five-year  lease that will expire on August 1, 2002.
These facilities are leased from Torrey Sorrento Associates,  Ltd., a California
limited  partnership,  at a gross  monthly  rate of $16,531.  The  monthly  rate
increases  to $17,025  and  $17,544 in the fourth and fifth  years of the lease,
respectively.

         The Company believes that these facilities are adequate and satisfy its
needs for the foreseeable future.



Item 3. Legal Proceedings
-------------------------
         An action  was  brought  against  the  Company  in March 2000 by George
Wiseman,  a former  employee,  in the Third  District Court of Salt Lake County,
State of Utah.  The  complaint  alleges that the Company owes Mr.  Wiseman 6,370
shares of its  common  stock  plus  costs,  attorney's  fees and a wage  penalty
pursuant to Utah law. The Company  believes the  complaint is without  merit and
intends to vigorously defend against the action.

                                       18
<PAGE>

         An action was brought against the Company in September 2000 by PhotoMed
International, Inc. and Daniel M. Eichenbaum in the Third District Court of Salt
Lake County,  State of Utah. The action involves an amount of royalties that are
allegedly due and owing to PhotoMed International,  Inc. and Dr. Eichenbaum with
respect to the sales of certain equipment plus attorney's fees. Currently,  some
discovery has taken place and the Company is endeavoring to determine the amount
of royalties that are currently due.

         The Company has received  demand  letters dated  September 14, 2000 and
October 17, 2000 from Mentor  Corporation  ("Mentor")  claiming that the Company
failed to register  485,751  shares of common  stock  issued to Mentor under the
Asset  Purchase  Agreement  dated October 15, 1999,  among the Company,  Mentor,
Mentor Ophthalmics,  Inc. and Mentor Medical,  Inc. The Asset Purchase Agreement
related to the Company's purchase of Mentor's  phacoemulsification  product line
in consideration  for the issuance by the Company to Mentor of 485,751 shares of
its common stock, valued at the sum of $1,500,000 at the time of closing.

         The Asset  Purchase  Agreement  required  the Company to  register  the
485,751 shares of common stock issued to Mentor whenever the Company  determined
to register any of its shares of common stock.  Mentor  alleges that because the
Company did not register the 485,751 shares in a Registration  Statement,  which
became  effective  on  January  6,  2000  (the  "January  6,  2000  Registration
Statement"), that it was unable to sell the shares at the time and, as a result,
lost  approximately  $5,000,000  due to  Company's  alleged  breach of the Asset
Purchase Agreement.

         The Company  maintains  that an authorized  officer of Mentor agreed to
waive the registration  rights of Mentor in having the 485,751 shares registered
in the January 6, 2000  Registration  Statement.  As a consequence,  the Company
believes that it has not breached the Asset  Purchase  Agreement and that Mentor
is not owed any  moneys for not having  registered  the shares of the  Company's
common stock held by Mentor in the January 6, 2000 Registration  Statement.  The
Company is in the process of further  review of the matter and denies  liability
and for the damages asserted by Mentor.

         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 the
Company's financial condition or results of operations.


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

         At the annual  shareholders  meeting  held on November  29,  2000,  the
following  matters were acted upon: (i) four  directors  consisting of Thomas F.
Motter,  Randall A. Mackey, Dr. David M. Silver and Keith D. Ignotz were elected
to serve until the next annual  shareholders  meeting and until their respective
successors are elected and qualified  (with votes cast of 7,552,l82  shares for,
66,357 shares against and l,067,100  abstaining on each of the  nominees);  (ii)
the  Company's  l995 Stock Option Plan was amended to  authorize  an  additional
500,000 shares of Common Stock to be available for issuance under the Plan (with
votes cast of 8,062,164 shares for, 573,222 against and 50,253 shares abstaining
on the motion);  (iii) stock options were granted to Robert L. Frome, Patrick N.
Kolenik and Steven J. Bayern,  former directors of the Company,  to each receive
options to purchase 75,000 shares of Common Stock at $4.00 per share, and to Dr.
David M. Silver and Randall A. Mackey, current directors of the Company, to each
receive  options to purchase  75,000  shares of Common  Stock at $6.00 per share
(with votes cast of  7,876,819  shares for,  673,801  shares  against and 40,621
shares  abstaining on the motion);  and (iv) the  appointment of Tanner & Co. as
the Company's  independent  accountants  for the fiscal year ending December 31,
2000 was  ratified(with  votes cast of 8,522,006 for,  123,012 votes against and
40,621 abstaining on the motion).



                                     PART II
                                     -------

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

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

         The  Company's  Common  Stock and Class A Warrants  trade on The Nasdaq
SmallCap  Market under the  respective  symbols of "PMED" and "PMEDW."  Prior to
July 22, 1996,  there was no public market for the Common Stock. As of March 23,
2001 the  closing  sale  prices of the Common  Stock and Class A  Warrants  were
$1.688 per share and $0.15 per warrant, respectively. The following are the high
and low sales  prices  for the Common  Stock and Class A Warrants  by quarter as
reported by Nasdaq since January 1, 1999.


                                       19
<PAGE>


<TABLE>
<CAPTION>

                                                   Common Stock                                Class A Warrants
                                                   Price Range                                   Price Range
          Period (Calendar Year)            High                Low                        High                 Low



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

2000
  First Quarter........................... 14.500               6.880                      6.500                  2.630
  Second Quarter.......................... 10.500               4.190                      3.630                  1.190
  Third Quarter...........................  6.190               3.380                      2.000                  0.500
  Fourth Quarter..........................  4.940               1.310                      1.250                  0.500

</TABLE>

         The  Company's  Series A Preferred  Stock,  Series B  Preferred  Stock,
Series C Preferred Stock and Series D Preferred  Stock are not publicly  traded.
As of March 23,2000, there were 1,713 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 and five record holders of
Series D Preferred Stock.

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


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

         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 the current view of the Company respecting future events 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.

General

         The  following  Management's   Discussion  and  Analysis  of  Financial
Condition and Results of Operations,  contains forward-looking  statements which
involve  risks and  uncertainty.  The  Company's  actual  results  could  differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of certain factors discussed in this section. The Company has changed its
fiscal year to the period from January 1 to and including December 31.

                                       20
<PAGE>

         The Company's ultrasound  diagnostic products include a pachymeter,  an
A-Scan,  an A/B Scan and a biomicroscope,  the technology for which was acquired
from Humphrey  Systems in 1998. In addition,  the Company markets its Blood Flow
Analyzer(TM).  Paradigm's  activities  for the twelve months ended  December 31,
1999 include domestic sales of the Precisionist  ThirtyThousand(TM) and Humphrey
Systems ultrasound diagnostic  equipment,  acquisition of new product lines, and
research and development on the Photon(TM)  laser cataract  removal system which
received FDA approval for expansion to Phase II Clinical Trials on May 19, 1998.

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

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

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

         On June 5,  2000 the  Company  purchased  under a pooling  of  interest
Vismed Inc.  d/b/a  Dicon(TM,  a California  Corporation  and  manufacturer  and
distributor  of  diagnostic  instrumentation  for the  detection  of chronic eye
diseases.  The purchase included the Dicon(TM) perimeter product line consisting
of the LD 400,  the TKS 4000,  the  SST(TM),  FieldLink(TM),  FieldView(TM)  and
Advanced FieldView and the corneal topographer  product line the CT200(TM),  the
CT50 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  corneal  and  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.

Results of Operations

         Fiscal  Year Ended  December  31,  2000,  Compared to Fiscal Year Ended
December 31, 1999:

         It should be noted that the Company  concluded  a pooling of  interests
transaction  with  Vismed inc.  d/b/a Dicon on June 5, 2000.  As a result of the
pooling, and in accordance with GAAP, the financial results of each organization
are reported as though they were one for all periods presented.

         Consolidated sales increased by $515,000,  or 7%, to $7,989,000 for the
twelve months ended December 31, 2000, from $7,474,000 for the comparable period
in 1999.  Sales of the phaco surgical  line,  the  ultrasonic  product line, and
related  accessories  increased  $2,258,000,  which were offset by a decrease in
sales of the Perimeter, the Corneal Topographer, and the Blood Flow Analyzer.

                                       21
<PAGE>

         Cost of sales  increased by  $2,002,000,  or 43%, to $6,626,000 for the
twelve months ended  December 31, 2000,  from  $4,624,000 for the like period in
1999.  The gross  profit on sales of 17% for the fiscal year ended  December 31,
2000 was 55%  lower  than the gross  profit  on sales of 38% for the year  ended
December  31,  1999.   This  sharp  profit  margin  decline  can  be  attributed
principally to an inventory write-down of $1,596,000 for the fiscal year 2000 to
net  realizable  value and an increase  of $167,000 in the reserve for  obsolete
inventory.  Many inventory items obtained principally through the acquisition of
new product  lines were reduced in cost to reflect  obsolescence,  technological
advances and product enhancements.

         Marketing  and  selling  expenses  increased  by  $994,000,  or 34%, to
$3,950,000  for the twelve months ended December 31, 2000,  from  $2,956,000 for
the  comparable  period in 1999.  This  increase  was  partly  the result of the
addition  of three  international  area  managers  in an effort to  improve  the
international  distribution  system,  and employing a United States direct sales
force rather than working  through  distributors.  The  increase  also  included
building  of  additional  awareness  in  the  international  market,   increased
tradeshow  participation,  and updating  marketing  materials to reflect company
integration, as a result of the merger.

         General and administrative expenses increased by $2,049,000, or 61%, to
$5,432,000  for the twelve months ended December 31, 2000,  from  $3,383,000 for
the comparable  period in 1999. This increase was mainly due to certain non-cash
transactions in the total amount of $1,933,000,  resulting from warrants granted
to non-employees  as payment for services,  stock bonuses granted to officers of
the company,  and stock granted to non-employees  as payment for services.  Also
included  in the  increase  is  $167,000  paid to  Cyndel & Co.  for  consulting
services rendered during the year 2000.

         Research and  development  expenses  increased by $205,000,  or 17%, to
$1,425,000  for the twelve months ended December 31, 2000,  from  $1,220,000 for
the same period in 1999.  This  increase  was the result of added  personnel  in
engineering and regulatory  affairs and expenses related to ISO 9001 and CE Mark
certification,  development  of  new  products,  and  expenses  associated  with
production design, and expenses related to FDA clinical site monitoring.

         Other income (expense) increased by $161,000,  or 732%, to $139,000 for
the twelve months ended December 31, 2000, from ($22,000) for the same period in
1999. This was due to interest earned on investment in money market  instruments
in the year 2000 and a decrease in interest paid on debt in the same year.

         The Company had a net loss of $9,305,000,  or $.81 per share,  based on
11,547,000  weighted average shares  outstanding for the year ended December 31,
2000. This is compared to a net loss of $4,731,000,  or $.62 per share, based on
7,655,000  weighted  average shares  outstanding for the year ended December 31,
1999,  an increase of  $4,574,000.  The  increase in the net loss was  partially
attributable to the Black-Scholes  valuation for warrants granted  non-employees
in payment for services ($529,000), the valuation of stock granted non-employees
and  officers  of  the  company  ($1,404,000),  and a  write-down  of  inventory
($1,596,000)  principally for devaluation of certain active  inventory items due
to technical advances, product enhancements, and obsolescence.  Also included in
the increase in net loss were  consulting and regulatory fees paid in connection
with ISO 9001 and CE Mark  certification,  FDA compliance and investment banking
fees,  and  an  increase  in  marketing  and  selling  expenses  and  additional
personnel.

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

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

                                       22
<PAGE>

         Cost of sales  increased by  $218,000,  or 27%, to  $1,031,000  for the
twelve months ended December 31, 1999,  from $813,000 for the comparable  period
in 1998.  The 39% gross margin on sales for the twelve months ended December 31,
1999, was 4% higher than the 35% gross margin on sales for the comparable period
in 1998. If the  amortization of capitalized  engineering and design charges,  a
non-cash  expense,  its  excluded,  gross margins for 1999 and 1998 were 44% and
41%, respectively.

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

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

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

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

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


Liquidity and Capital Resources

         The Company used cash in operating  activities of $5,424,000 for twelve
months ended  December 31, 2000,  compared to  $3,613,000  for the twelve months
ended December 31, 1999.  The increase in cash used for operating  activities in
2000 was  attributed  to an  increase in  personnel  and  marketing  and selling
expenses,  expenses related to FDA clinical site monitoring,  and consulting and
regulatory fees paid in connection with ISO 9001 and CE Mark  certification  and
investment  banking and expenses in connection  with the  integration  of merged
companies.  The company  used cash in investing  activities  of $725,000 for the
twelve  months ended  December 31, 2000,  compared to $16,000 for the year 1999.
The difference was due to investment in property and equipment for production of
the  Precisionist(TM)  system, the move to a larger facility,  and cash paid for
the  acquisition  of OBF Labs and the merger with Vismed d/b/a  Dicon.  Net cash
provided by financing  activities for the twelve months ended December 31, 2000,
was  $7,225,000,  compared to $4,586,000  for the year ended  December 31, 1999.
Sale  transactions  of common  stock  provided  $2,572,000,  and the exercise of
options and warrants to purchase  common stock  provided  $4,842,000 in the year
2000, offset by a reduction of $189,000 in debt.

                                       23
<PAGE>

         At the present  time the  Company has raised a limited  amount of funds
through  a  $20,000,000  equity  line of  credit  under  an  investment  banking
arrangement,  which the Company will  continue to use, if required.  The Company
will also seek funding to meet its working  capital  requirements  through other
collaborative arrangements and strategic alliances,  additional public offerings
and/or private  placements of its securities or bank  borrowings,  if necessary.
There can be no assurance,  however, that additional funds, if required, will be
available from any of the foregoing or other sources on favorable terms.

         At December 31, 2000, the Company had net operating loss carry-forwards
(NOLs) of  approximately  $25,000,000  and research and  development  tax credit
carry-forwards of approximately $240,000.  These carry-forwards are available to
offset future taxable income,  if any, and begin to expire in the year 2001. The
Company's  ability to use its NOLs to offset future income is dependent upon the
tax laws in effect at the time the NOL's can be utilized.  The Tax Reform Act of
1996 significantly  limits the annual amount that can be utilized for certain of
these carry-forwards as a result of changes of ownership.


Effect of Inflation and Foreign Currency Exchange

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

Impact of New Accounting Pronouncements

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

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


Item 7. Financial Statements
----------------------------
<PAGE>

PARADIGM MEDICAL INDUSTRIES, INC.
Financial Statements




<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Index to Financial Statements

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




                                                                        Page
                                                                        ----

Report of Tanner + Co.                                                   F-2


Report of Lavine, Lofgren, Morris & Engelberg                            F-3


Balance Sheet                                                            F-4


Statement of Operations                                                  F-5


Statement of Stockholders' Equity                                        F-6


Statement of Cash Flows                                                  F-8


Notes to Financial Statements                                            F-9



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

<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT





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


We have audited the balance  sheet of Paradigm  Medical  Industries,  Inc.  (the
Company) as of December  31, 2000,  and the related  statements  of  operations,
stockholders'  equity,  and cash flows for the years ended December 31, 2000 and
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.  We did not audit the 1999 financial  statements
of Vismed, Inc. (dba Dicon), which was acquired by the Company in June 2000 in a
pooling of  interests  transaction.  Such  financial  statements  reflect  total
revenues and net loss  constituting  77% and 23%,  respectively,  of the related
consolidated  totals for the year ended December 31, 1999. Those statements were
audited by other  auditors  whose report dated March 15, 2000 has been furnished
to us and our opinion,  insofar as it relates to data included for Vismed,  Inc.
(dba Dicon), is based solely on the report of other auditors.

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

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the financial position of Paradigm Medical  Industries,  Inc. as of December 31,
2000,  and the results of its  operations and its cash flows for the years ended
December 31, 2000 and 1999, in conformity  with  generally  accepted  accounting
principles.


                                      TANNER + CO.


Salt Lake City, Utah
March 2, 2001

--------------------------------------------------------------------------------
                                                                             F-2

<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT








To the Board of Directors
VISMED, INC. dba DICON
San Diego, California

We have audited the accompanying  balance sheet of VISMED,  INC. dba DICON as of
December 31,  1999,  and the related  statements  of  operations,  stockholders'
equity, and cash flows for the year then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these  financial  statements  based on our  audit.  The  financial
statements  of VISMED,  INC. dba DICON as of December 31, 1998,  were audited by
other auditors  whose report dated  February 26, 1999,  expressed an unqualified
opinion on those statements.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of VISMED,  INC. dba DICON as of
December 31, 1999, and the results of their  operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.


                       LAVINE, LOFGREN, MORRIS & ENGELBERG






March 15, 2000


--------------------------------------------------------------------------------
                                                                             F-3

<PAGE>
<TABLE>
<CAPTION>


                                                                         PARADIGM MEDICAL INDUSTRIES, INC.

                                                                                             Balance Sheet

                                                                                         December 31, 2000
----------------------------------------------------------------------------------------------------------



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

Current assets:
     Cash                                                                               $        2,194,000
     Receivables, net                                                                            1,607,000
     Inventories, net                                                                            4,447,000
     Prepaid and other assets                                                                      177,000
                                                                                        ------------------

                  Total current assets                                                           8,425,000

Intangibles, net                                                                                 1,472,000
Property and equipment, net                                                                        738,000
Other assets                                                                                        88,000
                                                                                        ------------------

                  Total assets                                                          $       10,723,000
                                                                                        ------------------

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

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

Current liabilities:
     Payables                                                                           $          687,000
     Accrued liabilities                                                                         1,200,000
     Current portion of long-term debt                                                              22,000
                                                                                        ------------------

                  Total current liabilities                                                      1,909,000
                                                                                        ------------------

Long-term debt                                                                                      10,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' equity:
     Preferred stock, $.001 par value, 5,000,000 shares authorized, 73,693
       shares issued and outstanding (aggregate liquidation
       preference of $159,000)                                                                           -
     Common stock, $.001 par value, 20,000,000 shares authorized,
       12,611,189 shares issued and outstanding                                                     13,000
     Additional paid-in capital                                                                 41,157,000
     Stock subscription receivable                                                                  (8,000)
     Accumulated deficit                                                                       (32,358,000)
                                                                                        ------------------

                  Total stockholders' equity                                                     8,804,000
                                                                                        ------------------

                  Total liabilities and stockholders' equity                            $       10,723,000
                                                                                        ------------------


----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-4
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                         PARADIGM MEDICAL INDUSTRIES, INC.
                                                                                   Statement of Operations

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




                                                                               2000              1999
                                                                       -----------------------------------

<S>                                                                    <C>                 <C>
Sales                                                                  $       7,989,000   $     7,474,000

Cost of sales                                                                  6,626,000         4,624,000
                                                                       -----------------------------------

         Gross profit                                                          1,363,000         2,850,000
                                                                       -----------------------------------

Operating expenses:
     General and administrative                                                5,432,000         3,383,000
     Marketing and selling                                                     3,950,000         2,956,000
     Research and development                                                  1,425,000         1,220,000
                                                                       -----------------------------------

         Total operating expenses                                             10,807,000         7,559,000
                                                                       -----------------------------------

         Operating loss                                                       (9,444,000)       (4,709,000)
                                                                       -----------------------------------

Other income (expense):
     Interest income                                                             146,000            30,000
     Interest expense                                                            (16,000)          (42,000)
     Other income (expense)                                                        9,000           (10,000)
                                                                       -----------------------------------

         Total other income (expense)                                            139,000           (22,000)
                                                                       -----------------------------------

         Loss before provision for income taxes                               (9,305,000)       (4,731,000)

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

         Net loss                                                      $      (9,305,000)  $    (4,731,000)
                                                                       -----------------------------------

Loss per common share - basic and diluted                              $            (.81)  $          (.62)
                                                                       -----------------------------------

Weighted average common shares - basic and diluted                            11,547,000         7,655,000
                                                                       -----------------------------------

----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                           PARADIGM MEDICAL INDUSTRIES, INC.
                                                                                           Statement of Stockholders' Equity

                                                                                      Years Ended December 31, 2000 and 1999
----------------------------------------------------------------------------------------------------------------------------

                                                       Preferred Stock
                        ------------------------------------------------------------------------------
                            Series A              Series B            Series C          Series D             Common Stock
                        ----------------------------------------------------------------------------------------------------
                        Shares   Amount     Shares    Amount     Shares    Amount    Shares    Amount      Shares    Amount
                        ----------------------------------------------------------------------------------------------------
<S>                     <C>      <C>       <C>      <C>         <C>      <C>       <C>        <C>        <C>        <C>

Balance at January 1,
1999                     34,619  $     -    31,236  $      -     6,900   $     -          -   $     -    6,421,806  $  6,000

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

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

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

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

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

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

</TABLE>

<TABLE>
<CAPTION>



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

                                          Additional     Treasury Stock      Unearned    Stock sub-     Accum-
                                           Paid-In      -----------------     Compen-     scription     ulated
                                           Capital       Shares   Amount      sation      Receivable    Deficit
                                        --------------------------------------------------------------------------

<S>                                     <C>              <C>     <C>        <C>         <C>         <C>

Balance at January 1,
1999                                    $  22,282,000    2,600   $  (4,000) $  (94,000) $  (8,000)  $ (18,559,000)

Issuance of Series D
preferred stock for cash                    1,995,000        -           -           -          -               -

Conversion of preferred
stock                                               -        -           -           -          -               -

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

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

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

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


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

<PAGE>
<TABLE>
<CAPTION>

                                                                                           PARADIGM MEDICAL INDUSTRIES, INC.
                                                                                           Statement of Stockholders' Equity
                                                                                                                   Continued

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

                                                       Preferred Stock
                        ------------------------------------------------------------------------------
                            Series A              Series B            Series C          Series D             Common Stock
                        ----------------------------------------------------------------------------------------------------
                        Shares   Amount     Shares    Amount     Shares    Amount    Shares    Amount      Shares    Amount
                        ----------------------------------------------------------------------------------------------------
<S>                     <C>      <C>       <C>      <C>         <C>      <C>       <C>        <C>        <C>        <C>

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

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

Balance at
December 31, 1999         8,077        -    19,236         -       500         -     313,644        -    9,707,078    10,000

Treasury stock retired        -        -         -         -         -         -           -        -       (2,600)        -

Conversion of preferred
stock                    (2,120)       -    (4,000)        -      (500)        -    (261,144)       -      297,238         -

Issuance of common stock
for:
  Cash                        -        -         -         -         -         -           -        -      910,933     1,000
  Exercise of warrants
    and stock options         -        -         -         -         -         -           -        -    1,355,646     1,000
  Assets                      -        -         -         -         -         -           -        -      100,000         -
  Services                    -        -         -         -         -         -           -        -      242,894     1,000

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

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

Balance at
December 31, 2000          5,957  $    -    15,236  $      -    $    -         -      52,500  $     -   12,611,189  $ 13,000
                        ------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>



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

                                          Additional     Treasury Stock      Unearned    Stock sub-     Accum-
                                           Paid-In      -----------------     Compen-     scription     ulated
                                           Capital       Shares   Amount      sation      Receivable    Deficit
                                        --------------------------------------------------------------------------

<S>                                     <C>              <C>     <C>        <C>         <C>         <C>

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

Net loss                                                                                               (3,622,000)
                                        -------------------------------------------------------------------------

Balance at
December 31, 1999                          31,142,000    2,600      (4,000)          -     (8,000)    (23,053,000)

Treasury stock retired                         (4,000)  (2,600)      4,000           -          -               -

Conversion of preferred
stock                                               -        -           -           -          -               -

Issuance of common stock
for:
  Cash                                      2,571,000        -           -           -          -               -
  Exercise of warrants
    and stock options                       4,841,000        -           -           -          -               -
  Assets                                      675,000        -           -           -          -               -
  Services                                  1,403,000        -           -           -          -               -

Issuance of stock
options and warrants
for services                                  529,000        -           -           -          -               -

Net loss                                            -        -           -           -          -      (9,305,000)
                                        -------------------------------------------------------------------------

Balance at
December 31, 2000                       $  41,157,000        -   $       -  $        -  $  (8,000)  $ (32,358,000)
                                        -------------------------------------------------------------------------


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

<PAGE>
<TABLE>
<CAPTION>


                                                                         PARADIGM MEDICAL INDUSTRIES, INC.

                                                                                   Statement of Cash Flows

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



                                                                               2000              1999
                                                                       -----------------------------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
     Net loss                                                          $      (9,305,000)  $    (4,731,000)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
         Depreciation and amortization                                           528,000           332,000
         Amortization of unearned compensation                                         -            94,000
         Issuance of common stock for services                                 1,404,000           367,000
         Issuance of stock option/warrant for services                           529,000           329,000
         Provision for losses on receivables                                     (30,000)          345,000
         Provision for losses on inventory                                       489,000                 -
         (Gain) loss on disposal of assets                                        (2,000)            5,000
         Write-down of assets                                                          -           331,000
         (Increase) decrease in:
              Receivables                                                        153,000          (284,000)
              Inventories                                                        449,000          (558,000)
              Prepaid and other assets                                             4,000           134,000
         Increase (decrease) in:
              Payables                                                           140,000            19,000
              Accrued liabilities                                                217,000            48,000
                                                                       -----------------------------------

                  Net cash used in
                  operating activities                                        (5,424,000)       (3,613,000)
                                                                       -----------------------------------

Cash flows from investing activities:
     Purchase of property and equipment                                         (613,000)          (82,000)
     Increase in intangibles                                                     (26,000)          (26,000)
     Proceeds from the disposal of assets                                          9,000            48,000
     Net cash paid in acquisition                                                (95,000)                -
                                                                       -----------------------------------

                  Net cash used in
                  investing activities                                          (725,000)          (16,000)
                                                                       -----------------------------------

Cash flows from financing activities:
     Proceeds from issuance of Series D preferred stock                                -         1,649,000
     Proceeds from issuance of common stock                                    2,572,000         2,485,000
     Principal payments on notes payable and long-term debt                     (189,000)          (38,000)
     Proceeds from note payable                                                        -            92,000
     Proceeds from exercise of common stock warrants and options               4,842,000           398,000
                                                                       -----------------------------------

                  Net cash provided by
                  financing activities                                         7,225,000         4,586,000
                                                                       -----------------------------------

Net increase in cash                                                           1,076,000           957,000

Cash, beginning of year                                                        1,118,000           161,000
                                                                       -----------------------------------

Cash, end of year                                                      $       2,194,000   $     1,118,000
                                                                       -----------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-8
</TABLE>

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements

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

1.   Organization       Organization
     and                Paradigm  Medical  Industries,  Inc.  (the Company) is a
     Significant        Delaware  Corporation  incorporated in October 1989. The
     Accounting         Company   is  engaged   in  the   design,   development,
     Policies           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 pachymeter,
                        an A-Scan, an A/B Scan, a biomicroscope,  a perimeter, a
                        corneal topographer, and a blood flow analyzer.

                        Its  ultrasound   diagnostic  products  technology  were
                        acquired from Humphrey Systems in 1998. In October 1999,
                        the  Company  purchased  the  inventory  and  design and
                        production rights of another line of surgical equipment,
                        also  designed to perform  minimally  invasive  cataract
                        surgery.  The line includes the Mentor SIStem (TM),  the
                        Odyssey (TM), and the Surgitrol  (TM). In November 1999,
                        the Company entered into a Mutual Release and Settlement
                        Agreement  with  the  manufacturer  of the  Precisionist
                        Thirty Thousand (TM) in which the Company  purchased the
                        raw  material  and  finished  goods  inventory  to bring
                        manufacture  of this  product  in-house.  The Dicon (TM)
                        perimeter and the Dicon (TM)  topographer  were acquired
                        when the Company acquired Vismed in June 2000. The blood
                        flow  analyzer was  acquired  when Ocular Blood Flow LTD
                        (OBF) was purchased in June 2000.

                        Liquidity
                        The Company has incurred  net losses and  negative  cash
                        flows  from  operating  activities  for the  year  ended
                        December  31,  2000  and  1999  and  has an  accumulated
                        deficit. The Company currently has a private equity line
                        of  credit  agreement  with  Triton  West  Group,  Inc.,
                        (Triton),  which  allows the Company to sell $20 million
                        of common stock over a three year period  beginning June
                        30, 2000 to Triton by tendering  put notices to purchase
                        shares  (see  note  4).  Management  believes  that  the
                        combination of existing  working capital and the private
                        equity  line of  credit  will be  sufficient  to  assure
                        continuation   of  the  Company's   operations   through
                        December 31, 2001.  In the past,  the Company has relied
                        heavily upon sales of its common and preferred  stock to
                        fund  operations.  There can be no  assurance  that such
                        equity  financing will be available on terms  acceptable
                        to the Company in the  future.  If the Company is unable
                        to obtain such  financing or secure debt  financing,  it
                        may be unable to continue  development  of its  products
                        and may be required to substantially curtail operations.

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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

1.   Organization       Cash Equivalents
     and                For  purposes  of the  statement  of  cash  flows,  cash
     Significant        includes  all  cash  and   investments   with   original
     Accounting         maturities to the Company of three months or less.
     Policies
     Continued          The Company  maintains its cash in bank deposit accounts
                        which, at times,  may exceed  federally  insured limits.
                        The  Company  has not  experienced  any  losses  in such
                        account   and   believes   it  is  not  exposed  to  any
                        significant credit risk on cash and cash equivalents.

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

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

                        Intangible Assets
                        Intangible  assets  consist  of the  purchase  price  in
                        excess of net assets  acquired in the purchase of Ocular
                        Blood Flow, Ltd., product rights,  capitalized  payments
                        to manufacturers for engineering and design services and
                        patent costs.  These costs are being amortized using the
                        straight line method over a three to ten year period.

                        Evaluation of Intangible and Other Long-Lived Assets
                        The  Company   evaluates  the  carrying   value  of  the
                        unamortized  balances of intangible and 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.  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.


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

1.   Organization       Income Taxes
     and                Deferred income taxes are provided in amounts sufficient
     Significant        to  give  effect  to   temporary   differences   between
     Accounting         financial  and tax  reporting,  principally  related  to
     Policies           depreciation,  stock compensation  expense,  and accrued
     Continued          liabilities.

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

                        The computation of diluted  earnings per common share is
                        based  on  the   weighted   average   number  of  shares
                        outstanding  during  the  year  plus  the  common  stock
                        equivalents,  which  would  arise from the  exercise  of
                        stock  options  and  warrants   outstanding   using  the
                        treasury  stock method and the average  market price per
                        share during the year.  Options and warrants to purchase
                        3,412,181 and 3,684,990 shares of common stock at prices
                        ranging from $2.30 to $12.98 per share were  outstanding
                        at December  31, 2000 and 1999,  respectively,  but were
                        not   included  in  the  diluted   earnings   per  share
                        calculation   because   the   effect   would  have  been
                        antidilutive.

                        Revenue Recognition
                        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.

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

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

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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

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

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

                        During the year ended December 31, 1999, the Company had
                        sales   to   a   major   customer   which    represented
                        approximately  14% of total net  sales.  During the year
                        ended December 31, 2000, no single customer  represented
                        more than 10% of total net sales.

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

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


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

1.   Organization       Warranty
     and                The Company provides  product  warranties on the sale of
     Significant        certain products that generally extend for one year from
     Accounting         the date of sale.  The  Company  maintains a reserve for
     Policies           estimated warranty costs based on historical  experience
     Continued          and management's best estimates.

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

                        Reclassifications
                        Certain  amounts in the 1999 financial  statements  have
                        been  reclassified  to conform with the  presentation of
                        the current year financial statements.


2.   Acquisitions       In June 2000,  the Company  acquired  Vismed,  Inc.  dba
                        Dicon in exchange  for 921,500  shares of common  stock.
                        The business  combination  has been accounted for by the
                        pooling-of-interest  method in  accordance  with APB 16.
                        Accordingly,  the historical  financial  statements have
                        been restated to reflect the combination  with Vismed as
                        if it had  occurred  as of January  1, 1999.  Vismed was
                        founded in 1989 and manufactures  and distributes  Dicon
                        branded  diagnostic  products.  These products include a
                        perimeter  used  to  detect  retinal  sensitivity  and a
                        corneal topographer used to measure the curvature of the
                        cornea which is useful in the fitting of contact  lenses
                        and refractive surgery.

                        In June 2000,  the  Company  completed  the  purchase of
                        Ocular Blood Flow,  Ltd.  (OBF) for $100,000 and 100,000
                        shares  of  common  stock.  This  transaction  has  been
                        accounted for using the purchase  method of  accounting.
                        OBF  manufactures  a blood  flow  analyzer  representing
                        proprietary  technology for measuring  blood flow to the
                        eye. Pro forma results of operations as if the companies
                        had been  combined  have not been  presented  since  OBF
                        operations were not significant.



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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

3.   Detail of
     Certain
     Balance
     Sheet
     Accounts

Receivables:
     Trade receivables                                       $        1,963,000
     Other                                                               14,000
     Allowance for doubtful accounts                                   (370,000)
                                                             ------------------

                                                             $        1,607,000
                                                             ------------------

Inventories:
     Finished goods                                          $        1,513,000
     Work in process                                                    334,000
     Raw materials                                                    3,089,000
     Reserve for obsolescence                                          (489,000)
                                                             ------------------

                                                             $        4,447,000
                                                             ------------------

Accrued liabilities:
     Warranty and return allowance                           $          475,000
     Customer deposits                                                   38,000
     Payroll and employee benefits                                      191,000
     Royalties                                                           58,000
     Commissions                                                        143,000
     Deferred revenue                                                   121,000
     Other                                                              174,000
                                                             ------------------

                                                             $        1,200,000
                                                             ------------------

Intangible assets:
     Purchase price in excess of net asset acquired          $          799,000
     Product and technology rights                                      773,000
     Engineering and design costs                                       482,000
     Patents                                                            143,000
                                                             ------------------
                                                                      2,197,000
Accumulated amortization                                               (725,000)
                                                             ------------------

Net intangible assets                                        $        1,472,000
                                                             ------------------


                        Amortization  expense for the years ended  December  31,
                        2000 and 1999 was $260,000 and $203,000, respectively.

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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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


3.   Detail of
     Certain
     Balance
     Sheet
     Accounts
     Continued


Preferred stock:
     Series A 500,000 shares authorized, 5,957
       shares issued and outstanding (aggregate
       liquidation preference of $6,000)                      $                -
     Series B, 500,000 shares authorized, 15,236
       shares issued and outstanding (aggregate
       liquidation preference of $61,000)                                      -
     Series C, 30,000 shares authorized, no
       shares issued and outstanding                                           -
     Series D 1,140,000 shares authorized,
       52,500 shares issued and outstanding
       (aggregate liquidation preference of $92,000)                           -
                                                              ------------------

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



4.   Property and       Property and equipment consists of the following:
     Equipment


Office equipment                                          $         547,000
Computer equipment                                                  554,000
Automobile                                                           56,000
Furniture and fixtures                                              258,000
Leasehold improvements                                              182,000
                                                          -----------------

                                                                  1,597,000

Accumulated depreciation and amortization                          (859,000)
                                                          -----------------

                                                          $         738,000
                                                          -----------------




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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

4.   Equity Line        The  Company  currently  has a  private  equity  line of
     of Credit          credit agreement with Triton West Group, Inc., (Triton),
                        which  allows the  Company to sell $20 million of common
                        stock over a three year period  beginning  June 30, 2000
                        to Triton by tendering  put notices to purchase  shares.
                        The put  notices  may be  tendered by the Company at the
                        Company's  discretion.  Upon the put  notice  Triton  is
                        obligated  to  purchase  shares  at 88%  of  the  lowest
                        closing  bid  price  on  the  trading  day   immediately
                        following a five day period commencing two days prior to
                        put  notice  and  ending  two days after such put notice
                        date.  The total amount per put is  determined  based on
                        the  stock  closing  bid price  and the 30  trading  day
                        volume, with a maximum put amount of $2 million.


5.   Long-Term          Long-term debt consists of the following:
     Debt


                        Note payable to a bank in monthly
                        installments of $418, including interest
                        at 9.95% secured by an automobile, due
                        September 2001                               $    3,000

                        Note payable to a bank in monthly
                        installments of $471, including interest
                        at 1% over the bank's prime lending rate
                        which was 10.5% at December 31, 2000. The
                        note is secured by equipment and is due
                        June 2001                                         3,000

                        Capital lease obligations (see note 6)           26,000
                                                                     ----------

                                                                         32,000

                        Less current portion                             22,000
                                                                     ----------

                                                                     $   10,000
                                                                     ----------


                        Future maturities are as follows:


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

                           2001                           $          22,000
                           2002                                      10,000
                                                          -----------------

                                                          $          32,000
                                                          -----------------


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

6.   Lease              During the year ended  December  31,  2000,  the Company
     Obligations        leased certain  equipment under  noncancellable  capital
                        leases.  These leases  provide the Company the option to
                        purchase  the  leased  assets at the end of the  initial
                        lease term.  Assets  under  capital  leases  included in
                        fixed assets and are as follows:

                        Computer and other equipment         $          53,000

                        Less accumulated amortization                  (20,000)
                                                             -----------------

                                                             $          33,000
                                                             -----------------

                        Amortization  expense  on assets  under  capital  leases
                        during the year  ended  December  31,  2000 and 1999 was
                        $10,000.

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


                        2001                              $          25,000
                        2002                                          5,000
                                                          -----------------

                                                                     30,000

                        Less amount representing
                         interest                                    (4,000)
                                                          -----------------

                        Present value of future
                          minimum lease payments          $          26,000
                                                          -----------------



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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

6.   Lease              The Company  leases office and warehouse  space under an
     Obligations        operating   lease   agreement.   Future  minimum  rental
     Continued          payments under the  noncancelable  operating lease as of
                        December 31, 2000 is approximately as follows:

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

                           2001                           $         401,000
                           2002                                     410,000
                           2003                                      63,000
                           Thereafter                                     -
                                                          -----------------

                           Total future minimum rental
                             payments                     $         874,007
                                                          -----------------

                        Rent expense related to  noncancelable  operating leases
                        was  approximately  $362,000  and $289,000 for the years
                        ended December 31, 2000 and 1999, respectively.


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

                                                     Years Ended
                                                    December 31,
                                          ---------------------------------
                                                2000             1999
                                          ---------------------------------

Federal income tax benefit at
  statutory rate                          $       3,443,000  $      1,806,000
Expiration of research and
  development tax credit
  carryforwards                                    (107,000)              -
Tax credits                                          44,000          49,000
Other                                               (35,000)        (22,000)
Change in valuation allowance                    (3,345,000)     (1,833,000)
                                          ---------------------------------

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



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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

7.   Income             Deferred tax assets  (liabilities)  are comprised of the
     Taxes              following:
     Continued
                        Net operating loss carryforward       $       9,170,000
                        Depreciation and amortization                   102,000
                        Allowance and reserves                          487,000
                        Research and development tax credit
                         carryforwards                                  240,000
                                                              -----------------

                                                                      9,999,000

                        Valuation allowance                          (9,999,000)
                                                              -----------------

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

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

                        At December 31, 1999, the Company had net operating loss
                        carryforwards of approximately  $25,000,000 and research
                        and    development   tax   credit    carryforwards    of
                        approximately   $240,000.    These   carryforwards   are
                        available to offset future  taxable  income and begin to
                        expire in 2001.  The  utilization  of the net  operating
                        loss  carryforwards  is  dependent  upon the tax laws in
                        effect at the time the net operating loss  carryforwards
                        can  be   utilized.   The   Tax   Reform   Act  of  1986
                        significantly  limits  the  annual  amount  that  can be
                        utilized for certain of these  carryforwards as a result
                        of the change in ownership.


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



--------------------------------------------------------------------------------
                                                                            F-19

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

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

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

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

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

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


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



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

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

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

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

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

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


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

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

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

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

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


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

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


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

                        3.  Each  share is  convertible,  at the  option  of the
                            holder at any time until  January 1, 2002,  into one
                            share  of  Common  Stock  at an  initial  conversion
                            price, subject to adjustment. The Series D Preferred
                            Stock  shall  be  converted  into  one  share of the
                            Common Stock subject to adjustment (a) on January 1,
                            2002  or (b)  upon  30 days  written  notice  by the
                            Company to the  holders of the  Shares,  at any time
                            after (i) the 30-day anniversary of the registration
                            statement  on  which  the  shares  of  Common  Stock
                            issuable  upon  conversion of the Series D Preferred
                            Stock were  registered and (ii) the average  closing
                            price of the  Common  Stock  for the  20-day  period
                            immediately  prior to the date on  which  notice  of
                            redemption is given by the Company to the holders of
                            the Series D  Preferred  Stock is at least $3.50 per
                            share.  The Company in 1999 recorded  $872,000 as in
                            increase to additional  paid-in capital and a change
                            to accumulated deficit 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.


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

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


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

9.   Stock Option       In addition,  the Company granted the following  options
     Plan and           and  warrants  to  non-employees  during the years ended
     Warrants           December 31:
     Continued
                        2000
                        ----

                        o   Warrants to purchase  50,000  shares of common stock
                            at an exercise price of $7.27,  vested  immediately,
                            to an entity in connection with a private  placement
                            sale of common stock.

                        o   Warrants to purchase  100,000 shares of common stock
                            at an exercise price of $4.00,  vested  immediately,
                            as incentive for an  individual to exercise  100,000
                            warrants  that  had  been  previously   granted  for
                            consulting services.

                        o   Warrants to purchase  50,000  shares of common stock
                            at an  exercise  price of $6.75,  vested in November
                            2000,  to  a  consultant  in  connection   with  the
                            extension of the consulting agreement.

                        o   Warrants to purchase  150,000 shares of common stock
                            at an exercise price of $4.00,  vested  immediately,
                            to an  entity  of  which a  former  director  is the
                            President  as  payment  for  services   rendered  in
                            connection  with a private  placement sale of common
                            stock.

                        o   Warrants to purchase  50,000  shares of common stock
                            at an exercise price of $4.00,  vesting in May 2001,
                            to a consultant in connection  with the extension of
                            the consulting agreement.

                        o   Options to purchase 20,000 shares of common stock at
                            an exercise price of $5.00, vested  immediately,  to
                            various   non-employees   as  payment  for  services
                            rendered.


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

9.   Stock Option       1999
     Plan and           ----
     Warrants
     Continued          o   Warrants to purchase  211,400 shares of common stock
                            at an  exercise  price  between  $2.38 and $2.69 per
                            share,  vested  immediately,  to various entities in
                            connection with the sale of Series D Preferred Stock

                        o   Warrants to purchase  50,000  shares of common stock
                            at an exercise  price of $4.75,  vested in May 2000,
                            to a consultant in connection  with the extension of
                            the consulting agreement

                        o   Warrants to purchase  100,000 shares of common stock
                            at an exercise price of $4.00,  vested  immediately,
                            to a consultant as payment for consulting services

                        o   Warrants to purchase  140,000 shares of common stock
                            at an exercise price of $2.25,  vested  immediately,
                            to consultants as payment for consulting services

                        o   Warrants to purchase  100,000 shares of common stock
                            at an exercise price of $4.00,  vested  immediately,
                            to   entities   of  which   former   directors   are
                            officers/directors, as incentive for the entities to
                            exercise  140,000  warrants that had been previously
                            granted for consulting services


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

9.   Stock Option       A schedule of the options and warrants is as follows:
     Plan and
     Warrants
     Continued
                                                Number of           Exercise
                                   ----------------------------     Price Per
                                          Options      Warrants       Share
                                   --------------------------------------------

Outstanding at January 1,
 1999                                     831,810     2,020,283  $ 3.00 - 12.98
     Granted                              337,872       801,400    2.30 -  7.50
     Exercised                                  -      (166,980)   2.30 -  3.00
     Expired                                    -       (17,945)   3.00 -  4.00
     Forfeited                           (121,450)            -            5.00
                                   --------------------------------------------

Outstanding at December 31,
  1999                                  1,048,232     2,636,758  $ 2.30 - 12.98
     Granted                              746,000       400,000    4.00 -  7.27
     Exercised                           (162,490)   (1,100,056)   2.38 -  8.13
     Expired                              (18,488)     (137,775)   3.33 -  6.49
                                   --------------------------------------------

Outstanding at December 31,
 2000                                   1,613,254     1,798,927  $ 2.30 - 12.98
                                   --------------------------------------------




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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

                                                        Years Ended
                                                        December 31,
                                            ------------------------------------
                                                   2000              1999
                                            ------------------------------------

Net loss - as reported                      $       (9,305,000)  $   (4,731,000)
Net loss - pro forma                        $      (10,180,000)  $   (5,582,000)
Loss per share - as reported                $             (.81)  $         (.62)
Loss per share - pro forma                  $             (.88)  $         (.73)
                                            ------------------------------------

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


                                                   December 31,
                                        -----------------------------------
                                               2000             1999
                                        -----------------------------------

Expected dividend yield                 $               -    $           -
Expected stock price volatility                       106%              81%
Risk-free interest rate                               6.0%             6.0%
Expected life of options                         2-5 years      2 - 5 years
                                        -----------------------------------

                        The  weighted  average  fair  value of  options  granted
                        during the years  ended  December  31, 2000 and 1999 are
                        $2.69 and $1.24, respectively.


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

10.  Stock-Based        The following table summarizes  information  about stock
     Compensation       options and warrants outstanding at December 31, 2000:
     Continued
                            Outstanding                      Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                             Remaining     Weighted                  Weighted
   Range of                 Contractual    Average                   Average
   Exercise      Number        Life       Exercise      Number       Exercise
    Prices     Outstanding    (Years)       Price     Exercisable     Price
--------------------------------------------------------------------------------

$ 2.30 - 5.00  1,799,273       4.64     $    4.48    1,307,735      $      4.34
  6.00 - 8.13  1,587,025       1.60          7.21    1,462,025             7.31
        12.98     25,883        N/A         12.98       25,883            12.98
--------------------------------------------------------------------------------

$ 2.30 -12.98  3,412,181       3.19     $    5.81    2,795,643      $      5.97
--------------------------------------------------------------------------------


11.  Related Party      On  January  21,  2000 the  Board of  Directors  granted
     Transactions       Thomas F. Motter,  CEO and President,  100,000 shares of
                        the Company's Common Stock.  61,111 shares of this total
                        amount were  considered  repayment for 61,111 shares Mr.
                        Motter sold to Douglas A. MacLeod prior to the Company's
                        initial public offering in July 1996, under a settlement
                        agreement  to  terminate  certain  anti-dilution  rights
                        granted  Mr.  MacLeod  by the  Company.  The  balance of
                        38,889  shares  was  deemed  by the Board as a bonus for
                        work  done  by  Mr.  Motter  since  the  initial  public
                        offering.  The  market  price on the  date of grant  was
                        $12.50 per share, and compensation expense in the amount
                        of $486,000 was recognized.

                        On  January  21,  2000 the  Board of  Directors  granted
                        Michael W.  Stelzer,  a former  officer of the  Company,
                        20,000 shares of the Company's Common Stock as part of a
                        severance  agreement,  and as part of  settlement of Mr.
                        Stelzer's employment agreement.  The market price on the
                        date of grant was  $12.50 per  share,  and  compensation
                        expense in the amount of $250,000 was recognized.

                        On June 5, 2000 the Company  issued  Mark Miehle  28,500
                        shares of the Company's Common Stock for a signing bonus
                        as part of Mr. Miehle's employment agreement. The market
                        price on the date of the grant was  $6.8125  per  share,
                        and  compensation  expense in the amount of $194,000 was
                        recognized.


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

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

11.  Related Party      The  Company  has an amended  exclusive  patent  license
     Transactions       agreement  with a company  which owns the patent for the
     Continued          laser-probe used on the Photon machine.  This company is
                        owned by a  shareholder  of the Company.  The  agreement
                        provides  for the  payment  of a 1% royalty on all sales
                        proceeds related  directly or indirectly,  to the Photon
                        machine.  The  agreement  terminates  on July  7,  2003.
                        Through December 31, 2000, no significant royalties have
                        been paid under this agreement.

                        A law firm,  of which a  director  of the  Company  is a
                        shareholder, has rendered legal services to the Company.
                        The Company paid this firm $167,000 and $53,000, for the
                        year ended December 31, 2000 and 1999, respectively.  As
                        of December 31, 2000, the Company owed this firm $12,000
                        which is included in accounts payable.

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

                        During the year ended  December 31,  1999,  prior to the
                        initial closing of the Series D Preferred Offering,  the
                        Company borrowed $75,000 from Cyn Del, of which a former
                        director of the  Company is  President,  a director  and
                        shareholder  and $25,000 from Win Capital.  The combined
                        $100,000  loan bore interest at a rate of 10% per annum,
                        and was paid back at the end of six months.  The Company
                        issued  warrants  to purchase  105,000  shares of Common
                        Stock to Cyn Del and warrants to purchase  35,000 shares
                        to Win Capital. The Company also entered into a one-year
                        consulting  agreement,  wherein  Cyn Del  would  provide
                        consulting  services to the Company in consideration for
                        a fee of $5,000 per month for the term of the agreement.
                        In April,  1999 the Board of  Directors  agreed to grant
                        25,000  warrants to Win  Capital and 75,000  warrants to
                        Cyn Del,  both at an exercise  price of $4.00 per share,
                        if they exercised their outstanding warrants, which they
                        did.


--------------------------------------------------------------------------------
                                                                            F-29

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

11.  Related Party      During the year ended  December  31,  2000,  the Company
     Transactions       paid Cyn Del $500,000  and granted  warrants to purchase
     Continued          150,000  shares of  common  stock as  consideration  for
                        services rendered in connection with a private placement
                        sale of the Company's common stock.

                        The Company also  entered  into a  consulting  agreement
                        with Cyn Del  which  expires  March  2001  and  requires
                        monthly payments of $17,000.


12.  Supplemental       During  the year ended  December  31,  2000 the  Company
     Cash Flow          acquired  the assets  and  liabilities  of Ocular  Blood
     Information        Flow,  Ltd.  (OBF)  in  a  purchase   transaction.   The
                        transaction required the payment of $100,000 and 100,000
                        shares  of  common  stock.   The  Company  recorded  the
                        following:

                        Accounts receivable                   $          22,000
                        Prepaids                                         18,000
                        Inventory                                        28,000
                        Intangibles                                     799,000
                        Property, plant and equipment                    25,000
                        Accounts payable                                (48,000)
                        Accrued liabilities                              (8,000)
                        Debt                                            (66,000)
                        Common stock issued                            (675,000)
                                                              -----------------

                        Net cash                              $          95,000
                                                              -----------------


                        During the year ended December 31, 1999:

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

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

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


--------------------------------------------------------------------------------
                                                                            F-30

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

12.  Supplemental       Actual amounts paid for interest and income taxes are as
     Cash Flow          follows:
     Information
     Continued                                    Years Ended
                                                   December 31,
                                        -----------------------------------
                                               2000             1999
                                        -----------------------------------

Interest                                $        16,000     $     15,000
                                        -----------------------------------

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



13.  Export Sales       Total sales  include  export  sales by major  geographic
                        area as follows:

                                                    Years Ended
                                                   December 31,
                                        -----------------------------------
Geographic Area                                2000             1999
---------------
                                        -----------------------------------

Far East                                $        2,428,000  $       556,000
South America                                      415,000          266,000
Middle East                                        200,000          151,000
Europe                                           1,357,000           30,000
                                        -----------------------------------

                                        $        4,400,000  $     1,003,000
                                        -----------------------------------


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

15.  Savings Plan       In  November  1996,  the  Company  established  a 401(k)
                        Retirement  Savings Plan for the Company's  officers and
                        employees. The Plan provisions include eligibility after
                        six months of service,  a three year  vesting  provision
                        and 100% matching  contribution  by the Company up to 3%
                        of a participant's compensation.  During the years ended
                        December  31,  2000 and 1999,  the  Company  contributed
                        approximately   $49,000   and   $44,000   to  the  Plan,
                        respectively.



--------------------------------------------------------------------------------
                                                                            F-31

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

                        During  the year ended  December  31,  2000 the  Company
                        entered  a  consulting  agreement  with  Cyn  Del  which
                        expires in March 2001 and requires  monthly  payments of
                        $17,000.

                        During the year ended  December 31, 2000,  in connection
                        with the  acquisition  of OBF,  the  Company  entered  a
                        consulting  agreement with the former owner of OBF which
                        requires monthly payments of $6,000 through June 2003.

                        The  Company  has  a   consulting   agreement   with  an
                        individual  requiring payments of 2,000 shares of common
                        stock per month  through  May  2001,  at which  time the
                        agreement is renewable for an additional six months. Per
                        the  agreement,  the Company  also  granted  warrants to
                        purchase  50,000  shares  of  its  common  stock  at  an
                        exercise price of $4.00 per share.

                        Employment Agreements
                        The Company has employment  agreements with officers and
                        key  employees  which expire  between  December 2001 and
                        June 2003. The agreements  provide for aggregate  annual
                        compensation of $410,000.  In addition,  the Company has
                        entered into  agreements  which  provide for  additional
                        payments  to be made to the  officer  in the  event  the
                        Company has a change of control.

                        Litigation
                        An action was brought  against the Company in March 2000
                        by  George  Wiseman,  a former  employee,  in the  Third
                        District  Court of Salt Lake County,  State of Utah. The
                        complaint  alleges  that the  Company  owes Mr.  Wiseman
                        6,370 shares of its common stock plus costs,  attorney's
                        fees  and a wage  penalty  pursuant  to  Utah  law.  The
                        Company  believes  the  complaint  is without  merit and
                        intends to vigorously defend against the action.

--------------------------------------------------------------------------------
                                                                            F-32

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

16.  Commitments        Litigation - Continued
     and                An action was brought  against the Company in  September
     Contingencies      2000 by  PhotoMed  International,  Inc.  and  Daniel  M.
     Continued          Eichenbaum  in the  Third  District  Court of Salt  Lake
                        County,  State of Utah. The action involves an amount of
                        royalties  that are  allegedly due and owing to PhotoMed
                        International,  Inc. and Dr.  Eichenbaum with respect to
                        the sales of certain  equipment  plus  attorney's  fees.
                        Currently,  some  discovery  has  taken  place  and  the
                        Company  is  endeavoring  to  determine  the  amount  of
                        royalties that are currently due.

                        The Company has received  demand letters dated September
                        14, 2000 and  October  17, 2000 from Mentor  Corporation
                        ("Mentor")  claiming that the Company failed to register
                        485,751  shares of common  stock  issued to Mentor under
                        the Asset  Purchase  Agreement  dated  October 15, 1999,
                        among the Company, Mentor, Mentor Ophthalmics,  Inc. and
                        Mentor  Medical,   Inc.  The  Asset  Purchase  Agreement
                        related   to  the   Company's   purchase   of   Mentor's
                        phacoemulsification  product line in  consideration  for
                        the issuance by the Company to Mentor of 485,751  shares
                        of its common stock,  valued at the sum of $1,500,000 at
                        the time of closing.

                        The Asset  Purchase  Agreement  required  the Company to
                        register  the 485,751  shares of common  stock issued to
                        Mentor  whenever the Company  determined to register any
                        of its  shares  of common  stock.  Mentor  alleges  that
                        because the Company did not register the 485,751  shares
                        in a Registration  Statement,  which became effective on
                        January  6, 2000  (the  "January  6,  2000  Registration
                        Statement"),  that it was  unable to sell the  shares at
                        the time and, as a result, lost approximately $5,000,000
                        due to Company's  alleged  breach of the Asset  Purchase
                        Agreement.

                        The  Company  maintains  that an  authorized  officer of
                        Mentor agreed to waive the registration rights of Mentor
                        in having the 485,751  shares  registered in the January
                        6, 2000 Registration  Statement.  As a consequence,  the
                        Company  believes  that it has not  breached  the  Asset
                        Purchase  Agreement  and  that  Mentor  is not  owed any
                        moneys  for not  having  registered  the  shares  of the
                        Company's  common stock held by Mentor in the January 6,
                        2000  Registration  Statement.  The  Company  is in  the
                        process  of  further  review of the  matter  and  denies
                        liability and for the damages asserted by Mentor.


--------------------------------------------------------------------------------
                                                                            F-33

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

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

                        Royalty Agreements
                        The Company has a royalty  agreement  with the president
                        of OBF.  The  agreement  provides for the payment of 10%
                        royalty  of the net  sales  related  to the  Blood  Flow
                        Analyzer.  The  agreement  terminates  in  2020.  As  of
                        December 31, 2000, no  significant  royalties  have been
                        paid under this agreement.

                        The  Company  has  an  agreement  with  a  company  that
                        provides  for the  payment of  royalties  related to the
                        sales of the corneal topography  instrument  referred to
                        as the CT.  During  the year  ended  December  31,  2000
                        payments of  $173,250  were made and $49,350 was accrued
                        at the end of the year.

                        The company has an agreement with a Canadian corporation
                        that  provides for the payment of  royalties  related to
                        the  sales  of  UBM  (Ultrasonic  Bio-Microscopy).   The
                        agreement  outlines payments of 150 Canadian Dollars for
                        each licensed product sold for a period of 12 years that
                        ends in September of 2002. No significant royalties were
                        paid under this agreement during the year ended December
                        31, 2000.

                        The Company has a royalty agreement with another company
                        that developed a promotional CD for the Company. Through
                        the  promotion of the CD, the Company  hopes to increase
                        sales in the  Autoperimiter and assist doctors currently
                        using the unit with the interpretation of visual fields.
                        The  royalty  base with be 50% each until the  Company's
                        share equals the production costs related to development
                        of the disk. Thereafter,  the developer will receive 70%
                        and the Company  will  receive 30% of the royalty  base.
                        Royalties   paid  during  the  year   relating  to  this
                        agreement were not considered material.

--------------------------------------------------------------------------------
                                                                            F-34

<PAGE>


                                               PARADIGM MEDICAL INDUSTRIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

17.  Fair Value of      The  Company's  financial  instruments  consist of cash,
     Financial          receivables,  payables,  and notes payable. The carrying
     Instruments        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.


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

 -------------------------------------------------------------------------------
                                                                            F-35

<PAGE>


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

   None.


PART III


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

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

              Name              Age    Position

      Thomas F. Motter          52 Chairman of the Board, President and
                                   Chief Executive Officer
      Mark R. Miehle            48 President and Chief Operating Officer
      John W. Hemmer            73 Vice President of Finance Treasurer and Chief
                                   Financial Officer
      Randall A. Mackey         54 Secretary and Director, Esq.
      David M. Silver, Ph.D.    58 Director
      Keith D. Ignotz           52 Director


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



                                       24
<PAGE>

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

         Mark R. Miehle has served as President and Chief  Operating  Officer of
the Company since June 5, 2000.  From December 1997 to June 5, 2000,  Mr. Miehle
served as President and Chief Executive Officer of Vismed,  Inc., d/b/a Dicon, a
start-up company. In 1982, Dicon was acquired by CooperVision diagnostics.  From
1982 to 1985,  Mr.  Miehle  was the Vice  President  of Sales and  Marketing  of
CooperVision Diagnostics. Mr. Miehle received a B.S. degree in Organic Chemistry
from  Tulane  University  in  1975.  He is a  member  of the  Young  Presidents'
Organization (YPO), Vision Industry Council of America (VICA).

         John W. Hemmer has served as Vice  President of Finance  Treasurer  and
Chief  Financial  Officer of the Company since  September  20, 2000.  Mr. Hemmer
previously  served as Vice  President  of Finance,  Treasurer,  Chief  Financial
Officer and a director  of the  Company  from  November  1995 to June 1999.  Mr.
Hemmer has served as a director and  consultant  since 1989 and Chief  Financial
Officer  since  February 2000 of Bio Marine  Technologies,  Inc. in Gulf Breeze,
Florida,   which  develops  offshore  marine  production  systems  licensed  and
permitted  for  use in the  Gulf  of  Mexico.  He was the  President  and  Chief
Executive Officer of John W. Hemmer, Inc., a registered  broker/dealer firm from
1987 to 1989, which subsequently changed its name to Westfalia  Investments Inc.
Prior  thereto  he was Vice  President  of  Bankers  Trust  Company in charge of
venture  capital  and  a  member  of  the  research  and  investment  management
committees.  Mr. Hemmer was also Vice President of Corporate Finance at Dempsey,
Tegler &  Company,  Inc.,  a Senior  Analyst at Lazard  Freres & Company  and an
Investment  Officer of the Chase  Manhattan  Bank.  Mr.  Hemmer  received a B.A.
degree in Economics from Queens College in 1951 and a M.S. degree in Banking and
Finance from Columbia University Graduate School of Business in 1952.

         Randall A.  Mackey,  Esq.  has been a  director  of the  Company  since
January  2000.  He had served as a director of the Company from November 1995 to
September 1998.  Since 1989, Mr. Mackey has been President of the Salt Lake City
law firm of Mackey Price & Williams since 1992, and a sharholder and director of
the firm and its predecessor firms since 1989. Mr. Mackey received a B.S. degree
in Economics from the  University of Utah in 1968, a M.B.A.  degree from Harvard
University in 1970, a J.D. degree from Columbia  University in 1975 and a B.C.L.
degree from Oxford University in 1977. Since January 1998, Mr. Mackey has served
as a director of Cimetrix  Incorporated,  a software  development  company.  Mr.
Mackey has also served as Chairman of the Board since July 2000 and as a trustee
since 1993 of Salt Lake Community College.

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


                                       25
<PAGE>

         Keith D. Ignotz was elected as director in November  2000.  He has been
President and Chief  Operating  Officer of SpectRx,  Inc., a medical  technology
company  that he founded  in 1992,  which  develops,  manufactures  and  markets
alternatives to traditional  blood-based  medical tests.  From 1986 to 1992, Mr.
Ignotz  was  Senior  Vice  President  of  Allergan  Humphrey,  Inc.,  a  medical
electronics company. From 1985 to 1986, he was President of Humphrey Instruments
Limited - SKB, a medical electronics  company, and from 1980 to 1985, Mr. Ignotz
was President of Humphrey  Instruments GmbH, also a medical electronics company.
Mr.  Ignotz also served on the Board of Directors of Vismed,  Inc.,  d/b/a Dicon
from 1992 to June 2000.  Mr.  Ignotz  received a B.A.  degree in  Sociology  and
Political  Science from San Jose University and a M.B.A.  degree from Pepperdine
University.  Mr.  Ignotz  has  served as a trustee  of  Pennsylvania  College of
Optometry since 1990, as a director for FluoRx, Inc. since 1997, and as a member
of the American  Marketing  Association of the American  Association of Diabetes
Education.

Technical and Medical Advisory Personnel

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

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

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

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

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

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

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

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

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

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

      Marc  A.  Michelson,  M.D.  --  Dr.  Michelson  is an  ophthalmologist  in
Birmingham, Alabama. He received his medical degree at the University of Alabama


                                       26
<PAGE>

in  1975,  and  performed  his  residency  at the  Eye  Foundation  Hospital  in
Birmingham, Alabama.

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

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

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

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

Board Meetings and Committees

      The Board of Directors held a total of six meetings during the fiscal year
ended December 31, 1999. The Audit Committee of the Board of Directors  consists
of directors  Robert L. Frome, Dr. David M. Silver,  and Randall A. Mackey.  The
Audit  Committee  met once  during  the  fiscal  year.  The Audit  Committee  is
primarily  responsible  for  reviewing  the services  performed by the Company's
independent  public accountants and internal audit department and evaluating the
Company's accounting  principles and its system of internal accounting controls.
The  Compensation  Committee  of the Board of  Directors  consists of  directors
Thomas F. Motter,  Dr. David M. Silver,  and Randall A. Mackey. The Compensation
Committee met three times during the fiscal year. The Compensation  Committee is
primarily  responsible  for  reviewing  compensation  of executive  officers and
overseeing the granting of stock options. No director attended fewer than 75% of
all meetings of the Board of Directors during the 2000 fiscal year.

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


Item 10. Executive Compensation

      The following  table sets forth,  for each of the last three fiscal years,
the compensation received by Thomas F. Motter,  Chairman of the Board, and Chief
Executive Officer of the Company and other executive officers (collectively, the
"Named Executive  Officers") at December 31, 2000 whose salary and bonus for all
services in all  capacities  exceed  $100,000 for the fiscal year ended December
31, 2000.

<TABLE>
<CAPTION>

                                                        Summary Compensation Table

                                                                                        Long-Term Compensation
                                   Annual Compensation                            Awards                     Payouts

                                                         Other                  Securities
                                                        Annual     Restricted   Underlying      Long-term    All Other
     Name and                                          Compensa-      Stock      Options/       Incentive    Compensa-
Principal Position    Period   Salary($)    Bonus($)   tion($)(6)    Awards($)    SARs(#)       Payout($)    tion ($)(4)


<S>                   <C>       <C>        <C>              <C>        <C>          <C>           <C>          <C>
Thomas F. Motter,     2000(1)   $178,357   $486,113(6)      0          0            0             0            $28,792((5)
Chairman of the       1999(2)   $141,208         0          0          0          50,000(7)       0            $5,000
Board  and Chief      1998(3)   $122,497         0          0          0          37,400(8)       0            $6,000
Executive Officer

Mark R. Miehle        2000 (1)  $235,201   $194,000(9)      0          0            0             0            $6,000
President and Chief
Operating Officer
</TABLE>

                                       27
<PAGE>

(1)  For the fiscal year ended December 31, 2000

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

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

(4)  The amounts  under  "Other  Annual  Compensation"  for 2000,  1999 and 1998
     consist  of  payments  related  to  the  operation  of  automobiles  and/or
     automobiles and insurance by the named executives.

(5)  The amounts  under  "Other  Annual  Compensation"  for 2000,  1999 and 1998
     consists of payments related to the residential housing  accommodations for
     the Company's  employees,  living outside of Utah while they are working at
     the Company's  Corporate  headquarters  in Salt Lake City,  leased from Mr.
     Motter at $2,500 per month.

(6)  On January 21, 2000, the Board of Directors  approved a bonus to Mr. Motter
     in the form of 38,889 shares of the Company's  Common Stock.  The bonus was
     valued at $486,113  on the basis of the closing bid price of the  Company's
     Common  Stock of $12.50 per share on January 21,  2000,  the date the board
     approved the bonus.

(7)  On September  10, 1999,  the Company  granted Mr. Motter option to purchase
     50,000 shares of the Company's  Common Stock at an exercise  price of $4.00
     per share.

(8)  On September 14, 1998,  the Company  granted Mr. Motter options to purchase
     37,400 shares of the Company's  Common Stock at an exercise  price of $5.00
     per share of which 24,000 vested on September 14, 1998 and 13,450 vested on
     January 1 1999.

(9)  On June 5, 2000, the Board of Directors  issued Mr. Miehle 28,500 shares of
     the  Company's  Common Stock as a initial  bonus as part of his  employment
     agreement.  The market price on the date of grant as $6.8125 per share, and
     compensation expense in the amount of $194,000 was recognized.

      The  following  table sets forth  information  concerning  the exercise of
options to acquire shares of the Company's  Common Stock by the Named  Executive
Officers during the fiscal year ended December 31,1999, as well as the aggregate
number and value of unexercised  options held by the Named Executive Officers on
December 31, 1999.

<TABLE>
<CAPTION>

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

                                                        Number of Securities Underlying         Value of Unexercised
                                                           Unexercised Options/SARs         In-the-Money Options/SARs at
                                                             at December 31, 2000(#)             December 31, 2000($)
                     Shares Acquired       Value
       Name          on Exercise (#)   Realized ($)      Exercisable      Unexercisable     Exercisable      Unexercisable

<S>                       <C>           <C>                  <C>              <C>            <C>               <C>
Thomas F. Motter           -0-              -0-              193,450           -0-           -0-               -0-

Mark R. Miehle             -0-              -0-               40,000          110,000        -0-               -0-

John W. Hemmer            57,450        $287,250              75,000           -0-           -0-               -0-

Curtis G. Page             -0-              -0-               10,620           19,460        -0-               -0-

Richard D. Dirkson         5,040        $ 25,200               3,750           26,250        -0-               -0-

</TABLE>

Director Compensation

      On September  10, 1999,  the outside  directors  consisting  of Patrick M.
Kolenik  Steven J. Bayern and Robert L. Frome,  who were then  directors  of the
Company,  were each  granted  stock  options to  purchase  75,000  shares of the
Company's Common Stock at an exercise price of $4.00 per share. Messrs.  Kolenik
and Bayern  resigned as directors on January 21, 2000, and Randall A. Mackey and
Dr.  David M. Silver were  appointed to fill the  vacancies.  On April 19, 2000,
Messrs. Mackey and Silver were each granted options to purchase 75,000 shares of
the  Company's  Common  Stock at an exercise  price of $6.00 per share.  Outside
directors  are also  reimbursed  for  their  expenses  in  attending  board  and
committee meetings.  Directors are not precluded from serving the Company in any
other capacity and receiving compensation therefor.

                                       28
<PAGE>


Employee 401(k) Plan

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

1995 Stock Option Plan

         The  Company  adopted  a 1995  Stock  Option  Plan  (the  "Plan"),  for
officers,  employees,  directors and  consultants  of the Company on November 7,
1995.  The Plan  authorized  the granting of stock options  ("Plan  Options") to
purchase an aggregate of not more than 300,000  shares of the  Company's  Common
Stock. On February 16, 1996,  options for  substantially all 300,000 shares were
granted.  On June 9, 1997, the Company's  shareholders  approved an amendment to
the Plan to increase the number of shares of Common Stock  reserved for issuance
thereunder  from 300,000  shares to 600,000  shares.  On September 3, 1998,  the
Company's  shareholders approved an amendment to the Plan to increase the number
of shares of Common Stock reserved for issuance  thereunder  from 600,000 shares
to 1,200,000 shares. On November 29, 2000, the Company's  shareholders  approved
an  amendment  to the Plan to  increase  the  number of  shares of Common  Stock
reserved for issuance thereunder from 1,200,000 shares to 1,700,000 shares.

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

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

                                       29
<PAGE>


Employment Agreements

         The Company entered into  employment  agreements with Thomas F. Motter,
which  commenced  on  January 1, 1998 and  expires on  December  31,  2003.  The
agreement requires Mr. Motter to devote substantially all of his working time to
the Company,  provided that he may be terminated for "cause" (as provided in the
agreements)  and  prohibits  him from  competing  with the Company for two years
following the termination of his employment  agreement.  The agreement  provides
for the payment of an initial base salary of  $135,000,  effective as of January
1, 1998. The agreement  also provides for salary  increases and bonuses as shall
be determined  at the  distribution  of the Board of Directors.  Effective as of
October 1, 1999,  the Board of  Directors  approved an increase in Mr.  Motter's
annual base salary to  $160,000,  and  effective  as of July 1, 2000,  the board
approved an increase in his annual base salary to $200,000.

         The Company  entered into  employment  agreements  with Mark R. Miehle,
which  commenced on June 5, 2000 and will expire on June 4, 2003.  The agreement
requires  Mr.  Miehle to devote  substantially  all of his  working  time to the
Company,  provided  that he may be  terminated  for "cause" (as  provided in the
agreement)  and  prohibits  him from  competing  with the  Company for two years
following the termination of his employment  agreement.  The agreement  provides
for the payment of an initial  annual base salary of  $150,000,  effective as of
June 5, 2000,  and the issuance of stock options to purchase  150,000  shares of
the  Company's  Common  stock at $6.00 per share,  to be vested in equal  annual
amounts  over a three  year  period.  The  agreement  also  provides  for salary
increases and bonuses as shall be  determined at the  discretion of the Board of
Directors.

Limitation of Liability and Indemnification

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

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

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


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

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's executive officers, directors and persons who own more than 10% of any
class of the  Company's  Common Stock to file initial  reports of ownership  and
reports of changes of ownership of the Company's  Common Stock. For fiscal 2000,
Thomas F. Motter,  Chairman and Chief Executive  Officer,  through an oversight,
filed one late stock transaction report covering one transaction.

                                       30
<PAGE>


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

         The  following  table sets forth  certain  information  with respect to
beneficial  ownership of the Company's  Common Stock as of December 31, 2000 for
(i) each executive officer of the Company (ii) each director,  (iii) each person
known  to  the  Company  to be the  beneficial  owner  of  more  than  5% of the
outstanding shares, and (iv) all directors and officers as a group.



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

Thomas F. Motter(3)                 570,500             4.5%
Mark R. Miehle    (4)                78,966             *
John W. Hemmer    (5)                 8,013             *
Dr. David M. Silver(6)               10,666             *
Randall A. Mackey(6)                  5,384             *
Keith D. Ignotz(7)                        0             *

Executive officers and
directors as a group
     (6 persons)                    673,529             5.3%
---------------

*     Less than 1%.

(1)      The address for Mr. Motter is c/o Paradigm,  2355 South 1070 West, Salt
         Lake City,  UT,  84119.  The  address for Mr.  Miehle is 10373  Roselle
         Street,  San Diego,  California 92121. The address for Mr. Hemmer is 88
         Meadow  Road,  Briarcliff  Manor,  New York 10510.  The address for Dr.
         Silver is 17 Avalon Court,  Bethesda,  Maryland 20816.  The address for
         Mr.  Mackey is 1474 Harvard  Avenue,  Salt Lake City,  Utah 84105.  The
         address for Mr Ignotz is 6025-A Unity Dr., Norcross, Georgia 30071.
(2)      Assumes no exercise of the options described in this Proxy Statement or
         any other  options or any warrants that the Company may have issued and
         no conversion of outstanding  shares of the Company's  Series A, Series
         B, Series C, and Series D Preferred Stock into shares of Common Stock.
(3)      Does not include  options to purchase  193,450  shares of Common  Stock
         granted to Mr. Motter under the 1995 Option Plan.
(4)      Does not include  options to purchase  150,000  shares of Common  Stock
         granted to Mr. Miehle under the Company's 1995 Option Plan.
(5)      Does not include  options to  purchase  75,000  shares of Common  Stock
         granted to Mr. Hemmer.
(6)      Does not include  options to purchase  170,000  shares of Common  Stock
         granted to each of Dr. Silver and Mr. Mackey.
(7)      Does not include  options to  purchase  75,000  shares of Common  Stock
         granted to Mr. Ignotz.



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

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

         Patrick M.  Kolenik,  a director of the Company from  November  1997 to
January 21, 2000, is President,  a director and a 25% shareholder of Win Capital
Corp ("Win Capital"), the placement agent for the Company's Series C Convertible
Preferred Stock offering,  and Steven J. Bayern,  a director of the Company from
July 26, 1999 to January 21, 2000, is Chairman, a director and a 25% shareholder
of Win Capital.  Under the terms of an agency  agreement  with Win Capital,  the
Company  agreed to pay to Win Capital a commission  equal to 9% of the aggregate
purchase  price of the shares  sold,  or  $269,820.  Win Capital was also paid a
nonaccountable  expense allowance equal to 3% of the aggregate purchase price of
the shares sold.

                                       31
<PAGE>

         The Company has also entered into an agreement  with Win Capital  dated
August 20, 1997,  wherein Win Capital agreed to perform  unspecified  investment
banking  services for the Company for a two year  period,  for which the Company
agreed to pay Win Capital a monthly  retainer of $2,000 for the first six months
of the  agreement,  $4,000 per month for the second six  months,  and $6,000 per
month for the  remainder  of the  agreement.  In an  agreement  entered  into in
February  1999,  Win  Capital  agreed to accept  $7,500 in cash plus  $60,500 in
Common Stock valued at the close of business the day prior to the initial  close
of the Company's Series D Convertible  Preferred stock offering in addition to a
$50,000  finders fee as it related to that  offering.  In addition,  the Company
issued warrants to Win Capital to purchase  191,000 shares of Common Stock at an
exercise  price of $3.00 per share in  connection  with the  investment  banking
agreement and additional  warrants to purchase 100,000 shares of common stock at
$3.00 per share for  services  rendered  in the  private  placement  of Series C
Convertible Preferred Stock.

         Prior to the initial  closing of the Series D preferred stock offering,
the Company  borrowed  $75,000  from  Cyndel & Co.,  Inc.  ("Cyndel"),  of which
Messrs. Kolenik and Bayern are each an officer, a director and a 50% shareholder
of Cyndel,  and  $25,000  from Win  Capital.  The  combined  $100,000  loan bore
interest at a rate of 10% per annum, and was paid back at the end of six months.
The Company issued warrants to Cyndel to purchase 105,000 shares of Common Stock
and warrants to Win Capital to purchase  35,000 shares of Common Stock,  both at
an exercise price equal to the closing price of the Common Stock on the business
day immediately prior to the issuance date of the warrants,  or $2.30 per share,
the closing price of the Company's  Common Stock on the business day immediately
prior to the  issue  date of the  warrants.  The  Company  also  entered  into a
one-year  consulting  agreement  dated  January  19,  1999,  with Win Capital to
provide financial  consulting services to the Company in consideration for a fee
of $5,000 per month for the term of the agreement.

         In addition, on April 23, 1999, the Company agreed to issue warrants to
Cyndel to purchase  75,000 shares of Common Stock at an exercise  price equal to
$4.00 per share,  upon the  condition  that  Cyndel  exercises  its  warrants to
purchase 105,000 shares of Common Stock at $2.30 per share within 72 hours after
receiving notice that a registration  statement has become effective registering
the shares issuable upon the exercise of the warrants to purchase 105,000 shares
of Common Stock at $2.30 per share.  On April 23, 1999,  the Company also agreed
to issue warrants to Win Capital to purchase 25,000 shares of Common Stock at an
exercise  price equal to $4.00 per share,  upon the  condition  that Win Capital
exercise  its  warrants to purchase  35,000  shares of Common Stock at $2.30 per
share within 72 hours after receiving  notice that a Registration  Statement has
become  effective  registering  the shares  issuable  upon the  exercise  of the
warrants to purchase 35,000 shares of Common Stock at $2.30 per share.

         On October 1, 1999,  the Company  entered into a  consulting  agreement
with Cyndel, in which Cyndel agreed to perform  unspecified  investment  banking
services for the Company for a one-year period,  for which the Company agreed to
pay  Cyndel a monthly  retainer  of  $8,333.33,  plus  reimburse  Cyndel for any
expenses  incurred in connection  with such  investment  banking  services.  The
October 1, 1999  consulting  agreement was terminated  when the Company  entered
into a new consulting agreement with Cyndel on April 1, 2000. Under the terms of
the April 1, 2000 consulting agreement, Cyndel has agreed to perform unspecified
investment banking services for the Company for a one-year period, for which the
Company agreed to pay Cyndel a monthly  retainer of  $16,666.66,  plus reimburse
Cyndel for any expenses  incurred in  connection  with such  investment  banking
services.

         Besides a monthly retainer, the Company has agreed in the April 1, 2000
consulting  agreement to pay Cyndel  additional  compensation  of an unspecified
amount to be mutually  agreed  upon if Cyndel  brings to the Company a candidate
for merger, acquisition, joint venture or other combination or relationship, and
the Company enters into a business  relationship with such entity.  The April 1,
2000 consulting agreement is automatically renewable for additional,  successive
one-year  periods  through March 31, 2003,  unless either party  delivers to the
other party on or before  January 1 of the contract  year written  notice of its
intent not to renew the agreement.

                                       32
<PAGE>

         Randall A. Mackey,  a director of the Company  since  January 21, 2000,
and a former  director of the Company from  September 1995 to September 3, 1998,
is President and a shareholder of the law firm of Mackey Price & Williams, which
rendered legal services to the Company in connection  with the Company's  public
offering and other  corporate  matters.  Legal fees and expenses  paid to Mackey
Price & Williams  for the fiscal  years ended  December  31,  1998,  1999 & 2000
totaled $97,414, $53,324 and $167,022, respectively.

         Thomas F. Motter,  Chairman of the Board and Chief Executive Officer of
the Company,  leases his former  residence,  which he still owns, to the Company
for $2,500 per month. The primary use of the residential property is for housing
accommodations for the Company's employees living outside of Utah while they are
working at the Company's  corporate  headquarters in Salt Lake City. The Company
has obtained an appraisal  from an  independent  appraiser,  which has concluded
that the monthly rate of $2,500  represents the fair market rate for leasing the
residential property. This lease agreement was terminated on October 31, 2000.


                                     PART IV

Item 13. Exhibits and Reports on Form 8-K

           (a)    Exhibits

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

Table No.                            Document

2.1   Amended Agreement and Plan of Merger between Paradigm Medical  Industries,
      Inc., a California  corporation and Paradigm Medical  Industries,  Inc., a
      Delaware corporation(1)
3.1   Certificate of Incorporation(1)
3.2   Bylaws(1)
4.1   Warrant Agency Agreement with  Continental  Stock Transfer & Trust Company
      (3)
4.2   Specimen Common Stock Certificate (2)
4.3   Specimen Class A Warrant Certificate(2)
4.4   Form of Class A Warrant Agreement(2)
4.5   Underwriter's Warrant with Kenneth Jerome & Co., Inc.(3)
4.6   Warrant to Purchase Common Stock with Note Holders re bridge financing (1)
4.7   Warrant to Purchase Common Stock with Mackey Price & Williams (1)
4.8   Specimen Series C Convertible Preferred Stock Certificate(45)
4.9   Certificate of the  Designations,  Powers,  Preferences  and Rights of the
      Series Convertible Preferred Stock(4)
4.10  Specimen Series D Convertible Preferred Stock Certificate (7)
4.11  Certificate of the  Designations,  Powers,  Preferences  and Rights of the
      Series D Convertible Preferred Stock (10)
4.12  Warrant to Purchase Common Stock with Cyndel & Co. (7)
4.13  Warrant Agreement with KSH Investment Group, Inc. (7)
4.14  Warrant to Purchase Common Stock with R.F. Lafferty & Co., Inc. (7)
4.15  Warrant to Purchase Common Stock with Dr. David B. Limberg (10)
4.16  Warrant to Purchase Common Stock with John W. Hemmer (10)
4.17  Stock Purchase Warrant with Triton West Group, Inc.
4.18  Warrant to Purchase Common Stock with KSH Investment Group, Inc.
4.19  Warrants to Purchase  Common Stock with  Consulting for Strategic  Growth,
      Ltd.
10.1  Exclusive Patent License Agreement with Photomed(1)
10.2  Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3  Lease with Eden Roc (4)
10.4  1995 Stock Option Plan and forms of Stock Option Grant Agreement (1)
10.5  Form of Promissory Note with Note Holders re bridge financing (1)
10.6  Co-Distribution  Agreement  with  Pharmacia & Upjohn  Company and National
      Healthcare Manufacturing Corporation (5)
10.7  Agreement for Purchase and Sale of Assets with Humphrey  Systems  Division
      of Carl Zeiss, Inc. (5)


                                       33
<PAGE>

10.8  Employment Agreement with Thomas F. Motter (6)
10.9  Asset Purchase Agreement with Mentor Corp.,  Mentor  Opthalmics,  Inc. and
      Mentor or Medical, Inc. (8)
10.10 Transition Services Agreement with Mentor Corp., Mentor Opthalmics,  Inc.,
      and Mentor Medical, Inc. (8)
10.11 Severance Agreement and General Release with Michael W. Stelzer (8)
10.12 Consulting Agreement with Dr. Michael B. Limberg (8)
10.13 Renewed Consulting Agreement with Dr. Michael B. Limberg (10)
10.14 Mutual Release and Settlement Agreement with Zevex International, Inc. (8)
      10.15 Consulting Agreement with Douglas Adams (8)
10.16 Agreement and Plan of Reorganization with Paradigm  Subsidiary,  Inc., and
      Vismed, Inc. d/b/a Dicon (9)
10.17 Agreement  and Plan of Merger with  Paradigm  Subsidiary,  Inc. and Vismed
      Inc. d/b/a Dicon (9)
10.18 Registration Rights Agreement with Paradigm  Subsidiary,  Inc. and certain
      shareholders of Vismed, Inc. d/b/a Dicon (9)
10.19 Indemnification Agreement with Paradigm Subsidiary, Inc. and certain
      shareholders of Vismed, Inc. d/b/a Dicon (9)
10.20 Consulting Agreement with Cyndel & Co., Inc. (10)
10.21 Stock Purchase Agreement with Occular Blood Flow, Ltd. and Malcolm
      Redman (10)
10.22 Consulting Agreement with Malcolm Redman (10)
10.23 Royalty Agreement with Malcolm Redman (10)
10.24 Registration Rights with Malcolm Redman (10)
10.25 General Financial  Advisory Services  Agreement with McDonald  Investments
      Inc. 11)
10.26 Agreements with Steven J. Bayern and Patrick M. Kolenik (11)
10.27 Employment Agreement with Mark R. Miehle
10.28 Employment Agreement with John W. Hemmer
10.29 Private Equity Line of Credit Agreement with Triton West Group, Inc.
10.30 Renewed  General  Financial  Advisory  Services  Agreement  with  McDonald
      Investments.
10.31 Renewed Consulting Agreement with Dr. Michael B. Limberg
10.32 Agreement with KSH Investment Group, Inc.

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

(1)   Incorporated  by reference  from  Registration  Statement on Form SB-2, as
      filed on March 19, 1996.
(2)   Incorporated by reference from Amendment No. 1 to  Registration  Statement
      on Form SB-2, as filed on May 14, 1996.
(3)   Incorporated by reference from Amendment No. 2 to  Registration  Statement
      on Form SB-2, as filed on June 13, 1996.
(4)   Incorporated  by reference from Annual Report on Form 10-KSB,  as filed on
      April 16, 1998.
(5)   Incorporated by reference from Quarterly  Report on Form 10-QSB,  as filed
      on August 1, 1998.
(6)   Incorporated by reference from Quarter Report on Form 10-QSB,  as filed on
      November 12, 1998.
(7)   Incorporated  by reference  from  Registration  Statement on Form SB-2, as
      filed on April 29, 1999.
(8)   Incorporated  by reference from Annual Report on Form 10-KSB,  as filed on
      March 30, 2000.
(9)   Incorporated by reference from Form 8-K, as field on June 5, 2000
(10)  Incorporated  by reference from Report on Form 10-QSB,  as filed on August
      16, 2000.
(11)  Incorporated by reference from Report on Form 10-QSB, as filed on November
      1, 2000.

      (b)  Reports on Form 8-K
           -------------------
      No reports on Form 8-K were filed by the Company  during the quarter ended
December 31, 2000.


                                       34
<PAGE>

                               SIGNATURES

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

                                            PARADIGM MEDICAL INDUSTRIES, INC.



Dated:  April 13, 2001                      By:/s/ Thomas F. Motter
                                            -----------------------------
                                            Thomas F. Motter, Chairman of
                                            the Board and Chief Executive
                                            Officer

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

         Signature                          Title                     Date

/s/Thomas F. Motter             Chairman of the Board and         April 13, 2001
-------------------------       Chief Executive Officer
                                (Principal Executive Officer)


/s/John W. Hemmer               Vice President of Finance,        April 13, 2001
-------------------------       Treasurer and Chief Financial
                                Officer (Principal Financial
                                and Accounting Officer)


/s/Randall A. Mackey, Esq.      Secretary and Director            April 13, 2001
-------------------------

/s/David M. Silver, Ph.D.       Director                          April 13, 2001
-------------------------

/s/Keith D. Ignotz              Director                          April 13, 2001
-------------------------